<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
(AMENDMENT NO. 4)
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
- ----------------------- --------------------
<S> <C>
$20,330,000 $ **
</TABLE>
- ---------------
* 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 and New
Notes offered in exchange therefor. The value of the Common Stock is based on
the closing price of the Common Stock on the Nasdaq National Market as of
September 11, 1996 and the value of the New Notes is based on their aggregate
principal amount of $4,142,000.
** A fee of $4,233 was paid with initial filing on July 8, 1996 based on a
Transaction Valuation of $21,161,250.
/ /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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
SubMicron Systems Corporation (the "Company") hereby further amends and
supplements its Statement on Schedule 13e-4 initially filed with the Securities
and Exchange Commission on July 8, 1996. As set forth in Item 1.(b) below, the
Company is filing this Amendment No. 4 as a result of a change in the
consideration being offered in exchange for the securities which are the subject
of the Exchange Offer. The Offering Circular dated September 16, 1996 (Exhibit
(a)(1)) has been amended to incorporate, among other things, the changes in the
consideration being offered in exchange for the securities which are the subject
of the Exchange Offer and the financial information for the quarter ended June
30, 1996, and, together with Exhibit E and F thereto, is refiled herewith.
Exhibits (a)(2) (Letter of Transmittal), (a)(3) (Form of Notice of Guaranteed
Delivery), (a)(12) (Press Release dated September 16, 1996), and (a)(13) (Form
of Letter to Holders of Original Notes and Warrants dated September 16, 1996),
each reflecting the amendments to the Exchange Offer, are also included
herewith.
ITEM 1. SECURITY AND ISSUER
(b) This Schedule relates to the offer by the Company to exchange 142
shares of its Common Stock, $.0001 par value (the "Common Stock"), and $218
principal amount of 9% Convertible Subordinated Notes due March 31, 1998
("New Notes"), for each Unit comprised of (i) $1,000 principal amount of 9%
Convertible Subordinated Notes Due 1997 (the "Original 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 September 16, 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 Original 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 Original Notes and
Warrants separately or as Units, nor is there expected to develop any
established trading market for the New Notes. 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.
ITEM 7. FINANCIAL INFORMATION.
(a) - (b) The information set forth under "Selected Financial and Pro
Forma Information" and "Capitalization" 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, Current Report on Form 8-K dated March 26, 1996, as amended,
and Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, which
are attached to the Offering Circular as Exhibits A, B, D and E, respectively,
are incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
(a)(1) Offering Circular dated September 16, 1996.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
*(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.
*(a)(6) Press Release dated August 5, 1996.
*(a)(7) Form of Letter to Holders of Notes and Warrants dated August 5,
1996.
*(a)(8) Press Release dated August 26, 1996.
*(a)(9) Form of Letter to Holders of Original Notes and Warrants dated
August 26, 1996.
*(a)(10) Press Release dated September 6, 1996.
*(a)(11) Form of Letter to Holders of Notes and Warrants dated September
6, 1996.
(a)(12) Press Release dated September 16, 1996.
(a)(13) Form of Letter to Holders of Notes and Warrants dated September
16, 1996.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
- -------------
* Previously filed
2
<PAGE> 3
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: September 16, 1996
By: /s/ David F. Levy
------------------------------------
David F. Levy,
President
3
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- --------------------------------------------------------------------- ------------
<S> <C> <C>
(a)(1) Offering Circular, dated September 16, 1996..........................
(a)(2) Form of Letter of Transmittal........................................
(a)(3) Form of Notice of Guaranteed Delivery................................
(a)(12) Press Release dated September 16, 1996...............................
(a)(13) Form of Letter to Holders of Original Notes and
Warrants dated September 16, 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 AND
9% CONVERTIBLE SUBORDINATED NOTES DUE MARCH 31, 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER
30, 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 142
shares of its Common Stock, $.0001 par value (the "Common Stock"), and $218
principal amount of the Company's 9% Convertible Subordinated Notes due March
31, 1998 (the "New Notes") 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 "Original Notes") and
(ii) Warrants to purchase 60 shares of Common Stock (the "Warrants"). Interest
accrued but not paid on the Original Notes to the Expiration Date will be paid
in cash upon acceptance of the Units for exchange. The New Notes will be pari
passu in right of payment to the Original Notes, and, like the Original Notes,
will be subordinated to all existing and future Senior Indebtedness (as defined
in the Notes) of the Company. See "Description of Original Notes"; "Description
of New Notes"; and "Comparison of Original Notes and New Notes."
The New Notes are convertible, at any time prior to maturity, unless
previously called for redemption, into shares of Common Stock at a conversion
price (the "Conversion Price") equal to $6.30 per share. The New Notes are
redeemable, in whole or in part, at the option of the Company, at any time upon
at least 15 days' written notice, at a redemption price equal to 100% of the
principal amount, together with accrued and unpaid interest to the redemption
date.
The Exchange Offer is conditioned upon, among other things, the valid tender
for exchange of not less than 15,200 Units (80% 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 Original Notes and Warrants not tendered for
exchange pursuant to the Exchange Offer will continue to have the rights granted
in the Original Notes and Warrants; provided, however, that the holders of
Original Notes tendered for exchange, by executing the Letter of Transmittal
accompanying this Offering Circular, will consent to significant modifications
to and the waiver of certain provisions of the Original Notes. See "Consent to
Modification and Waiver of Certain Provisions of Original Notes."
The Common Stock is included in the Nasdaq National Market under the symbol
"SUBM." There is no active trading market for the Units, the Original Notes or
Warrants and none is expected to develop for the New Notes. 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 issuable in connection
with the Units have been registered for resale by the holders of the Units. As a
result, the 142 shares of Common Stock issuable in exchange for each Unit may be
sold as set forth under "Transferability of Common Stock and New Notes." Neither
the New Notes nor the shares of Common Stock issuable upon conversion of the New
Notes have been registered; however, the Company intends to register such shares
for resale within 90 days from the consummation of the Exchange Offer. On
September 13, 1996, the last full day of trading prior to the public
announcement of the commencement of the amended Exchange Offer, the last
reported sale price of the Common Stock on the Nasdaq National Market was $5 7/8
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, IN WHICH CASE ALL OF THE UNITS MUST BE
TENDERED BY THE HOLDER. PARTIAL TENDERS WILL NOT BE
ACCEPTED.
For a discussion of certain risks in connection with the Exchange Offer,
see "Risk Factors" commencing on page 6.
------------------------
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 September 16, 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
Original 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 reasonable 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 Original 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 Original Notes and Warrants should tender their
Original 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, its Current Report on Form 8-K dated March 26, 1996, as amended, and
its Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, 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, D and E,
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. Such information can also be
reviewed through the Commission's Electronic Data Gathering, Analysis, and
Retrieval System which is publicly available through the Commission's Web Site
(http:()(w)ww.sec.gov). 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).
(i)
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... (i)
AVAILABLE INFORMATION................................................................. (i)
SUMMARY OF OFFERING CIRCULAR.......................................................... 1
The Company......................................................................... 1
Recent Developments................................................................. 1
Purposes and Effects of the Exchange Offer.......................................... 1
The Exchange Offer.................................................................. 2
RISK FACTORS.......................................................................... 6
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 MODIFICATION AND WAIVER OF CERTAIN PROVISIONS OF ORIGINAL NOTES............ 25
TRANSFERABILITY OF COMMON STOCK AND NEW NOTES......................................... 26
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION........................................ 27
TRANSACTIONS AND AGREEMENTS CONCERNING THE COMMON STOCK............................... 27
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................... 27
DESCRIPTION OF ORIGINAL NOTES......................................................... 28
General............................................................................. 28
Principal and Interest.............................................................. 28
Subordination....................................................................... 28
Conversion Rights................................................................... 29
Redemption.......................................................................... 29
Sinking Fund........................................................................ 29
Events of Default................................................................... 29
Modification of the Original Notes.................................................. 30
DESCRIPTION OF WARRANTS............................................................... 30
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF NEW NOTES.............................................................. 31
General............................................................................. 31
Principal and Interest.............................................................. 31
Subordination....................................................................... 31
Conversion Rights................................................................... 32
Redemption.......................................................................... 32
Sinking Fund........................................................................ 32
Events of Default................................................................... 32
Modification of the New Notes....................................................... 33
COMPARISON OF ORIGINAL NOTES AND NEW NOTES............................................ 33
Term................................................................................ 33
Conversion Rights................................................................... 33
Redemption.......................................................................... 33
Events of Default; Covenants........................................................ 33
DESCRIPTION OF CAPITAL STOCK.......................................................... 34
General............................................................................. 34
Common Stock........................................................................ 34
Preferred Stock..................................................................... 34
</TABLE>
EXHIBITS
<TABLE>
<S> <C> <C>
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
EXHIBIT E -- Quarterly Report on Form 10-Q for the quarter ended June 30, 1996
EXHIBIT F -- Form of New Notes
</TABLE>
(iii)
<PAGE> 5
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
The Company expects that its results for the quarter ending September 30,
1996 and the year ending December 31, 1996 will be significantly lower than
analysts' expectations. The results of operations will be negatively impacted by
shipment delays and low gross margins. The Company decided to delay several
third quarter shipments due to customer requested customization and the lack of
time to properly test the completed units. In addition, certain shipments
originally scheduled for the fourth quarter will be delayed, at customer
request, until 1997. The deterioration of gross margin on third and fourth
quarter shipments is due primarily to costly customization and softening market
conditions.
The Company plans to use the opportunity created by the general slowdown in
the industry to restructure and resize its operations. The Company is currently
reducing operating expenses through a restructuring and cost reduction plan. The
cost reduction plan, which began in July 1996, is expected to include a
workforce reduction of approximately 15%. In connection with the plan, which is
scheduled to be completed by October 1996, the Company expects to record a
restructuring charge in the third quarter of 1996.
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
Original Notes and Warrants to purchase 1,140,000 shares of Common Stock. The
Original Notes are currently 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 Original Notes and
the value underlying the Warrants did not offer an immediate market return above
the yield of the Original 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 Original Notes of $427,500, the
amortization of the discount on the Original 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 Original 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.
1
<PAGE> 6
For the following reasons, the Company has decided to offer to exchange
shares of its Common Stock and New Notes for the Original Notes and Warrants
pursuant to the terms of the Exchange Offer as set forth in this Offering
Memorandum: the consummation of the Exchange Offer will (i) substantially reduce
the annual cash interest payments required to be made by the Company
(approximately $1.7 million annual interest payment on the Original Notes
compared to approximately $373,000 annual interest payment on the New Notes, if
all of the Units are exchanged); (ii) reduce the noncash amortization charges
related to the discount on the Original Notes and deferred debt issuance costs;
and (iii) result in a substantial reduction in the leverage of the Company. The
Company will, however, recognize a noncash extraordinary debt extinguishment
charge in the quarter in which the Exchange Offer is consummated equal to (i)
the fair market value of the 142 shares of Common Stock and $218 principal
amount of New Notes issued above the carrying value of the Original Notes, plus
(ii) the unamortized deferred financing costs associated with the Original
Notes, less (iii) the fair market value of the Warrants exchanged. Based on the
assumptions set forth in "Selected Financial and Pro Forma Information,"
assuming an exchange of all of the Units, the extraordinary debt extinguishment
charge would be $2,241,000, which is net of the related tax benefit of
$1,494,000. See "Selected Financial and Pro Forma Information."
Holders of Original Notes and Warrants who do not tender and those who
tender will have the following general relative rights in securities held with
respect to each Unit:
<TABLE>
<CAPTION>
HOLDERS NOT TENDERING HOLDERS TENDERING
------------------------------ ------------------------------
<S> <C> <C>
Securities.................... $1,000 principal amount of 142 shares of Common Stock and
Original Notes and Warrants to $218 principal amount of New
Purchase 60 Shares of Common Notes
Stock
Conversion of Notes........... Convertible at any time prior Convertible at any time prior
to the earlier of actual to the earlier of the
redemption and maturity. Company's call for redemption
Convertible at $11.64 per and maturity. Convertible at
share, subject to adjustment $6.30 per share
Exercise of Warrants.......... Warrants exercisable at $14 Not applicable (will have
per share received 142 shares of Common
Stock)
Interest...................... Interest payable at the rate Interest payable at the rate
of 9% per annum of 9% per annum
</TABLE>
There is no active trading market in the Original Notes or Warrants or the
New Notes. The Common Stock is traded on the Nasdaq Stock Market.
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Exchange Ratio..................... 142 shares of Common Stock and $218 principal amount of
New Notes for each Unit, each Unit consisting of $1,000
principal amount of Original Notes and Warrants to
purchase 60 shares of Common Stock.
Expiration Date.................... 5:00 p.m., New York City time, on September 30, 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 15,200 Units (equal to 80% of the outstanding Units)
are tendered and not withdrawn.
</TABLE>
2
<PAGE> 7
<TABLE>
<S> <C>
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 2,698,000 shares of
Common Stock and $4,142,000 principal amount of New
Notes will be issued pursuant to the Exchange Offer.
Comparison of Original Notes and
New Notes........................ The New Notes and the Original Notes each bear interest
at 9% per annum and are unsecured and subordinate in
right of payment to all Senior Indebtedness of the
Company. Except as set forth below, the terms of the New
Notes are substantially similar to the terms of the
Original Notes. The maturity date of the New Notes has
been extended to March 31, 1998 from a maturity date of
December 15, 1997 for the Original Notes. The New Notes
are convertible, at any time prior to maturity or the
business day immediately preceding the date the Company
gives notice it has called the New Notes for redemption,
into shares of Common Stock at $6.30 per share and the
Original Notes are currently convertible, at any time
prior to maturity or the date of their actual
redemption, into shares of Common Stock at $11.64 per
share. The Conversion Price of the New Notes is subject
to adjustment only upon certain changes in
capitalization whereas the Conversion Price for the
Original Notes, in addition to adjustment upon changes
in capitalization, provides for adjustment upon the
occurrence of certain Events of Default and the issuance
by the Company of securities at prices below the
Conversion Price. The New Notes are redeemable, in whole
or in part, at any time upon 15 days notice and the
Original Notes are redeemable upon 30 days notice only
if the closing bid price for the Common Stock prior to
the giving of notice of redemption has been equal to or
greater than 150% of the then Conversion Price for a
period of 30 consecutive trading days ending not more
than five days prior to the giving of the notice of
redemption. The Original Notes contain covenants
restricting the payment of dividends and other
distributions and the incurrence of certain indebtedness
and also provide for an Event of Default if the Company
has earnings per share of less than $.20 for fiscal
years 1995 or 1996. The New Notes do not contain such
provisions. See "Description of Original Notes;"
"Description of New Notes;" and "Comparison of Original
Notes and New Notes."
Ranking of New Notes and Original
Notes............................ The New Notes and the Original Notes will rank pari
passu in right of payment, but subordinate in right of
payment to all Senior Indebtedness of the Company.
Withdrawal Rights.................. Tenders of Units pursuant to the Exchange Offer may be
withdrawn at any time until the Expiration Date or
thereafter if not yet accepted for exchange. See "The
Exchange Offer -- Withdrawal Rights."
</TABLE>
3
<PAGE> 8
<TABLE>
<S> <C>
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 Original Notes and Warrants and any
other required documents to the Exchange Agent. Letters
of Transmittal and Original Notes and Warrants should
not be sent to the Company. See "The Exchange
Offer -- Procedure for Exchange."
No Partial Tenders................. Each holder must tender all of his Units for exchange if
any are tendered. Partial exchanges are not permitted.
Acceptance of Tenders and Issuance
of New Notes and Common Stock.... Subject to satisfaction of the terms and conditions of
the Exchange Offer, the Company will deliver the New
Notes and 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 on Original
Notes............................ Interest accrued on the Original Notes through the
Expiration Date shall be paid in cash upon acceptance of
the Original Notes for exchange. Interest on Original
Notes accepted for exchange will cease to accrue as of
the Expiration Date.
Interest on New Notes.............. Interest will begin to accrue on the New Notes from
their date of issuance and will be payable quarterly in
arrears on the last day of March, June, September and
December, commencing December 31, 1996.
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 15,200 Units are
properly tendered and not withdrawn pursuant to the
Exchange Offer.
Consent to Modification and Waiver
of
Certain Provisions of Original
Notes............................ Each holder who properly tenders Original Notes for
exchange pursuant to the Exchange Offer shall, by
signing the Letter of Transmittal as indicated therein,
consent to the modification of the Original Notes by
eliminating (i) certain restrictions on the payment of
dividends and other distributions, (ii) restrictions on
the incurrence of certain indebtedness and (iii) the
occurrence of an Event of Default if the Company has
earnings per share of less than $.20 for 1995 or 1996
and shall also consent to the waiver of the
applicability of any anti-dilution provisions in the
Original Notes which might cause an adjustment to the
Conversion Price of the Original Notes or the number of
shares of Common Stock issuable upon conversion of the
Original Notes as the result of the Exchange Offer. Such
consents will be effective provided that holders of at
least 51% of the aggregate principal amount of the
Original Notes outstanding sign such consent. See
"Consent to Modification and Waiver of Certain
Provisions of Original Notes."
Certain Income Tax Consequences.... For a discussion of certain federal income tax
consequences, see "Certain Federal Income Tax
Consequences."
</TABLE>
4
<PAGE> 9
<TABLE>
<S> <C>
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 Original Notes or
Warrants or the New Notes.
Transferability of Common Stock.... The Company has registered the shares of Common Stock
underlying the Original Notes and Warrants. As a result,
upon consummation of the Exchange Offer, the 142 shares
of Common Stock issued in the Exchange Offer for each
Unit will be registered for resale by the holders
thereof. The New Notes and the shares issuable upon
conversion of the New Notes, however, have not been
registered. The Company intends to register the shares
issuable upon conversion of the New Notes for resale
within 90 days following the consummation of the
Exchange Offer. See "Transferability of Common Stock and
New Notes."
Market Price for Common Stock...... On September 13, 1996, the last reported sale price of
the Common Stock, as reported by Nasdaq, was $5 7/8 per
share.
Units Outstanding.................. There are 19,000 Units outstanding, comprised of an
aggregate of $19 million principal amount of Original
Notes and Warrants to purchase 1,140,000 shares of
Common Stock.
Common Stock Outstanding........... As of August 31, 1996, there were 16,800,870 shares of
Common Stock outstanding.
Exchange Agent..................... American Stock Transfer & Trust Company.
</TABLE>
5
<PAGE> 10
RISK FACTORS
Investment in the Company's securities involves certain elements of risk.
The Common Stock and the New Notes included in the Exchange Offer involve
different risks than those risks associated with the Original Notes and
Warrants. Holders of the Original Notes and Warrants should consider carefully,
among other things, the differences between the Common Stock and the New Notes
offered in the Exchange Offer compared to the Original Notes and Warrants before
making any decision to exchange their Original Notes and Warrants for shares of
Common Stock and New Notes. Holders who exchange their Original Notes and
Warrants for Common Stock and New Notes will no longer be entitled to any of the
rights and privileges of the Original Notes and Warrants, including, but not
limited to: (i) the right to quarterly interest payments on $1,000 principal
amount of Original Notes compared to payment of interest on $218 principal
amount of New Notes; (ii) the priority of the Original Notes over the Common
Stock upon the liquidation of the Company; and (iii) if the Exchange Offer is
consummated, certain provisions of the Original Notes will be eliminated or
waived (see "Consent to Modification and Waiver of Certain Provisions of
Original Notes"). In addition, there are substantial differences in the terms of
the New Notes compared to the Original Notes, including, among others, an
inability to convert the New Notes after they have been called for redemption
and the elimination of certain covenants and Events of Default. See "Comparison
of Original Notes and New Notes."
In addition to the risk factors associated with the differences between the
Original Notes and Warrants and the Common Stock and the New Notes and the other
information contained in this Offering Circular, holders of the Original Notes
and Warrants should also consider carefully the following risk factors in
evaluating the Company and its business before making any decision to accept the
Exchange Offer.
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 $2,048,000 and $343,000, respectively. Similarly, although
the Company had a net profit for the first six months of 1996, the Company had a
net loss of $197,000 for the three months ended June 30, 1996. 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 this regard, the Company expects that its results for the quarter ending
September 30, 1996 and the year ending December 31, 1996 will be significantly
lower than analysts' expectations. See "Summary of Offering Circular -- Recent
Developments."
Charge Related to Exchange Offer. The Company will recognize a noncash
extraordinary debt extinguishment charge in the quarter in which the Exchange
Offer is consummated equal to (i) the fair market value of the 142 shares of
Common Stock and $218 principal amount of New Notes issued above the carrying
value of the Original Notes, plus (ii) the unamortized deferred financing costs
associated with the Original Notes, 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 the charge based on certain
assumptions, see "Selected Financial and Pro Forma Information."
6
<PAGE> 11
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 June 30,
1996, approximately $25 million was drawn down under the credit facility and the
borrowing base was $30 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.
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 30% of total sales for the three months ended June 30,
1996. Accounts receivable for the two largest customers represented 21% of
consolidated receivables as of June 30, 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 Original Notes
and Warrants for shares of Common Stock and New Notes pursuant to the Exchange
Offer is a taxable transaction. The amount of any gain or loss recognized by
holders of Original Notes and Warrants will depend on the value of the shares of
Common Stock and New Notes received, which will be based on the value of the
Common Stock and the New Notes 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. There can be no assurances
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
7
<PAGE> 12
is experiencing a softening of demand which could lead to further pressures on
sales and pricing. See "Summary of Offering Circular -- Recent Developments."
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 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.
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 August 31, 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.
8
<PAGE> 13
Restrictions on Transferability. Neither the New Notes nor the shares of
Common Stock issuable upon conversion of the New Notes has been registered under
the Securities Act. Such securities are or will be issued in reliance upon an
exemption from registration provided by Section 3(a)(9) of the Securities Act
and in certain states, in reliance upon exemptions under applicable state
securities laws. Accordingly, neither the New Notes nor the shares of Common
Stock issuable upon conversion of the New Notes can be resold or otherwise
transferred unless they are registered under the Securities Act and any
applicable state securities laws or unless the holder provides the Company with
an opinion of counsel satisfactory to the Company that the intended transfer is
exempt from registration under all applicable federal and state securities laws.
Although there can be no assurances, the Company currently intends to register
for resale the shares of Common Stock issuable upon conversion of the New Notes
within 90 days of the consummation of the Exchange Offer.
Significant Outstanding Indebtedness; Subordination of New Notes. The
Company has incurred substantial indebtedness and is subject to all of the risks
associated with substantial leverage, including the risk that available cash may
not be adequate to make required payments to holders of the New Notes. The
Company's ability to satisfy its obligations under the New Notes from cash flow
will be dependent upon the Company's future performance and will be subject to
financial, business and other factors affecting the operations of the Company,
many of which may be beyond the Company's control. In the event the Company does
not have sufficient cash resources to satisfy quarterly interest or other
repayment obligations (including the payment of principal when due) to the
holders of the New Notes and any Original Notes not exchanged, the Company will
be in default under the New Notes, which would have a material adverse effect on
the Company and could result in a reduction in the price of the Common Stock. To
the extent the Company is required to use cash resources to satisfy interest
payments on the New Notes, it will have fewer resources for other purposes,
including future expansion.
The New Notes will be unsecured and subordinate in right of payment to all
Senior Indebtedness of the Company. The New Notes do not restrict the Company's
ability to incur additional senior or other indebtedness. The terms of Senior
Indebtedness now existing or incurred in the future could affect the Company's
ability to make payments of principal or interest on the New Notes. See
"Description of New Notes."
In addition, as with the Original Notes, the Company may not make any
principal or interest payments in respect of the New Notes if any payment
default exists with respect to Senior Indebtedness or any other default on
Senior Indebtedness has occurred if such default gives the holders of such
Senior Indebtedness the right to accelerate the maturity thereof, provided that
the Company shall have given the holders of the New Notes written notice of the
occurrence of any such default. In addition, the New Notes provide restrictions
for a specified period of time on the ability of the holders of the New Notes to
exercise their remedies under the New Notes prior to the date on which the
Senior Indebtedness shall have been paid in full. See "Description of New
Notes."
No Sinking Fund Provision or Security for Payment of New Notes. The
Company is not obligated to establish a sinking fund for the retirement of the
New Notes, and the Company will be required to pay the entire principal amount
of the New Notes upon maturity on March 31, 1998, unless previously redeemed or
converted into Common Stock. There can be no assurance that the Company will
have sufficient funds available or will be able to obtain financing on
acceptable terms, or at all, to repay the New Notes upon maturity. See
"Description of New Notes."
Shares Eligible for Future Sale. At August 31, 1996, the Company had
outstanding a total of 16,800,870 shares of Common Stock and outstanding
warrants and options entitling the holders thereof to purchase an aggregate of
2,510,166 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 Original 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 3,804,564 outstanding shares held by affiliates of
the Company and 1,145,260 shares issuable upon the exercise
9
<PAGE> 14
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.
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> 15
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 Original Notes and Warrants to
purchase 1,140,000 shares of Common Stock. The Original Notes are currently
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 Original Notes and is being amortized over the
term of the Original Notes, resulting in a quarterly noncash charge to the
Company's earnings of $313,500. In addition, holders of the Original 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 Original
Notes and Warrants, certain of the investors expressed disappointment that the
Original Notes and the value underlying the Warrants did not offer an immediate
market return above the yield of the Original 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 Original Notes of $427,500, the
amortization of the discount on the Original 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 Original 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 and New Notes for the Original Notes and Warrants
pursuant to the terms of the Exchange Offer as set forth in this Offering
Memorandum: the consummation of the Exchange Offer will (i) substantially reduce
the annual cash interest payments required to be made by the Company
(approximately $1.7 million annual interest payment on the Original Notes
compared to approximately $373,000 annual interest payment on the New Notes, if
all of the Units are exchanged); (ii) reduce the noncash amortization charges
related to the discount on the Original Notes and the deferred debt issuance
costs; and (iii) result in a substantial reduction in the leverage of the
Company. The Company will, however, recognize a noncash extraordinary debt
extinguishment charge in the quarter in which the Exchange Offer is consummated
equal to (i) the fair market value of the 142 shares of Common Stock and $218
principal amount of New Notes issued above the carrying value of the Original
Notes, plus (ii) the unamortized deferred financing costs associated with the
Original Notes, less (iii) the fair market value of the Warrants exchanged.
Based on the assumptions set forth in "Selected Financial and Pro Forma
Information," assuming an exchange of all of the Units, the extraordinary debt
extinguishment charge would be $2,241,000, which is net of the related tax
benefit of $1,499,000. See "Selected Financial and Pro Forma Information." The
Company will retire any Original Notes and Warrants accepted for exchange and
has no present plans to reissue such securities.
11
<PAGE> 16
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
six months ended June 30, 1996 if the Original 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
JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
80% PRO PRO FORMA 100% PRO PRO FORMA
FORMA ASSUMING 80% FORMA ASSUMING 100%
HISTORICAL ADJUSTMENT(1) EXCHANGE ADJUSTMENT(1) EXCHANGE
---------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 8,296 $ -- $ 8,296 $ -- $ 8,296
Accounts receivable, net....... 47,383 -- 47,383 -- 47,383
Inventories, net............... 54,322 -- 54,322 -- 54,322
Prepaids and other............. 3,390 -- 3,390 -- 3,390
Refundable income taxes........ -- 600 600 873 873
Deferred income taxes.......... 1,886 -- 1,886 -- 1,886
-------- ------- -------- ------ --------
Total current assets........ 115,277 600 115,877 873 116,150
Property and equipment, net...... 16,181 -- 16,181 -- 16,181
Goodwill, net.................... 1,798 -- 1,798 -- 1,798
Intangibles and other, net....... 4,459 (935) 3,524 (1,188) 3,271
-------- ------- -------- ------ -------
$ 137,715 $ (335) $137,380 $ (315) $ 137,400
======== ======= ======== ====== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit................ $ 24,600 $ -- $ 24,600 $ -- $ 24,600
Current portion of long-term
debt........................ 1,430 -- 1,430 -- 1,430
Accounts payable............... 26,679 -- 26,679 -- 26,679
Accrued expenses and other..... 9,887 400 10,287 400 10,287
Deferred revenues.............. 4,494 -- 4,494 -- 4,494
Income taxes payable........... 491 (491) -- (491) --
-------- ------- -------- ------ ------
Total current liabilities... 67,581 (91) 67,490 (91) 67,490
-------- ------- -------- ------ ------
Deferred income taxes............ 628 (104) 524 (130) 498
-------- ------- -------- ------ ------
Deferred revenues................ 100 -- 100 -- 100
-------- ------- -------- ------ ------
Long-term debt................... 20,434 (10,424) 10,010 (13,029) 7,405
-------- ------- -------- ------ ------
Commitments and contingencies
Stockholders' equity:
Preferred stock................ -- -- -- -- --
Common stock................... 2 -- 2 -- 2
Additional paid-in-capital..... 40,715 12,077 52,792 15,176 55,891
Retained earnings.............. 8,356 (1,793) 6,563 (2,241) 6,115
Deferred compensation.......... (56) -- (56) -- (56)
Notes receivable............... (45) -- (45) -- (45)
-------- ------- -------- ------ ------
Total stockholders'
equity.................... 48,972 10,284 59,256 12,935 61,907
-------- ------- -------- ------ -------
$ 137,715 $ (335) $137,380 $ (315) $ 137,400
======== ======= ======== ====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
12
<PAGE> 17
SUBMICRON SYSTEMS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
80% PRO PRO FORMA 100% PRO PRO FORMA
FORMS ASSUMING 80% FORMA ASSUMING 100%
HISTORICAL ADJUSTMENT EXCHANGE ADJUSTMENT EXCHANGE
---------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
System sales, net................. $ 92,294 $ -- $ 92,294 $ -- $ 92,294
Services and other sales.......... 30,774 -- 30,774 -- 30,774
-------- --- ---- --- --------
Total net sales......... 123,068 -- 123,068 -- 123,068
-------- --- ---- --- --------
Cost of system sales.............. 63,666 -- 63,666 -- 63,666
Cost of service and other sales... 20,686 -- 20,686 -- 20,686
-------- --- ---- --- --------
Total cost of sales..... 84,352 -- 84,352 -- 84,352
-------- --- ---- --- --------
Gross profit............ 38,716 -- 38,716 -- 38,716
Selling, general and
administrative.................. 29,109 -- 29,109 -- 29,109
Research and development.......... 5,679 -- 5,679 -- 5,679
-------- --- ---- --- --------
Operating income........ 3,928 -- 3,928 -- 3,928
-------- --- ---- --- --------
Other income (expense):
Interest income................. 400 -- 400 -- 400
Interest expense................ (1,840) 146(1) (1,694) 183(1) (1,657)
Other, net...................... 2,698 -- 2,698 -- 2,698
-------- --- ---- --- --------
Total other income...... 1,258 146 1,404 183 1,441
-------- --- ---- --- --------
Income before income taxes........ 5,186 146 5,332 183 5,369
Income tax provision.............. 1,498 58(2) 1,556 73(2) 1,571
-------- --- ---- --- --------
Net income.............. $ 3,688 $ 88 $ 3,776 $110 $ 3,798
======== === ==== === ========
Net income per Common share....... $ 0.23 $ 0.23(3) $ 0.23(3)
======== ==== ========
Weighted Average number of shares
of Common stock outstanding..... 16,160 90(3) 16,250 112(3) 16,272
======== === ==== === ========
</TABLE>
The accompanying notes are an integral part of this statement.
13
<PAGE> 18
SUBMICRON SYSTEMS CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
80% PRO PRO FORMA 100% PRO ASSUMING
FORMA ASSUMING 80% FORMA 100%
HISTORICAL ADJUSTMENT EXCHANGE ADJUSTMENT EXCHANGE
---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
System sales, net.............. $ 77,244 $ -- $ 77,244 $ -- $ 77,244
Services and other sales....... 14,676 -- 14,676 -- 14,676
------- ------ ------- ------ -------
Total net sales...... 91,920 -- 91,920 -- 91,920
------- ------ ------- ------ -------
Cost of system sales........... 54,096 -- 54,096 -- 54,096
Cost of service and other
sales........................ 11,470 -- 11,470 -- 11,470
------- ------ ------- ------ -------
Total cost of
sales.............. 65,566 -- 65,566 -- 65,566
------- ------ ------- ------ -------
Gross profit......... 26,354 -- 26,354 -- 26,354
Selling, general and
administrative............... 18,420 -- 18,420 -- 18,420
Research and development....... 4,023 -- 4,023 -- 4,023
------- ------ ------- ------ -------
Operating income..... 3,911 -- 3,911 -- 3,911
------- ------ ------- ------ -------
Other income (expense):
Interest income.............. 254 -- 254 -- 254
Interest expense............. (2,261) 1,304(1) (957) 1,630(1) (631)
Other, net................... 62 -- 62 -- 62
------- ------ ------- ------ -------
Total other income
(expense).......... (1,945) 1,304 (641) 1,630 (315)
------- ------ ------- ------ -------
Income before income taxes..... 1,966 1,304 3,270 1,630 3,596
Income tax provision........... 713 522(2) 1,235 652(2) 1,365
------- ------ ------- ------ -------
Net income................ $ 1,253 $ 782 $ 2,035 $ 978 $ 2,231
======= ====== ======= ====== =======
Net income per Common share.... $ 0.07 $ 0.11(3) $ 0.11(3)
======= ======= =======
Weighted Average number of
shares of Common
stock outstanding............ 17,134 2,158(3) 19,292 2,698(3) 19,832
======= ====== ======= ====== =======
</TABLE>
The accompanying notes are an integral part of this statement.
14
<PAGE> 19
SUBMICRON SYSTEMS CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The pro forma consolidated balance sheet as of June 30, 1996, and the pro
forma consolidated statements of operations for the year ended December 31, 1995
and six months ended June 30, 1996, give effect to the Exchange Offer assuming a
minimum exchange of 80% of the Units and a maximum exchange of 100% of the
Units. Each Unit is exchangeable for 142 shares of Common Stock and $218
principal amount of New Notes. The pro forma adjustments assume a fair market
market value of $5.875 per share of Common Stock issuable pursuant to the
Exchange Offer, an assumed fair market value of the New Notes equal to the face
value of the New Notes and a $353,000 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 and New Notes issuable and Warrants to be
exchanged as of the Expiration Date.
PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS (IN THOUSANDS):
(1) The pro forma balance sheet adjustments to record the Exchange Offer at
the assumed exchange levels are as follows:
<TABLE>
<CAPTION>
80% 100%
EXCHANGE EXCHANGE
------------ ------------
<S> <C> <C>
Original subordinated notes (long-term debt)(a).............. $ 13,738 $ 17,171
Extraordinary debt extinguishment charge (retained
earnings)(b)............................................... 2,988 3,735
Warrants outstanding (additional paid-in capital)(c)......... 282 353
Refundable income taxes(d)................................... 600 873
Income taxes payable(d)...................................... 491 491
Deferred income taxes(d)..................................... 104 130
Deferred debt costs (intangibles)(e)......................... 78 78
New subordinated notes (long-term debt)(a).............. (3,314) (4,142)
Common stock(f)......................................... -- --
Additional paid-in capital(f)(g)........................ (12,359) (15,529)
Deferred debt costs (intangibles)(e).................... (1,013) (1,266)
Accrued expenses(g)..................................... (400) (400)
Income tax expense (retained earnings)(d)............... (1,195) (1,494)
</TABLE>
- ---------------
(a) Represents elimination of the carrying value of the Original Notes exchanged
and the recording of the issuance of the New Notes.
(b) Computed based on the difference between the fair market value of Common
Stock and New Notes issuable upon the Exchange Offer and the carrying value
of the Original Notes, plus the unamortized deferred financing costs
associated with the Original Notes, less the fair market value of the
Warrants 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 extraordinary debt extinguishment charge recorded for
financial reporting purposes.
(e) Write-off of unamortized deferred debt costs incurred in connection with the
issuance of the Original Notes in December 1995 and recording of a pro rata
portion of the $400 of transaction costs incurred for the Exchange Offer as
new deferred debt costs ($78).
(f) Represents the Common Stock issuable upon the exchange, which, in either
case, will be less than $1.
(g) Represents the estimated transaction costs to be incurred in connection with
the Exchange Offer. The portion of these costs ($322) not recorded as
deferred financing costs have been charged against additional paid-in
capital as they relate to the issuance of the Common Stock.
15
<PAGE> 20
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS ADJUSTMENTS (IN THOUSANDS,
EXCEPT PER SHARE DATA):
(1) Reflects the reduction of interest expense for elimination of an
applicable pro rata portion of (i) the 9% interest on the Original Notes, (ii)
amortization of the debt discount and (iii) amortization of the deferred debt
financing costs, net of additional interest expense at 9% on the New Notes plus
amortization of the $78 of deferred financing costs over the term of the New
Notes, 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 six months ended June 30, 1996.
Based on the assumptions outlined in the introduction to the notes to pro
forma consolidated financial statements, the Company will record a pre-tax
extraordinary debt extinguishment charge to operations of approximately $2,988
and $3,735 upon consummation of the Exchange Offer assuming 80% and 100% of the
Units are exchanged, respectively. The Company will record an income tax benefit
of approximately $1,195 and $1,494 based on such assumptions, respectively. This
net charge will reduce net income per Common share by $.09 assuming 18,957
outstanding shares (80% exchanged) or by $.11 assuming 19,497 outstanding shares
(100% exchanged) in 1996.
(2) Represents the income tax benefit from the pro forma adjustment 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 extraordinary debt extinguishment
charge which will be recorded in the period the Exchange Offer 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 1.79x for the six
months ended June 30, 1996. The pro forma ratio is 3.87x and 5.41x assuming an
exchange of 80% 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> 21
CAPITALIZATION AND BOOK VALUE PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the capitalization and the book value per
share of the Company at June 30, 1996 and as adjusted to give effect to the
Exchange Offer (assuming 80% and 100% of the Units, respectively, are
exchanged):
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
AS ADJUSTED, AS ADJUSTED,
HISTORICAL 80% EXCHANGE 100% EXCHANGE
---------- ------------- -------------
<S> <C> <C> <C>
Long-term debt:
Convertible subordinated notes..................... $ 17,171 $ 6,747 $ 4,142
Other long-term debt............................... 3,263 3,263 3,263
------- -------
Total Long-Term Debt....................... 20,434 10,010 7,405
------- -------
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, 16,798,870 issued and outstanding
(actual), 18,957,270 and 19,496,870 shares
outstanding
(as adjusted)................................... 2 2 2
Additional paid-in capital......................... 40,715 52,792 55,891
Retained earnings.................................. 8,356 6,563 6,115
Deferred compensation.............................. (56) (56) (56)
Notes receivable................................... (45) (45) (45)
------- -------
Total stockholders' equity................. 48,972 59,256 61,907
------- -------
Total capitalization....................... $ 69,406 $69,266 $69,312
======= =======
Book value per share(1).............................. $ 2.92 $ 3.13 $ 3.18
======= =======
</TABLE>
- ------------------------
(1) The historical book value per share at December 31, 1995 was $2.78.
17
<PAGE> 22
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 $ 55/8
June 30...................................... 6 1/8 35/8
September 30................................. 6 1/4 4
December 31.................................. 6 3/4 41/2
1995:
March 31..................................... 7 3/16 41/8
June 30...................................... 12 63/4
September 30................................. 14 83/8
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 (through September 13).......... 8 7/8 5 /16
</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 place
restrictions on the payment of dividends.
18
<PAGE> 23
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 142 shares of Common Stock and $218 principal amount of New Notes
for each Unit, each Unit consisting of $1,000 principal amount of Original Notes
and Warrants to purchase 60 shares of Common Stock, that is validly deposited
and tendered and not withdrawn prior to the Expiration Date or thereafter until
the Units are accepted for exchange. Interest accrued on the Original Notes
through the Expiration Date will be paid in cash upon acceptance of the Original
Notes for exchange. Interest on Original Notes tendered and accepted for
exchange which are not withdrawn as permitted will cease to accrue on the
Expiration Date. Interest will accrue on the New Notes from their date of
issuance, and will be payable quarterly in arrears, commencing on December 31,
1996.
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 15,200 Units (80% 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 September
30, 1996 unless the Company, in its reasonable 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 Original 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; provided, however, that a holder must exchange
all of his Units if any are exchanged. Partial exchanges are not permitted. A
holder may accept the Exchange Offer by properly completing and delivering a
Letter of Transmittal, together with all of his Original Notes and Warrants, and
any other required documents to the Exchange Agent. Holders of the Original
Notes and Warrants not deposited and tendered for exchange pursuant to the
Exchange Offer will, except as provided below, continue to have all of the
rights and preferences of the Original Notes and Warrants, including (i) the
right to quarterly interest payments on the Original Notes, (ii) the right to
convert the Original 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 Original Notes over the Common Stock upon the
liquidation of the Company, and (v) certain anti-dilution protection provided in
the Original Notes. In the event the Exchange Offer is consummated, holders of
Original Notes tendered for exchange, in accordance with the terms of the
Original Notes, will have consented to modify the Original Notes by eliminating
certain provisions and waiving the anti-dilution provisions of the Original
Notes with respect to the Exchange Offer. See "Consent to Modification and
Waiver of Certain Provisions of Original Notes"; "Description of Original
Notes"; "Description of Warrants"; and "Description of Capital Stock."
PROCEDURE FOR EXCHANGE
Any holder of Original Notes and Warrants desiring to deposit and tender
all of his Original Notes and Warrants (partial tenders are not permitted) must
deliver all of his Original Notes and Warrants, 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. The Original
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
19
<PAGE> 24
approved by The Securities Transfer Association, Inc. (an "Eligible
Institution") except signatures on Letters of Transmittal need not be guaranteed
by an Eligible Institution provided that the Original Notes and the Warrants
deposited and tendered pursuant thereto are deposited and tendered (i) by a
registered holder of the Original Notes 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 Original Notes and Warrants are
registered in the name of a person other than the signer of the Letter of
Transmittal, the Original 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 Original 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.
Each holder must exchange all of his Original Notes and Warrants if any are
to be exchanged. Accordingly, if a holder of Original Notes and Warrants
deposits less than all of such securities held by him, such holder will be
deemed not to have accepted the Exchange Offer.
Holders of the Original Notes and Warrants exchanging their Original 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 interest payments on the New Notes
and on dividends on the Common Stock that might be payable in the future.
The method of delivery of the Original 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 Original Notes and Warrants and such
holder's Original Notes and Warrants are not immediately available or time will
not permit such holder's Letter of Transmittal, Original 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 Original
Notes and Warrants and the principal amount of Original Notes and number of
Warrants tendered (which, to be effective, must be all of the Original
Notes and Warrants held by the holder) 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
Original 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 Original 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 Original 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> 25
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 Original 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 Original 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 notice.
WITHDRAWAL RIGHTS
Tenders of Units pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date and any time after the Expiration Date until
such Units are accepted for exchange as provided in 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 Original 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 Original Notes and the Warrants have
been physically delivered to the Exchange Agent, then prior to the release of
such Original 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 Original 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.
Neither 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 Original 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 Original 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 and New Notes 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 Original Notes and Warrants,
and such Original Notes and Warrants may not be withdrawn, subject to the
withdrawal rights of tendering holders set forth above under "The Exchange
Offer -- Withdrawal Rights." Tendered Original Notes and Warrants not
21
<PAGE> 26
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 and New Notes in exchange for Original 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 Original 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 Original Notes quarterly on March 15, June 15,
September 15 and December 15 of each year so long as they are outstanding.
Interest accrued from September 15, 1996 through the Expiration Date will be
paid upon the Original Notes accepted for exchange upon such acceptance.
Interest on Original 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 Original 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 Original Notes and Warrants) the acceptance for exchange of, and exchange
of, Original 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 15,200 Units (80% 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 Original Notes and Warrants pursuant to the Exchange
Offer or otherwise relates in any manner to the Exchange Offer; or (b) in
the Company's reasonable 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 reasonable judgment, would or might
directly or indirectly (a) make the acceptance for exchange or exchange of
some or all of the Original Notes and Warrants for shares of Common Stock
and New Notes 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
Original Notes and Warrants for shares of Common Stock and New Notes; (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 any
suspension of payments in respect of banks in the United States; (c) the
commencement of a war,
22
<PAGE> 27
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 reasonable 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 reasonable 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 Original 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 reasonable 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 (b) 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 reasonable 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 reasonable 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 reasonable 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 Original Notes and Warrants
previously tendered and not exchanged or withdrawn will remain subject to the
Exchange Offer, except to the extent that such Original Notes and Warrants may
be withdrawn as set forth in "The Exchange Offer -- Withdrawal Rights." The
Company also expressly reserves the right, in its reasonable discretion, to
terminate the Exchange Offer and not accept for exchange or exchange any
Original Notes and Warrants prior to the Expiration Date or, subject to
applicable law, to postpone the exchange of Original Notes and Warrants for
Common Stock and New Notes 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 Original Notes and Warrants which
it has accepted for payment is limited by
23
<PAGE> 28
Rule 13e-4(f)(5) promulgated under the Exchange Act, which requires that the
Company must pay the consideration offered or return the Original Notes and
Warrants tendered promptly after termination or withdrawal of a tender offer.
Subject to compliance with applicable law, the Company further reserves the
right, in its reasonable 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 Original 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> 29
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 MODIFICATION AND WAIVER OF CERTAIN PROVISIONS
OF ORIGINAL NOTES
The Original Notes contain certain restrictions on the payment of dividends
and other distributions and the incurrence of certain unsecured debt (Sections 7
and 8, respectively, of the Original Notes). In addition, the Original Notes
provide that it shall be an Event of Default if the Company has earnings per
share of less than $.20 for fiscal years 1995 or 1996 (Section 5.7 of the
Original Notes). The New Notes contain none of these provisions. In addition,
the Original Notes contain anti-dilution provisions that adjust the Conversion
Price at which the Original Notes are converted into shares of Common Stock and,
therefore, the number of shares of Common Stock issuable upon conversion of the
Original Notes. Depending on the price of a share of Common Stock on the
Expiration Date, issuance of Common Stock pursuant to the Exchange Offer would
likely cause an adjustment to the Conversion Price and the number of shares
issuable upon subsequent conversion of any Original Notes that are not tendered
for exchange. As part of the Exchange Offer, each person who tenders Original
Notes to be exchanged, by signing the Letter of Transmittal, shall consent to
(i) modify the Original Notes by eliminating Sections 7 and 8 thereof (the
restrictions on dividends and distributions and on certain indebtedness,
respectively), Section 5.7 (the earnings per share Event of Default), Section
5.8 (the Event of Default for noncompliance with Sections 7 or 8) and all
references in the Original Notes to the foregoing provisions and (ii) the waiver
of any anti-dilution adjustments with respect to the Conversion Price or the
number of shares of Common Stock issuable upon conversion of the Original Notes
as a result of the Exchange Offer. To be effective, such consents must be signed
by holders of at least 51% of the aggregate principal amount of the Original
Notes outstanding. Accordingly, in the event the Exchange Offer is consummated,
since the minimum exchange is for 80% of the Units, holders of more than the
required amount of Original Notes will have consented and, consequently, such
modifications will be approved and there will be no adjustment to the Conversion
Price of the Original Notes or the number of shares of Common Stock issuable
upon conversion of the Original Notes as a result of the Exchange Offer. Except
as set forth above, the provisions of any Original Notes remaining outstanding
after the Exchange Offer shall not be affected.
25
<PAGE> 30
TRANSFERABILITY OF COMMON STOCK AND NEW NOTES
The issuance of shares of Common Stock and New Notes 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
Original Notes and Warrants. As a result, upon consummation of the Exchange
Offer, the 142 shares of Common Stock issued in the Exchange Offer for each Unit
may be sold by the holders thereof pursuant to such Registration Statement.
Neither the New Notes, however, nor the shares of Common Stock issuable upon
conversion of the New Notes, has been registered under the Securities Act and
therefore may not be sold or otherwise transferred unless they are registered
under the Securities Act or unless the holder provides the Company with an
opinion of counsel satisfactory to the Company that the intended transfer is
exempt from registration under all applicable federal and state securities laws.
Although there can be no assurances, the Company currently intends to register
for resale the shares of Common Stock issuable upon conversion of the New Notes
within 90 days of the consummation of the Exchange Offer. Persons who receive
Common Stock in the Exchange Offer will be required to deliver a copy of the
Prospectus forming part of the Registration Statement covering such shares 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. In the event shares of Common Stock
issuable upon conversion of the New Notes are registered, a similar procedure
with respect to the resale of such shares will have to be followed.
26
<PAGE> 31
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 Original
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 Original Notes and Warrants.
TRANSACTIONS AND AGREEMENTS CONCERNING THE COMMON STOCK
During the 40 business days preceding the date of the commencement of the
Exchange Offer, 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
commencement of the Exchange Offer, 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 Original Notes or Warrants.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of Original Notes and Warrants for shares of Common Stock and
New Notes 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 and New Notes received for the Original Notes and
Warrants, respectively, exceeds (or is less than) the holder's adjusted tax
basis in the Original 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
Original 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 Original 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 Original 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 Original 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.
27
<PAGE> 32
DESCRIPTION OF ORIGINAL NOTES
GENERAL
The Original Notes are designated as 9% Convertible Subordinated Notes due
December 15, 1997. The description of the Original 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 Original Notes.
PRINCIPAL AND INTEREST
Interest on the Original 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 Original 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 Original Notes are redeemed
or converted earlier in accordance with the provisions of the Original Notes.
Holders must surrender their Original Notes to the payment agent to collect
principal payments.
SUBORDINATION
To the extent provided in the Original Notes, the indebtedness, including
interest, evidenced by the Original 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 (a) indebtedness consisting of the
principal of, premium, if any, interest on and any fees, charges and expenses
relating to, (i) Money Borrowed, or (ii) the deferred purchase price of any
business, properties or assets acquired by the Company or any of its
subsidiaries from any third party, or (iii) secured by any mortgage, security
interest, lien, pledge or encumbrance upon property of the Company or any of its
subsidiaries; (b) guarantees, direct or indirect, of any indebtedness referred
to in clause (a) above; and (c) all renewals, replacements, extensions,
refundings, amendments, modifications, or increases of any indebtedness referred
to in clause (a) above. "Money Borrowed" means indebtedness evidenced by bonds,
debentures, notes or similar instruments, provided that such obligations have
been secured by a substantial amount of the assets of the Company or any
material subsidiary of the Company. The Original Notes do not restrict the
Company from incurring additional Senior Indebtedness and most other
indebtedness but currently prohibit the Company from issuing unsecured notes
unless they are junior in right of payment to the Original Notes (the "Debt
Covenant"). However, as set forth under "Consent to Modification and Waiver of
Certain Provisions of Original Notes," by accepting the Exchange Offer, the
holders of Original Notes tendering such Original Notes pursuant to the Exchange
Offer shall be consenting to, among other items, the elimination of the Debt
Covenant, thereby consenting to the issuance of the New Notes. The New Notes
will rank pari passu in right of payment with the Original Notes.
The Company is prohibited from making any payment of principal of, or
interest on, the Original Notes (i) at any time when it is in default in the
payment of principal of, or interest on, any Senior Indebtedness, or (ii) if at
the time of such payment or immediately after giving effect thereto, there shall
exist any default (other than as set forth in clause (i) above) specified in any
Senior Indebtedness which shall have continued uncured after any applicable
grace period, if such default shall give the holders of Senior Indebtedness the
right to accelerate the maturity thereof, provided that the Company shall have
given the holders of the Original Notes written notice of the occurrence of any
such default, unless and until such default shall have been cured or waived. In
addition, the Original Notes provide that until all Senior Indebtedness shall
have been paid in full, the holders of Original Notes are prohibited from
exercising any of their remedies in connection with the Original Notes or
receiving from the Company payment of all or any of the amounts due under the
Original Notes (other than payment of interest and principal when due at
maturity when there is not any default under the terms of any Senior
Indebtedness continuing). Notwithstanding the foregoing (i) interest at the
default rate shall commence and shall continue to accrue as provided in the
Original Notes and (ii) the holders of the Original Notes shall not be prevented
from, to the extent permitted under the
28
<PAGE> 33
Original Notes, accelerating the maturity of the principal of, and accrued
interest on, the Original Notes following the occurrence of an Event of Default
after a period of 180 days after written notice of a default in any Senior
Indebtedness shall have been given, provided that only one such notice may be
given in any 120-day period.
CONVERSION RIGHTS
The Original Notes may be converted by the holders at their principal
amount into Common Stock of the Company at any time prior to maturity or actual
redemption, at a conversion price equal to $11.64 per share of Common Stock (the
"Conversion Price"), subject to adjustment upon the occurrence of certain
events, except that the right to convert Original 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. Fractional shares of Common Stock
will not be issued upon conversion, but cash adjustment will be paid in lieu
thereof, based upon the closing bid price on the date of conversion. Interest
will accrue on the Original Notes through 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, the Noteholder shall
receive the full quarterly interest payment, which shall be adjusted as
described below. If an Original Note is surrendered for conversion during the
period from the close of business on any record date for the payment of interest
on the Original Notes to the opening of business on the interest payment date
(except in the case of Original 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 Original Notes.
No payment or adjustment shall be made for dividends on securities issued upon
conversion. In the case of Original Notes called for redemption, conversion
rights will expire on the close of business on the redemption date.
REDEMPTION
The Original Notes may be redeemed, at the option of the Company, 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 Original Notes have been registered under the
Securities Act.
SINKING FUND
No sinking fund is required by the terms of the Original Notes.
EVENTS OF DEFAULT
Events of Default are defined in the Original Notes as being in addition to
certain bankruptcy defaults: (i) default in payment of any interest installment
or payment of principal under the Original Notes ("Payment Default"); (ii)
payment default on the Company's principal line of credit (after the expiration
of any applicable grace periods) ("Cross Default"); (iii) if the registration
statement covering the shares (the "Registration Shares") issuable upon
conversion of the Original Notes and exercise of the Warrants is not maintained
effective (subject, in each case, to certain blackout periods) until such stock
is saleable under
29
<PAGE> 34
Rule 144(k) of the Securities Act or a successor provision (a "Registration
Default"); and (iv) the sale by the Company of all or substantially all of its
assets or the merger or consolidation by the Company with or into another
corporation ("Transaction Default") except where the Company is the surviving
entity or where the surviving entity assumes the Company's obligations under the
Original Notes. 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 Original Notes also contain the following additional Events of Default:
(i) if the Company has earnings per share less than $.20 for fiscal years 1995
or 1996 (the "EPS Default"); and (ii) the failure by the Company to comply with
the covenant (a) not to declare or pay dividends or distributions to its
stockholders (other than stock dividends) without a majority of the noteholders'
consent or (b) not to create or incur unsecured indebtedness unless such
indebtedness is subordinated in all respects to the Original Notes. As set forth
under "Consent to Modification and Waiver of Certain Provisions of Original
Notes," by accepting the Exchange Offer, the holders of Original Notes tendering
such Original Notes for exchange shall be consenting to the elimination of the
foregoing Events of Default and covenants.
The Original Notes provide that, if an Event of Default specified therein
(other than an EPS Default and Registration Default) will have occurred and be
continuing, the holder shall have the right to accelerate the outstanding
principal and accrued interest and, in addition, upon a Payment Default, Cross
Default or Registration Default, the interest rate payable on the Original Notes
shall increase to 16% during the continuance of such Event of Default. In
addition, upon the first occurrence of a Payment Default, Cross Default,
Registration Default or EPS Default, 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 a Payment Default, the Conversion Price will not be lower than
$4.50 per share as a result of an Event of Default specified above. Adjustment
in the Conversion Price as a result of an Event of Default shall only occur one
time.
MODIFICATION OF THE ORIGINAL NOTES
The Original Notes contain provisions permitting the Company, with the
consent of the holders of a majority in principal amount of the outstanding
Original Notes, to amend the Original Notes adding any provisions to or
changing, eliminating or waiving any of the provisions of the Original Notes or
modifying the rights of the holders of Original Notes, except that no such
amendment may (i) extend the fixed maturity of any Original 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 Original Note so
affected; (ii) modify the provisions of the Original Notes with respect to the
subordination of the Original Notes in a manner adverse to the holders or alter
the provisions in respect of the right to convert the Original Notes, without
the consent of the holders of all of the outstanding Original Notes; or (iii)
reduce the aforesaid percentage of Original Notes, the consent of the holders of
which is required for any amendment, without the consent of the holders of all
of the outstanding Original 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
30
<PAGE> 35
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 NEW NOTES
GENERAL
The New Notes are designated as 9% Convertible Subordinated Notes due March
31, 1998. The description of the New 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 New Notes, the form of which is attached as Exhibit
F hereto. The New Notes will rank pari passu in right of payment with any
Original Notes that remain outstanding.
PRINCIPAL AND INTEREST
Interest on the New Notes accrues from the date of issuance and is payable
quarterly on the last day of March, June, September and December of each year at
a rate of 9% per annum, commencing December 31, 1996, until payment of principal
has been made or duly provided for, to the persons who are registered holders of
New Notes at the close of business on the March 15, June 15, September 15 and
December 15 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 March 31, 1998, unless the New Notes are redeemed or converted
earlier in accordance with the provisions of the New Notes. Holders must
surrender their New Notes to the payment agent to collect principal payments.
SUBORDINATION
To the extent provided in the New Notes, the indebtedness, including
interest, evidenced by the New 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 (a) indebtedness consisting of the principal
of, premium, if any, interest on and any fees, charges and expenses relating to,
(i) Money Borrowed, or (ii) the deferred purchase price of any business,
properties or assets acquired by the Company or any of its subsidiaries from any
third party, or (iii) secured by any mortgage, security interest, lien, pledge
or encumbrance upon property of the Company or any of its subsidiaries; (b)
guarantees, direct or indirect, of any indebtedness referred to in clause (a)
above; and (c) all renewals, replacements, extensions, refundings, amendments,
modifications, or increases of any indebtedness referred to in clause (a) above.
"Money Borrowed" means indebtedness evidenced by bonds, debentures notes or
similar instruments, provided that such obligations have been secured by a
substantial amount of the assets of the Company or any material subsidiary of
the Company. The New Notes will rank pari passu in right of payment with the
Original Notes and do not restrict the Company from incurring additional junior,
senior or pari passu indebtedness.
The Company is prohibited from making any payment of principal of, or
interest on, the New Notes (i) at any time when it is in default in the payment
of principal of, or interest on, any Senior Indebtedness, or (ii) if at the time
of such payment or immediately after giving effect thereto, there shall exist
any default (other than as set forth in clause (i) above) specified in any
Senior Indebtedness which shall have continued uncured after any applicable
grace period, if such default shall give the holders of Senior Indebtedness the
right to accelerate the maturity thereof, provided that the Company shall have
given the holders of the New Notes written notice of the occurrence of any such
default, unless and until such default shall have been cured or waived. In
addition, the New Notes provide that until all Senior Indebtedness shall have
been paid in full, the holders of New Notes are prohibited from exercising any
of their remedies in connection with the New Notes or receiving from the Company
payment of all or any of the amounts due under the New Notes (other than payment
of interest and principal when due at maturity when there is not any default
under the terms of any Senior Indebtedness continuing). Notwithstanding the
foregoing (i) interest at the default rate shall commence and shall continue to
accrue as provided in the New Notes and (ii) the holders of the New Notes shall
not be prevented from, to the extent permitted under the New Notes, accelerating
the maturity of the
31
<PAGE> 36
principal of, and accrued interest on, the New Notes following the occurrence of
an Event of Default after a period of 180 days after written notice of a default
in any Senior Indebtedness shall have been given, provided that only one such
notice may be given in any 120-day period.
CONVERSION RIGHTS
The New Notes may be converted by the holders at their principal amount
into Common Stock of the Company at any time prior to maturity or the business
day immediately preceding the date notice of redemption is given by the Company,
at a conversion price (the "Conversion Price") equal to $6.30 per share. The
Conversion Price is subject to adjustment upon the subdivision, combination,
reclassification or capital reorganization of the Common Stock or the payment of
dividends or other distributions on the Common Stock in shares of Common Stock.
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. 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 date of conversion. Interest will accrue on the New
Notes through 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, the Noteholder shall receive the full
quarterly interest payment, which shall be adjusted as described below. If a New
Note is surrendered for conversion during the period from the close of business
on any record date for the payment of interest on the New Notes to the opening
of business on the interest payment date (except in the case of New Notes or
portions thereof which have been called for redemption 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 New Notes. No payment or adjustment shall be made for dividends
on securities issued upon conversion. As set forth above, conversion rights will
expire on the business immediately preceding the date notice of redemption of
the New Notes is given by the Company.
REDEMPTION
The New Notes may be redeemed, at the option of the Company, in whole or in
part, at any time, on at least 15 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.
SINKING FUND
No sinking fund is required by the terms of the New Notes.
EVENTS OF DEFAULT
Events of Default are defined in the New Notes as being, in addition to
certain bankruptcy defaults: (i) default in payment of any interest installment
or payment of principal under the New Notes ("Payment Default"); (ii) payment
default on the Company's principal line of credit (after the expiration of any
applicable grace periods) ("Cross Default"); (iii) the sale by the Company of
all or substantially all of its assets or the merger or consolidation by the
Company with or into another corporation except where the Company is the
surviving company or where the surviving entity assumes the Company's
obligations under the Original Notes; and (iv) if a registration statement
covering the shares issuable upon conversion of the New Notes (the "Registration
Shares") is not declared effective on or prior to the 90th day following the
consummation of the Exchange Offer, or thereafter not maintained effective
(subject, in each case, to certain blackout periods) until such stock is
saleable under Rule 144(k) of the Securities Act or a successor provision (in
either case, a "Registration Default"). 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.
32
<PAGE> 37
The New Notes provide that, if an Event of Default specified therein (other
than a Registration Default) will have occurred and be continuing, the holder of
the New Notes shall have the right to accelerate the outstanding principal
amount and accrued interest under the New Notes. In addition, upon a Payment
Default, Cross Default or Registration Default, the interest rate payable on the
New Notes shall increase to 16% during the continuance of such Event of Default.
MODIFICATION OF THE NEW NOTES
The New Notes contain provisions permitting the Company, with the consent
of the holders of a majority in principal amount of the outstanding New Notes,
to amend the New Notes adding any provisions to or changing, eliminating or
waiving any of the provisions of the New Notes or modifying the rights of the
holders of New Notes, except that no such amendment may (i) extend the fixed
maturity of any New 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 New Note so affected; (ii) modify the provisions of the New
Notes with respect to the subordination of the New Notes in a manner adverse to
the holders or alter the provisions in respect of the right to convert the New
Notes, without the consent of the holders of all of the outstanding New Notes;
or (iii) reduce the aforesaid percentage of New Notes, the consent of the
holders of which is required for any amendment, without the consent of the
holders of all of the outstanding New Notes.
COMPARISON OF ORIGINAL NOTES AND NEW NOTES
Set forth below are the material differences between the Original Notes and
the New Notes.
TERM
Under the New Notes, principal is due March 31, 1998 as compared to
December 15, 1997 under the Original Notes.
CONVERSION RIGHTS
The New Notes are convertible into shares of Common Stock until the earlier
of the maturity date and the business day immediately preceding the date notice
of redemption of the New Notes is given by the Company; the Original Notes are
convertible until the earlier of the maturity date and the date of actual
redemption. The New Notes are convertible into shares of Common Stock at $6.30
per share; and the Original Notes are currently convertible into shares of
Common Stock at $11.64 per share, which price is subject to adjustment upon the
occurrence of, among other events, the issuance of shares of Common Stock and
Common Stock equivalents at a price lower than the Conversion Price (subject to
certain exceptions) and upon the occurrence of certain Events of Default under
the Original Notes. The New Notes do not provide a comparable adjustment to the
Conversion Price.
REDEMPTION
The New Notes may be redeemed, at the option of the Company, in whole or in
part, at any time on at least 15 days notice to the noteholders; the Original
Notes are redeemable, at the option of the Company, on at least 30 days notice
only if (i) the closing bid price for the Common Stock has been at least 150% of
the Conversion Price for a period of at least 30 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 Original Notes are registered
under the Securities Act.
EVENTS OF DEFAULT; COVENANTS
As set forth under the caption "Consent to Modification and Waiver of
Certain Provisions of Original Notes," the Original Notes contain the following
Events of Default and related covenants which are not contained in the New Notes
and which will be eliminated in the Original Notes if the Exchange Offer is
consummated (by the consent of the holders of Original Notes tendering such
Notes for exchange in the
33
<PAGE> 38
Exchange Offer): (i) the Company's having earnings per share less than $.20 for
fiscal years 1995 or 1996; and (ii) the failure by the Company to comply with
its covenants (a) not to declare or pay any dividends or distributions to its
stockholders without the consent of a majority of the noteholders and (b) not
create or incur any unsecured indebtedness unless such indebtedness is
subordinated in all respects to the Original Notes. Further, upon the occurrence
of certain Events of Default under the Original Notes, the Conversion Price was
reset to a price equal 80% of the average of the closing bid price of the Common
Stock during the 10 trading days beginning five trading days before the
occurrence of such Event of Default, subject to a floor in all events other than
monetary defaults of $4.50 per share. The New Notes do not have a comparable
provision.
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 August 31, 1996, 16,800,870 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.
34
<PAGE> 39
EXHIBIT E
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 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 incorporation (I.R.S. Employer
or organization) Identification No.)
6620 Grant Way, Allentown, Pennsylvania 18106
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (610) 391-9200
-----------------------------
6330 Hedgewood Drive, #150, Allentown, PA 18106
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 16,800,870 shares of Common stock outstanding, $.0001 par value, as
of July 31, 1996.
1
<PAGE> 40
SUBMICRON SYSTEMS CORPORATION
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information
Item 1: Financial Statements Page
<S> <C>
Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations
for the three months ended June 30, 1996
and June 30, 1995 4
Consolidated Statements of Operations
for the six months ended June 30, 1996
and June 30, 1995 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and
June 30, 1995. 6
Notes to Consolidated Financial Statements 7-8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
Part II - Other Information N/A
</TABLE>
2
<PAGE> 41
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS (Note 2)
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,296 $ 16,010
Accounts receivable, net 47,383 46,619
Inventories, net 54,322 34,132
Prepaids and other 3,390 2,736
Deferred income taxes 1,886 1,886
----------- -----------
Total current assets 115,277 101,383
Property and equipment, net 16,181 12,631
Goodwill, net 1,798 1,912
Intangibles and other, net 4,459 4,022
----------- -----------
$ 137,715 $ 119,948
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 24,600 $ 16,250
Current portion of long-term debt 1,430 1,183
Accounts payable 26,679 25,299
Accrued expenses and other 9,887 8,935
Deferred revenues 4,494 2,615
Income taxes payable 491 -
----------- -----------
Total current liabilities 67,581 54,282
----------- -----------
Deferred income taxes 628 628
----------- -----------
Deferred revenues 100 106
----------- -----------
Long-term debt 20,434 18,909
----------- -----------
Commitments and contingencies
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, 16,798,870 and
15,769,559 shares issued and outstanding 2 2
Additional paid-in capital 40,715 39,223
Retained earnings 8,356 7,103
Deferred compensation (56) (224)
Notes receivable (45) (81)
----------- -----------
Total stockholders' equity 48,972 46,023
----------- -----------
$ 137,715 $ 119,948
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 42
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Note 2)
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1996 1995
------------ -----------
<S> <C> <C>
System sales, net $ 37,822 $ 16,094
Service and other sales 9,244 9,772
------------ -----------
Total net sales 47,066 25,866
------------ -----------
Cost of system sales 27,660 12,880
Cost of service and other sales 7,357 7,063
------------ -----------
Total cost of sales 35,017 19,943
------------ -----------
Gross profit 12,049 5,923
Selling, general and administrative 8,965 7,563
Research and development 2,178 1,575
------------ -----------
Operating income (loss) 906 (3,215)
------------ -----------
Other income (expense):
Interest income 86 92
Interest expense (1,238) (414)
Other, net (19) 20
------------ -----------
Total other expense (1,171) (302)
------------ -----------
Loss before income taxes (265) (3,517)
Income tax benefit (68) (1,469)
------------ -----------
Net loss $ (197) $ (2,048)
============ ===========
Net loss per Common share $ (0.01) $ (0.13)
============ ===========
Weighted average number of
shares of Common stock outstanding 16,799 15,770
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 43
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Note 2)
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share data)
Six Months Ended June 30,
1996 1995
------------ ----------
<S> <C> <C>
System sales, net $ 77,244 $ 35,587
Service and other sales 14,676 11,337
------------ -----------
Total net sales 91,920 46,924
------------ -----------
Cost of system sales 54,096 26,385
Cost of service and other sales 11,470 7,556
------------ -----------
Total cost of sales 65,566 33,941
------------ -----------
Gross profit 26,354 12,983
Selling, general and administrative 18,420 13,186
Research and development 4,023 2,395
------------ -----------
Operating income (loss) 3,911 (2,598)
------------ -----------
Other income (expense):
Interest income 254 216
Interest expense (2,261) (575)
Other, net 62 12
------------ -----------
Total other expense (1,945) (347)
------------ -----------
Income (loss) before income taxes 1,966 (2,945)
Income tax provision (benefit) 713 (1,236)
------------ -----------
Net income (loss) $ 1,253 $ (1,709)
============ ===========
Net income (loss) per Common share $ 0.07 $ (0.11)
============ ===========
Weighted average number of
shares of Common stock outstanding 17,134 15,767
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 44
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Note 2)
(unaudited)
<TABLE>
<CAPTION>
(in thousands)
Six Months Ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows used in operating activities:
Net income (loss) $ 1,253 $ (1,709)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 3,448 903
Provision for valuation allowances and
loss contingencies 547 -
Deferred tax provision - 207
Amortization of deferred compensation 168 168
Amortization of note discount 552 -
Changes in assets and liabilities:
Increase in accounts receivable (1,100) (5,022)
Increase in inventories (20,401) (6,163)
Increase in prepaid expenses and other (654) (3,603)
(Increase) decrease in other assets (153) 54
Increase in accounts payable 1,380 4,706
Increase in accrued expenses and other 952 664
Increase in deferred revenues 1,873 2,117
Increase (decrease) in income taxes payable 491 (906)
-------- -----------
Net cash used in operating activities (11,644) (8,584)
-------- -----------
Cash flows used in investing activities:
Capital expenditures (5,032) (1,517)
Purchase of intangible assets (103) (79)
-------- -----------
Net cash used in investing activities (5,135) (1,596)
-------- -----------
Cash flows provided by financing activities:
Net borrowings under line of
credit agreement 8,350 5,777
Proceeds from exercise of stock options
and warrants 1,272 671
Collection on notes receivable 36 -
Principal payments under capital lease
obligations and long-term debt (593) (536)
-------- -----------
Net cash provided by financing activities 9,065 5,912
-------- -----------
Net decrease in cash and cash equivalents (7,714) (4,268)
Cash and cash equivalents at beginning of period 16,010 13,580
-------- -----------
Cash and cash equivalents at end of period $ 8,296 $ 9,312
======== ===========
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE> 45
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
and six month periods ended June 30, 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. ACQUISITIONS:
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
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 the three and six months ended June 30,
1996 include Imtec's results of operations for the periods then ended.
Additionally, the consolidated balance sheets of SubMicron Systems
Corporation (SSC) as of December 31, 1995 and the results of operations for
the three and six months ended June 30, 1995 have been restated to include
Imtec's historical financial information.
3. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Raw materials $ 34,013 $ 20,231
Work-in-process 21,238 14,619
------------ -----------
55,251 34,850
Excess and obsolescence reserve (929) (718)
------------- -----------
$ 54,322 $ 34,132
============ ============
</TABLE>
4. CUSTOMER INFORMATION:
Sales of the Company's products to three customers accounted for 30% of total
sales for both the three and six months ended June 30, 1996, and sales to three
different customers accounted for 37% and 34% of total sales for the three and
six months ended June 30, 1995. Accounts receivable for the three largest
customers represents 21% of consolidated receivables as of June 30, 1996.
7
<PAGE> 46
5. LINE OF CREDIT:
In February 1996, the Company obtained a $30,000,000 credit facility. The
Company used the credit facility to refinance its existing line of credit and
to provide working capital. Borrowings under the credit facility bear
interest at LIBOR plus 1.75% 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. Borrowings on the credit
facility were approximately $24,600,000, at June 30, 1996. 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.
6. INCOME TAXES:
The Company accounts for income taxes under Financial Accounting Standards
No. 109. As of June 30, 1996, the components of the Company's net deferred
income tax asset are approximately as follows:
<TABLE>
<S> <C>
Financial statement reserves $ 1,494
Uniform capitalization 154
Gain on litigation settlement (1,100)
Deferred compensation 314
Other 396
---------
$ 1,258
=========
</TABLE>
No valuation allowance has been provided for deferred tax assets.
8
<PAGE> 47
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net Sales
Net sales increased 82% and 96% for the three and six month periods ended
June 30, 1996, respectively, as compared to the same periods in the
prior year. Sales increased as a result of continued demand for SubMicron's
advanced wafer cleaning and chemical management systems.
Gross Profit
Gross margins were 26% and 29% of sales for the three and six months ended June
30, 1996, respectively, as compared to gross margins of 23% and 28% for the
comparable periods in the prior year. The increase in gross margins for the
three and six months ended June 30, 1996, of 3% and 1%, respectively, as
compared to the prior year periods were primarily due to the product mix.
Although gross margins have improved versus the comparable prior year period,
the second quarter 1996 margins were negatively impacted by a high level of
customized orders and lower than usual pricing provided to a customer. Gross
margins may vary significantly from quarter to quarter based upon product mix.
Selling, General and Administrative
Selling, general and administrative expenses were 19% and 20% of net sales for
the three and six month periods ended June 30, 1996, respectively, as compared
to 29% and 28% for the comparable periods in the prior year. The decrease in
selling, general and administrative expenses, as a percentage of sales,
reflects benefits created through significantly higher sales volume and an
increase in the use of the Company's direct sales force.
Research and Development
Research and development expenses were 5% and 4% of net sales for the three and
six month periods ended June 30, 1996, respectively, as compared to 6% and 5%
of net sales for the prior years comparable periods. The decrease of
approximately 1%, as a percentage of sales, for the three and six month periods
ended June 30, 1996 as compared to the three and six month periods ended
June 30, 1995 is primarily attributable to the increase in sales volume.
Research and development spending increased approximately $603,000 and
$1,628,000 in the three and six month periods ended June 30, 1996 as compared
to the respective periods in the prior year primarily as the result of the
Company's continued development of its Primaxx gas-phase products.
Other Income (Expense), Net
Other expense was approximately $1,171,000 and $1,945,000 for the three and
six month periods ended June 30, 1996, respectively, as compared to other
expense of approximately $302,000 and $347,000 for the prior year comparable
periods. Other expense for the three and six months ended June 30, 1996,
consists of interest charges associated with the Company's convertible debt
and borrowings under the Company's line of credit. Other expense in the three
and six month periods ended June 30, 1995, was primarily the result of
interest charges associated with borrowings on the Company's line of credit.
9
<PAGE> 48
Net Income
The Company reported a net loss of approximately $197,000 for the three month
period ended June 30, 1996, as compared to a net loss of approximately
$2,048,000 for the prior year comparable period. Net income for the six
months ended June 30, 1996 was approximately $1,253,000 as compared to a net
loss of approximately $1,709,000 for the six months ended June 30, 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.
Liquidity and Capital Resources
In February 1996, the Company obtained a $30,000,000 credit facility. The
Company used the credit facility to refinance its existing line of credit and
to provide working capital. Borrowings under the credit bear interest at LIBOR
plus 1.75% 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. Borrowings on the credit facility were
approximately $24,600,000 at June 30, 1996. 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.
In July 1996, the Company issued a tender offer to noteholders of the Company's
$19,000,000 of 9% Convertible Subordinated Notes due December 1997 to exchange
their notes and warrants for Common stock. The tender offer is conditioned
upon, among other things, the valid tender for exchange of not less than 60% of
the outstanding notes. The tender offer is scheduled to expire on August 26,
1996 unless extended by the Company.
SubMicron's 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. For
the six months ended June 30, 1996, SubMicron used approximately
$11,600,000 in cash flows for operating activities.
Cash and cash equivalents decreased by approximately $7,700,000 during the six
month period ended June 30, 1996, to approximately $8,300,000. Cash used in
operations totaled approximately $11,600,000 for the six months ended June 30,
1996, which was largely due to increased inventory levels. Gross accounts
receivable increased $1,100,000 from approximately $47,100,000 at December 31,
1995 to approximately $48,200,000 at June 30, 1996. Inventory balances of
approximately $54,300,000 at June 30, 1996 are up approximately $20,200,000
from the December 31, 1995 balance of approximately $34,100,000 due
primarily to increased material purchased to prepare for third and fourth
quarter 1996 shipments.
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 cash generated from operations is not adequate.
10
<PAGE> 49
SIGNATURES
Pursuant to the requirements of 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 date included.
SUBMICRON SYSTEMS CORPORATION
Dated: August 13, 1996 By: /s/ David F. Levy
---------------------------------
David F. Levy
President & CEO
Dated: August 13, 1996 /s/R. G. Holmes
---------------------------------
R. G. Holmes
Vice President Finance
Chief Financial Officer
11
<PAGE> 50
EXHIBIT (F)
NEITHER THIS NOTE NOR THE SECURITIES UNDERLYING THIS NOTE HAS BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NEITHER THIS NOTE, NOR
ANY PORTION THEREOF, NOR ANY INTEREST THEREIN, NOR THE SECURITIES UNDERLYING
THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR (II) AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE ACT, PROVIDED THE HOLDER HAS FURNISHED TO PAYOR AN
OPINION OF ITS COUNSEL SATISFACTORY TO PAYOR TO THE EFFECT THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
SUBMICRON SYSTEMS CORPORATION
9% CONVERTIBLE SUBORDINATED PROMISSORY NOTE DUE MARCH 31, 1998
$___________________ ___________________, 1996
FOR VALUE RECEIVED, the undersigned, SubMicron Systems Corporation, a
Delaware corporation ("Payor" or the "Company"), having its executive office at
6620 Grant Way, Allentown, Pennsylvania 18106, hereby promises to pay to
__________________________ or registered assigns (the "Payee"), having an
address at ______________________________, at the Payee's address set forth
hereinabove or, at such other place as the holder of this Note (the "Holder")
shall hereafter specify in writing, on March 31, 1998 (the "Maturity Date"), the
principal sum of ___________________________ ($________) Dollars, in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debt.
This Note is one of a series of promissory notes of Payor (the
"Exchange Notes") issued in connection with the Payor's Exchange Offer pursuant
to its Offering Circular, dated September 16, 1996 (the "Offering Circular").
This Note shall rank pari passu with all other Exchange Notes.
1. Interest and Payment.
Section 1.1. Payment of the full amount of
principal will be due and payable on the Maturity Date unless this Note is
redeemed or converted or otherwise becomes due on an earlier date in accordance
with the terms hereof.
<PAGE> 51
Section 1.2. The unpaid principal amount of this Note
outstanding from time to time shall bear simple interest from, but not
including, the date hereof until the Maturity Date at the rate of 9% per annum.
Section 1.3. Interest pursuant to Section 1.2 is payable in
arrears on the last day of each of the months of March, June, September and
December during the term of this Note (each, an "Interest Payment Date"),
commencing December 31, 1996, to holders of record of this Note on the March 15,
June 15, September 15 and December 15, as the case may be, preceding the
applicable Interest Payment Date or the next business day preceding such record
date if such March 15, June 15, September 15 or December 15, as the case may be,
is not a business day (each an "Interest Payment Record Date"). Interest is
payable at the same address designated for payment of principal. In the event of
acceleration pursuant to Section 5 below, interest accrued through the date of
acceleration shall be payable upon such acceleration.
Section 1.4. If an Event of Default set forth in Sections 5.4,
5.5 or 5.6 hereof shall occur and continue for five days, whether or not the
Holder shall (if permitted hereunder) declare the unpaid principal amount of
this Note, together with accrued and unpaid interest thereon, to be immediately
due and payable, and whether or not such Event of Default occurs after the
occurrence of any other Event of Default described in Section 5 hereof, then
interest shall begin to accrue on the outstanding principal balance of this Note
from the date of such Event of Default to the earlier of (i) the date of payment
in full of the outstanding principal of this Note and all accrued and unpaid
interest hereunder or (ii) the date the Event of Default is cured, at the rate
of 16% per annum (the "Default Rate").
Section 1.5. In no event shall the Holder be entitled to
receive interest, however characterized, at an effective rate in excess of the
maximum rate permitted by law. In the event that a court of competent
jurisdiction shall finally determine that such amounts paid or agreed to be paid
by the Payor in connection with this Note causes the effective interest rate on
this Note to exceed the maximum rate permitted by law, such interest or other
consideration shall automatically be reduced to a rate which results in an
effective interest rate under this Note equal to the maximum rate permitted by
law over the term hereof, and, in such event, the Holder shall apply to the
reduction of the unpaid principal balance of this Note any amounts received by
it deemed to constitute excessive interest. For purposes of this Note, where
appropriate the term "Holder" shall include the Payee.
Section 1.6. The Company may pay principal and interest due
under this Note by Company check. The Holder must surrender this Note to the
Company to receive payment of the principal amount of the Note.
-2-
<PAGE> 52
2. Replacement of Note.
Section 2.1. In case this Note is mutilated,
destroyed, lost or stolen, the Payor shall, at its sole expense, after receipt
of notice from the Holder, execute, register and deliver a new Note, in exchange
and substitution for this Note, if mutilated, or in lieu of and substitution for
this Note, if destroyed, lost or stolen. In the case of destruction, loss or
theft, the Holder shall furnish to the Payor indemnity reasonably satisfactory
to the Payor, and in any such case, and in the case of mutilation, the Holder
shall also furnish to the Payor evidence to its reasonable satisfaction of the
mutilation, destruction, loss or theft of this Note and of the ownership
thereof. Any substitute Note so issued shall be in the same outstanding
principal amount as this Note and dated the date to which interest shall have
been paid on this Note, or if no interest shall have yet been paid, dated the
date of this Note.
Section 2.2. Every Note issued pursuant to the
provisions of Section 2.1 hereof in substitution for this Note shall constitute
an additional contractual obligation of the Payor, whether or not this Note
shall be found at any time, or be enforceable by anyone.
3. Conversion.
Section 3.1.
(a) Subject to the terms and provisions of this Note,
the Holder shall have the right, at its option, at any time after the date of
this Note and until the Conversion Termination Date (as defined below), to
convert the outstanding principal amount of this Note as of the date this Note
is surrendered for conversion into shares of Common Stock in accordance with
Section 3.1(d) (the "Conversion Shares") at the Conversion Price hereinafter
provided. For purposes of this Note, "Conversion Termination Date" means 5:00
p.m. New York City Time on the earlier of (i) the Maturity Date (or such later
date as all outstanding principal and accrued and unpaid interest under this
Note is paid in full) or (ii) the business day immediately preceding the day the
notice of redemption with respect to this Note is given by the Company pursuant
to Section 4.3 of this Note. In the event this Note is redeemed in part, the
Conversion Termination Date with respect to such partial redemption shall only
apply to the principal amount of this Note which is called for redemption.
(b) To convert this Note, in whole or in part as
provided herein at the Holder's election, the Holder shall surrender this Note
to the Payor during usual business hours at the Payor's principal executive
office, accompanied by written notice to the Payor in form reasonably
satisfactory to the Payor of the Holder's intention to convert, stating the
portion of the Note that is to be converted and the name and address of each
person in whose
-3-
<PAGE> 53
name a share or shares of Common Stock issuable upon such conversion is to be
registered.
(c) When surrendered for conversion, this Note shall,
unless the shares issuable on conversion are to be issued in the same name as
the name in which this Note is then registered, be duly endorsed, or accompanied
by instruments of transfer in form reasonably satisfactory to the Payor duly
executed, by the Holder or his or its duly authorized attorney. As promptly as
practical after the surrender and giving of notice to convert as herein
provided, the Payor shall deliver or cause to be delivered at its office or
agency maintained for that purpose to or upon written order of the Holder of the
Note, certificates representing the number of fully paid and nonassessable
Conversion Shares into which said Note is converted and, in the event of partial
conversion, a new Note in an aggregate principal amount equal to the unconverted
portion of said Note, dated as of the date to which interest has been paid, and
if no interest has been paid, dated as of the date of the Note converted in
part, and in all other respects identical to the Note converted. In addition,
upon conversion, the Payor shall pay to the Payee any unpaid interest accrued on
the converted portion of the Note through the date of conversion. If a Note is
surrendered for conversion during the period from the close of business on any
Interest Payment Record Date to the opening of business on the succeeding
Interest Payment Date, Holder must surrender this Note accompanied by payment by
check or other method reasonably acceptable to the Payor of an amount equal to
the interest payable from the date of conversion to such 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.
(d) Upon conversion as provided herein, this Note (or
any Note(s) issued upon transfer or exchange) shall convert into such number of
shares of Common Stock equal to the outstanding principal amount of this Note or
portion thereof which is being converted, divided by $6.30 (the "Conversion
Price"), such Conversion Price to be adjusted from time to time as provided in
Section 3.3 hereof.
Section 3.2
(a) The Payor covenants and agrees that it has
reserved and shall at all times reserve and keep available out of its authorized
but unissued Common Stock, solely for the purpose of issuing such shares upon
the conversion of this Note, the full number of Conversion Shares then
deliverable upon the conversion hereof, free of preemptive rights. The Payor
covenants and agrees that the Conversion Shares shall, at the time of delivery
of the certificates for such shares of Common Stock, be duly authorized, validly
issued and fully paid and nonassessable shares of Common Stock.
-4-
<PAGE> 54
(b) Each person in whose name any certificate for the
Conversion Shares is issuable upon the conversion of this Note shall for all
purposes be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated, the date upon which
the Note was duly surrendered and notice of conversion was given in accordance
with the provisions of this Note; provided, however, that if the date of such
surrender and notice is a date upon which the stock transfer books of the Payor
are closed, such person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next business day on which
the stock transfer books of the Payor are open.
Section 3.3.
(a) In case the Payor shall: (i) declare a dividend
of Common Stock on its Common Stock, (ii) subdivide outstanding Common Stock
into a larger number of shares of Common Stock by reclassification, stock split
or otherwise, or (iii) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise, the Conversion Price
then in effect immediately prior to any such event shall be adjusted
proportionately so that thereafter the Holder shall be entitled to receive upon
conversion of this Note the number of Conversion Shares which such Holder would
have owned after the happening of any of the events described above had this
Note been converted immediately prior to the happening of such event, provided
that the Conversion Price shall in no event be reduced to less than the par
value of the shares issuable upon conversion. An adjustment made pursuant to
this Section 3.3 shall become effective immediately after the record date in the
case of a dividend or payment date in the event no record date is fixed to
determine the stockholders entitled to receive such dividend (and readjusted
back to the Conversion Price in effect prior to such adjustment if the dividend
is not paid) and shall become effective immediately after the effective date in
the case of a subdivision or combination.
(b) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of this Note (other
than change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any consolidation or merger with or into another corporation (other than a
consolidation or merger in which the Payor is the continuing corporation and
which does not result in any reclassification or change of outstanding shares of
Common Stock, other than a change as a result of a subdivision or combination of
such shares or a change in par value, as aforesaid), or in case of any sale or
conveyance to another corporation of the property of the Payor as an entirety or
substantially as an entirety, the holder of this Note shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock of
-5-
<PAGE> 55
the Payor for which the Note might have been converted immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance.
The above provisions of this Section 3.3(a) and (b)
shall similarly apply to successive reclassifications and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
Section 3.4. In the event that the Payor shall at
any time prior to the conversion of all of the Notes declare a dividend (other
than a dividend consisting solely of shares of Common Stock or a cash dividend
or distribution payable out of current or retained earnings) or otherwise
distribute to its stockholders any monies, assets, property, rights, evidences
of indebtedness, securities (other than shares of Common Stock), whether issued
by the Payor or by another person or entity, or any other thing of value, the
Company shall promptly thereafter give the Holder the notice set forth in
Section 3.5 hereof. If the Payor fails to give such notice, the Holder shall be
entitled to receive, upon the conversion of the Notes, the same monies,
property, assets, rights, evidences of indebtedness, securities or any other
thing of value that such Holder would have been entitled to receive at the time
of such dividend or distribution. The Payor shall make appropriate provisions to
ensure the timely performance of the provisions of this Subsection 3.4.
Section 3.5.
(a) In case the Payor proposes to take any action
referred to in Section 3.4 above, or to effect the liquidation, dissolution or
winding up of the Payor, then the Payor shall cause notice thereof to be mailed
to the Holder, at Holder's address appearing in the Payor's records, at least
thirty (30) days prior to the date on which the transfer books of the Payor
shall close or a record be taken for such stock dividend, sale or issuance or
the date when such reclassification, liquidation, dissolution or winding up
shall be effective, as the case may be. Neither the failure to give such notice
referred to in Section 3.5(a) or (b) nor any defect therein or in the mailing
thereof shall affect the validity of any action taken in connection with such
transaction.
(b) Whenever the Conversion Price shall be adjusted
as provided in Section 3.3 above, the Payor shall forthwith file at the office
designated for the conversion of the Note, a statement, signed by the Chairman
of the Board, the President, any Vice President, the Treasurer or Secretary of
the Payor, showing in reasonable detail the facts requiring such adjustment and
the Conversion Price that will be effective after such adjustment. The Payor
shall also cause a notice setting forth any such adjustment to be sent by mail,
first class, postage prepaid, to the Holder at its address appearing on the Note
register maintained by the Payor.
-6-
<PAGE> 56
(c) No fractional shares of Common Stock shall be
issuable upon conversion of this Note, but a payment in cash will be made in
respect of any fraction of a share which would otherwise be issuable upon the
surrender of this Note, or portion hereof, for conversion. Such payment shall be
based on the "Closing Price" of the Common Stock on the date of conversion.
"Closing Price" for the purpose of this Note shall mean (i) the last reported
sale price, on the primary exchange on which the Common Stock is traded, if the
Common Stock is traded on a national securities exchange, including the Nasdaq
National Market, or (ii) the closing bid price of the Common Stock as reported
by the Nasdaq Small Cap Market, or (iii) if the Common Stock is not traded on a
national securities exchange or Nasdaq, the closing bid price of the Common
Stock as reported by the National Quotation Bureau, Inc., or (iv) if none of
(i)-(iii) are applicable, as determined in good faith by the Board of Directors
of the Payor.
Section 3.6. No Holder of this Note shall be entitled
to vote or receive dividends or be deemed the holder of Common Stock or any
other securities of the Payor which may at any time be issuable on the
conversion hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder of this Note, as such, any of the rights of
a stockholder of the Payor or any right to vote for the election of directors or
upon any matters submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise) or to
receive dividends or subscriptions rights or otherwise until the Note shall have
been converted and the Common Stock issuable upon the conversion hereof shall
have become deliverable as provided herein.
4. Redemption.
Section 4.1. On not less than fifteen (15) days
notice given at any time, this Note may be redeemed, in whole or in part, at the
option of the Payor, at a redemption price (the "Redemption Price") equal to (i)
100% of the principal amount of the Note at the time outstanding and (ii)
accrued interest on the Note unpaid as of the Redemption Date. The date fixed
for redemption of this Note, or a portion thereof, is referred to herein as the
"Redemption Date."
Section 4.2. In the event that not all of the
Exchange Notes are to be redeemed, the Payor shall select the Exchange Notes, or
portions thereof, to be redeemed on either a pro rata basis or by lot, or such
other method as it shall deem fair and appropriate. The Company may select for
redemption portions of Exchange Notes that have denominations in integral
multiples of $1,000.
-7-
<PAGE> 57
Section 4.3. The notice of redemption shall specify
(i) the principal amount of the Note to be redeemed, (ii) the Redemption Price,
(iii) the Redemption Date, (iv) the place where the Note shall be delivered and
the redemption price paid, and (v) that the right to convert the Note shall have
terminated as of the business day immediately preceding the date such notice is
given. No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption, except
as to a Holder (a) to whom notice was not mailed or (b) whose notice was
materially defective. An affidavit of the Secretary or an Assistant Secretary of
the Payor that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
Section 4.4. On and after the Redemption Date,
Holders of the Notes shall have no further rights with respect to the portion of
the Note redeemed except to receive, upon surrender of the Note, the Redemption
Price.
Section 4.5. From and after the Redemption Date, the
Payor shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Payor by or on behalf of the Holder thereof of
one or more Notes to be redeemed, deliver or cause to be delivered to or upon
the written order of such Holder a sum in cash equal to the Redemption Price of
each such Note. From and after the Redemption Date such Notes shall expire and
become void and all rights hereunder shall cease, except the right to receive
payment of the Redemption Price and, if the Note is redeemed only in part, to
receive a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
5. Events of Default. The following shall be Events of
Default:
Section 5.1. The liquidation, dissolution or winding
up of the Payor or any vote in favor thereof by the Board of Directors and
stockholders of the Payor without making provision for the payment in full of
the Exchange Notes in accordance with their terms; or
Section 5.2. Payor shall make an assignment for the
benefit of creditors, or shall file with a court of competent jurisdiction an
application for the appointment of a receiver for itself or a material part of
its assets, or shall commence a voluntary case or proceeding under any provision
of the Federal Bankruptcy Code or any other federal or state statute affording
relief to debtors or shall in any manner consent to the filing against it of an
involuntary case or proceeding under any such law; or there shall be commenced
against the Payor an involuntary case or proceeding under any such federal or
state statute or there shall be filed against the Payor, without the consent of
Payor, any application under any such federal or state statute for the
appointment of a receiver for itself or a material part of its
-8-
<PAGE> 58
assets which case, proceeding or application is not dismissed or withdrawn
within sixty (60) days of commencement or filing thereof as the case may be; or
Section 5.3. The sale by the Payor of all or
substantially all of its assets (other than the sale of inventory in the
ordinary course of business), or the merger or consolidation by the Payor with
or into another corporation, except for such mergers where the Payor is the
surviving entity or in which the surviving entity in such merger or
consolidation expressly assumes and agrees to pay all of the obligations of the
Payor under all of the Exchange Notes; or
Section 5.4. The failure by the Payor to pay when due
(other than in connection with an acceleration of principal and interest due
under this Note) the principal of, or accrued interest under, this Note, or any
of the other Exchange Notes, as and when the same shall become due and payable;
or
Section 5.5. Payor or any of its subsidiaries shall
default in the payment when due (after any grace period provided therefor) of
the principal of, or interest on, any institutional indebtedness of Payor or any
such subsidiary with an aggregate principal amount in excess of $250,000
(whether such principal or interest shall become due at scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise); or
Section 5.6. A registration statement (the
"Registration Statement") covering the Conversion Shares is not declared
effective by the SEC on or prior to [the date 90 days after the consummation of
the Exchange Offer] or, having been declared effective, is not maintained
effective until such shares are saleable under Rule 144(k) of the Act or a
successor provision (a "Registration Default"). Notwithstanding the foregoing,
in the event that the Payor is unable to cause the Registration Statement to be
declared effective by the SEC on or prior to [the date 90 days after the
consummation of the Exchange Offer] or is unable to maintain the effectiveness
of the Registration Statement due to the fact that the Payor is engaged in
negotiations with respect to an acquisition or other material event that would,
in the written opinion of Payor's counsel, require the filing with the SEC of a
Form 8-K (other than pursuant to Item 5 of Form 8-K) or in the event that such
acquisition or other material event would require the inclusion in the
Registration Statement of information not readily available to the Payor
(collectively a "Deferral Event"), the Payor may postpone (the "Postponement")
(a) the initial effectiveness of the Registration Statement beyond [the date 90
days after the consummation of the Exchange Offer] or (b) maintaining the
effectiveness of the Registration Statement, for a period not to exceed the
lesser of (i) the period ending on the date on which such information becomes
available or the Form 8-K is filed, as the case may be, or (ii) sixty (60) days.
Notwithstanding Section 1.4 hereof, no Event of Default shall be deemed to occur
and therefore no adjustment to the interest rate
-9-
<PAGE> 59
shall occur provided that the Payor shall promptly notify the holders of the
Notes and/or Conversion Shares in writing of such Postponement (the "Notice of
Postponement"), and the Payor shall not be permitted to give any such Notice of
Postponement and to so postpone the effectiveness of the Registration Statement
more than once in any twelve month period; or
If an Event of Default pursuant to Sections 5.1,
5.2, 5.3, 5.4 and 5.5 hereof shall occur and, other than with respect to
Sections 5.1 or 5.2, shall continue uncured for five (5) days, and at any time
thereafter, while such event is continuing, the Holder shall have the right to
declare the unpaid principal amount of this Note, together with accrued interest
thereon, to be immediately due and payable, whereupon the same shall be
forthwith due and payable.
The Payor shall promptly provide the Holder with
written notice after the occurrence of any Event of Default known by the Payor
setting forth the facts constituting such Event of Default.
6. Subordination.
Section 6.1. The payment of the principal of, and
accrued interest on this Note is hereby expressly subordinated in right of
payment, in the manner and to the extent hereinafter expressly set forth, to the
prior payment in full of all Senior Indebtedness (as hereinafter defined),
whether outstanding on the date hereof or hereafter created, incurred or
assumed. The Holder and the Payee, by his or its acceptance hereof, agrees to
and shall be bound by the provisions hereof.
As used in this Section 6, "Senior Indebtedness"
means (i) indebtedness consisting of the principal of, premium, if any, interest
on and any fees, charges and expenses relating to, (A) Money Borrowed, or (B)
the deferred purchase price of any business, properties or assets acquired by
the Payor or any of its subsidiaries from any third party, or (C) secured by any
mortgage, security interest, lien, pledge or encumbrance upon property of the
Payor or any of its subsidiaries; (ii) guarantees, direct or indirect, of any
indebtedness referred to in clause (i) above; and (iii) all renewals,
replacements, extensions, refundings, amendments, modifications, or increases of
any indebtedness referred to in clause (i) above.
The term, "Money Borrowed," as used in the
definition of "Senior Indebtedness," means indebtedness evidenced by bonds,
debentures notes or similar instruments, provided that such obligations have
been secured by a substantial amount of the assets of the Payor or any material
subsidiary of the Payor.
-10-
<PAGE> 60
Section 6.2. In the event of any distribution,
division or application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part of the assets of the Payor,
whether in cash or kind, upon any dissolution, winding up, liquidation,
readjustment or reorganization of the Payor or its property, whether in
bankruptcy, insolvency or receivership proceedings or at execution sale or upon
an assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of the Payor or otherwise, the Payor and the Holder, by
his or its acceptance of this Note, agree that:
(a) The holders of all Senior Indebtedness shall
first be entitled to receive payment in full, in accordance with the terms of
such Senior Indebtedness, of the principal thereof and interest thereon, before
the Holder shall be entitled to receive any payment on account of the principal
of, or interest on, this Note.
(b) The Holder, by his or its acceptance of this
Note, assigns to the holders of Senior Indebtedness for the purposes and to the
extent set forth in this Section 6, all his right, title and interest to and in
any payment or distribution of assets of the Payor of any kind or character,
whether in cash, property or securities, other than securities of the Payor as
reorganized or readjusted or securities of the Payor or any other corporation
provided for by a plan of reorganization or readjustment the payment or
distribution of which is subordinate, at least to the extent provided in this
Section 6 with respect to this Note, to the payment in full of the principal of,
and interest on all Senior Indebtedness to which the Holder would be entitled
except for the provisions of this Section 6(b) ("Subordinated Securities"). The
Holder authorizes and directs the Payor (or any receiver, trustee in bankruptcy,
liquidating trustee or agent or other Person acting for the Payor) to take such
steps as may be reasonably necessary or appropriate to entitle the holders of
Senior Indebtedness to receive such payment or distribution from the liquidating
trustee or agent or other person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise, ratably
according to the aggregate amounts remaining unpaid on the Senior Indebtedness
held by each such holders, all to the extent necessary to provide for payment in
full of the principal of, and interest on, all Senior Indebtedness, in
accordance with the terms of such Senior Indebtedness, but prior to any payment
of principal of, or interest on, this Note, and in connection therewith and for
such purpose, the holders of the Senior Indebtedness are hereby authorized and
permitted to assert, file, prosecute and vote any claim or other interest on
account of this Note which may be required in order to seek and obtain payment
on account of this Note under the circumstances described in this Section 6.2;
and
-11-
<PAGE> 61
(c) In the event that, notwithstanding the provisions
of Section 6.2(b) hereof, any payment or distribution of assets of the Payor of
any kind or character, whether in cash, property or securities (other than
Subordinated Securities), shall be received by the Holder before the payment in
full of the principal of and interest on Senior Indebtedness in accordance with
the terms of such Senior Indebtedness, such payment of distribution shall be
held in trust for the benefit of, and shall be paid over to, the holders of
Senior Indebtedness, ratably according to the aggregate amount remaining unpaid
on such Senior Indebtedness held by each such holder, to the extent necessary to
pay in full the principal of and interest on such Senior Indebtedness, in
accordance with the terms of such Senior Indebtedness.
Section 6.3. The Payor shall not make any payment of
the principal of, or interest on, this Note (a) at any time when it is in
default in the payment of principal of, or interest on, any Senior Indebtedness,
or (b) if at the time of such payment or immediately after giving effect
thereto, there shall exist any default (other than a default specified in clause
(a) above) specified in any Senior Indebtedness which shall have continued
uncured for the period of grace (or the period after notice), if any, specified
in such Senior Indebtedness if such default shall give the holders of Senior
Indebtedness the right to accelerate the maturity thereof, provided that Payor
shall have given the Holder written notice of the occurrence of any such
default, unless and until such default shall have been cured or waived or shall
have ceased to exist. Any payment of principal of, or interest on, this Note
under circumstances described in clause (a) and (b) above shall be held by the
Holder in trust for the holders of Senior Indebtedness, provided Payor shall
give the Holder written notice of the occurrence of any default referred to in
the preceding sentence.
Section 6.4. Prior to the date on which the Senior
Indebtedness shall have been paid in full, the Holder shall not:
(a) Sue for, take or receive from Payor, in cash or
other property or by set off or in any other manner, payment of all or any of
the amounts due under this Note; provided, however, that absent the occurrence
and continuance of any default under the terms of the Senior Indebtedness, the
Holder may receive payments of the principal when due at maturity without
prepayment or acceleration (and without creating a default under the Senior
Indebtedness held or agented by Corestates Bank, N.A., the absence of such
default to be evidenced by the prior written acknowledgement of Corestates Bank,
N.A. or its successors, which acknowledgement will not be unreasonably
withheld), and interest on this Note, pursuant to this Note.
(b) Foreclose or attempt to foreclose upon any of the
property of Payor, seek or obtain the appointment of a receiver for the Payor,
exercise any right or power of sale or repossession,
-12-
<PAGE> 62
or attempt to realize upon any portion of the property of the Payor, any
interest therein, seek relief from any stay imposed by the Bankruptcy Code or
exercise any other right or remedy granted in connection with this Note against
the Payor and/or the property of the Payor.
(c) Pursue any other remedies at law, in equity or
otherwise available to the Payee in connection with this Note against the Payor
and/or the property of the Payor.
(d) Accept any casualty insurance or other insurance
proceeds or condemnation aware proceeds from the Payor or otherwise on account
of this Note.
(e) Assert any demand, objection, defense and/or
counterclaim (including any rights of marshalling or equitable subordination)
relating to this Note and the Senior Indebtedness, against the holders of the
Senior Indebtedness.
Notwithstanding any provision to the contrary set
forth in this Section 6, (a) interest at the Default Rate shall commence, and
shall continue to, accrue as provided as in Section 1.4, upon the occurrence of
any of the Events of Default referred in such Sections; (b) the Holder of this
Note shall not be prevented from, to the extent permitted under this Note,
accelerating the maturity of the principal of, and accrued interest on, this
Note upon or following the occurrence of an Event of Default (other than an
Event of Default specified in Section 5.2) during any period of one hundred
eighty (180) days after written notice of the occurrence of a default specified
in any Senior Indebtedness shall have been given to Holder by Payor or any
holder of Senior Indebtedness, provided that only one such notice may be given
to the Holder pursuant to this clause in any one hundred twenty (120) day period
and no notice may be given in respect of any such Senior Indebtedness default,
the existence of which any holder of Senior Indebtedness had knowledge at the
time any other notice was delivered pursuant to this clause.
Section 6.5. Subject to the payment in full of the
principal of, and interest on, any Senior Indebtedness in accordance with the
terms of such Senior Indebtedness, the Holder shall be subrogated to the rights
of the holder or holders of such Senior Indebtedness to receive payments or
distributions of assets of the Payor applicable to such Senior Indebtedness, to
the extent of the application thereto of moneys or other assets which would have
been received by the Holder but for the provisions of this Section 6, until the
principal of, and interest on, this Note shall be paid in full; it being
understood that the provisions of this Section 6 are, and are intended, solely
for the purpose of defining the relative rights of the Holder, on the one hand,
and the holders of Senior Indebtedness, on the other hand. Except as set forth
in Sections 6.2, 6.3 and 6.4, nothing in this Section 6 or this Note is intended
to or shall impair the obligations of Payor hereunder, subject to the rights of
the Holder and creditors of the Payor
-13-
<PAGE> 63
other than the holders of Senior Indebtedness, nor shall anything in this Note
prevent the Holder from exercising all remedies otherwise permitted by this Note
or by applicable law upon default under this Note, subject, in any event, to the
rights, if any, under this Section 6 of the holders of Senior Indebtedness in
respect of any payment or distribution of cash, property or securities of the
Payor (other than Subordinated Securities) received upon the exercise of any
such remedy.
7. Restriction on Transfer. By its acceptance of this Note,
the Holder and the Payee, as the case may be, acknowledge that neither this Note
nor the Conversion Shares has been registered under the securities laws of the
United States of America or any state thereof and represents that this Note has
been acquired for investment and, neither this Note, nor any portion thereof, no
interest in this Note nor the Conversion Shares may be offered for sale, sold,
delivered after sale, transferred, pledged, or hypothecated in the absence of
registration of this Note and the Conversion Shares, as the case may be, under
applicable federal and state securities laws or the receipt by the Payor of an
opinion of counsel of the Holder or Payee, as the case may be, satisfactory to
the Payor that such registration is not required by reason of an available
exemption from registration under such securities laws.
8. Amendments. No amendment, modification or waiver of any
provision of this Note, and no consent to departure from performance or
compliance with any such provision, shall in any event be effective unless the
same is in writing and signed by the Holders of 51% or more in the aggregate
principal amount of the Exchange Notes at the time outstanding, except that no
such amendment may (i) extend the Maturity Date of any Note, or reduce the
principal amount thereof, or reduce the rate or extend the time or payment of
interest thereon, without the consent of the holder of each of the Exchange
Notes so affected; (ii) modify the provisions of the Note with respect to the
subordination of the Notes in a manner adverse to the holders thereof or alter
the provisions in respect of the right to convert the Notes, without the consent
of the holders of 100% in aggregate principal amount of the Exchange Notes at
the time outstanding; or (iii) reduce the aforesaid percentage of the Exchange
Notes, the consent of the holders of which is required for any amendment,
without the consent of the holders of 100% in aggregate principal amount of the
Exchange Notes at the time outstanding.
9. Miscellaneous.
Section 9.1. The headings of the various paragraphs
of this Note are for convenience of reference only and shall in no way modify
any of the terms or provisions of this Note.
-14-
<PAGE> 64
Section 9.2. All notices required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by registered or certified mail, return
receipt requested, postage prepaid, to the address of the intended recipient set
forth in the preamble to this Note or at such other address as the intended
recipient shall have hereafter given to the other party hereto pursuant to the
provisions hereof.
Section 9.3. If any date that may at any time be
specified in this Note as a date for the making of any payment of principal or
interest under this Note shall fall on Saturday, Sunday or on a day which in New
York, New York, shall be a legal holiday, then the date for the making of that
payment shall be the next subsequent day which is not a Saturday, Sunday or
legal holiday.
Section 9.4. This Note and the obligations of Payor
and the rights of the Holder hereunder shall be governed by, and construed in
accordance with the applicable laws of the State of New York without giving
effect to the choice of law principles thereof.
Section 9.5. (a) AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR HOLDER TO ACCEPT THIS NOTE, AND AFTER HAVING THE OPPORTUNITY TO
CONSULT COUNSEL, PAYOR AND THE HOLDER OF THIS NOTE, BY ITS OR HIS ACCEPTANCE
HEREOF EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT IT
MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION OR PROCEEDING ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE, AND IN CONNECTION WITH ANY CLAIM,
COUNTERCLAIM, OFFSET OR DEFENSE ARISING IN CONNECTION WITH SUCH ACTION OR
PROCEEDING, WHETHER ARISING UNDER ANY STATUTE (INCLUDING ANY FEDERAL OR STATE
CONSTITUTION) OR UNDER THE LAW OF CONTRACT, TORT OR OTHERWISE AND, INCLUDING,
WITHOUT LIMITATION, ANY CHALLENGE TO THE LEGALITY, VALIDITY, BINDING EFFECT OR
ENFORCEABILITY OF THIS PROVISION OR THIS NOTE. FURTHER, PAYOR HEREBY CERTIFIES
THAT NO REPRESENTATIVE OR AGENT OF THE HOLDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE HOLDER WOULD NOT, IN THE EVENT OF ANY SUCH ACTION OR
PROCEEDING, SEEK TO ENFORCE THIS WAIVER OF JURY TRIAL PROVISION. PAYOR HEREBY
ACKNOWLEDGES THAT THE HOLDER HAS BEEN INDUCED TO ACCEPT THIS NOTE BY, INTER
ALIA, THE PROVISIONS OF THIS SECTION.
(b) PAYOR AGREES TO THE PERSONAL JURISDICTION OF ANY
STATE OR FEDERAL COURT WITHIN THE STATE OF NEW YORK (NEW YORK COUNTY) IN ANY
LITIGATION COMMENCED BY THE HOLDER OF THIS NOTE IN RESPECT OF ANY MATTER ARISING
UNDER OR IN CONNECTION WITH THIS NOTE, AND WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT, AND CONSENTS THAT ALL SERVICE OF PROCESS MAY BE MADE BY
CERTIFIED MAIL DIRECTED TO PAYOR AT THE ADDRESS INDICATED ABOVE AND SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE
BEEN DEPOSITED IN THE UNITED STATES MAIL, POSTAGE PREPAID. PAYOR WAIVES, AT THE
OPTION OF THE HOLDER, ANY OBJECTION
-15-
<PAGE> 65
BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING CONTAINED IN THIS
PROVISION SHALL AFFECT THE RIGHT OF THE HOLDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT TO BRING ANY ACTION OR
PROCEEDING AGAINST PAYOR OR ANY OF ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
(c) PAYOR AGREES THAT ANY ACTION COMMENCED BY IT
ASSERTING ANY CLAIM OR COUNTERCLAIM ARISING UNDER OR IN CONNECTION WITH THIS
NOTE SHALL BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK (NEW YORK COUNTY),
OR IN THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF
NEW YORK AND THAT SUCH COURTS SHALL HAVE EXCLUSIVE JURISDICTION WITH RESPECT TO
ANY SUCH ACTION.
(d) Payor agrees that in the event of any litigation
in respect of any matter arising under or in connection with this Note, Payor
will not interpose any counterclaim, setoff, recoupment, defense, rescission or
adjustment of any nature.
(e) Payor agrees that if the Holder shall institute
any action to enforce the collection of any amount of principal of, and/or
interest on or any other amount due hereunder this Note, there shall be
immediately due and payable from the Payor, in addition to the then unpaid sum
of this Note, all reasonable costs and expenses incurred by the Holder in
connection therewith, including, without limitation, reasonable attorneys' fees
and disbursements.
(f) No forbearance, indulgence, delay or failure to
exercise any right or remedy with respect to this Note shall operate as a
waiver, nor as an acquiescence in any default, nor shall any single or partial
exercise of any right or remedy preclude any other or further exercise thereof
or the exercise of any other right or remedy.
(g) The Payor hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest and diligence in taking any action to collect amounts called
for hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder or in connection with any right, lien, interest or property at any
and all times which the Payee had or is existing as security for any amount
called for hereunder.
-16-
<PAGE> 66
10. Transfers. The transfer of this Note is registrable by the Payor,
and the registered Holder hereof, in person or by his attorney duly authorized
in writing, on the books of the Payor to be kept for that purpose at the office
of the Payor, upon surrender and cancellation of this Note and upon presentation
of a duly executed written instrument of transfer in form satisfactory to Payor,
and thereupon a new Note or Notes, of authorized denominations for the same
aggregate principal amount will be issued to the transferee or transferees in
exchange herefor with payment by the Holder of any stamp or other tax or
governmental charge in connection therewith. Prior to due presentment of this
Note for registration of transfer, the Payor may deem and treat the person in
whose name this Note is registered as the absolute owner hereof for the purpose
of receiving payment hereof or on account hereof or of interest hereon (subject
to the provisions of the first paragraph on the face hereof) and for all other
purposes.
IN WITNESS WHEREOF, this Note has been executed and delivered
as a sealed instrument on the date first above written by the duly authorized
representative of the Payor.
SUBMICRON SYSTEMS CORPORATION
By:____________________________
Name:
Title:
-17-
<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
9% CONVERTIBLE SUBORDINATED NOTES DUE MARCH 31, 1998
AND CONSENT TO MODIFICATION AND WAIVER
OF CERTAIN PROVISIONS OF THE ORIGINAL NOTES
THE EXCHANGE OFFER EXPIRES AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER
30, 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 ("Original Notes") and Warrants to purchase 60 shares of
Common Stock of SubMicron Systems Corporation ("Warrants"). Holders who cannot
deliver the Original 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 Original 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 ORIGINAL 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>
NOTE: ALL UNITS MUST BE TENDERED, IF ANY ARE TENDERED. PARTIAL TENDERS WILL
NOT BE ACCEPTED. SEE INSTRUCTION 3.
/ / Check here if tendered Original 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 and New Notes to which you
are entitled will be registered in the name or names in which the Original 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 "Original Notes") and the warrants to purchase
shares of Common Stock of the Company (the "Warrants") pursuant to the Company's
offer to exchange 142 shares of its Common Stock, par value $.0001 per share
(the "Common Stock"), and $218 principal amount of 9% Convertible Subordinated
Notes due March 31, 1998 (the "New Notes"), for each Unit consisting of $1,000
principal amount of Original 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 September 16, 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 and New Notes to be issued in exchange for, the Original 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 Original 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 Original
Notes and Warrants for transfer on the books of the Company, including, by
delivery of the Original Notes and Warrants together with all accompanying
2
<PAGE> 3
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 Original
Notes and Warrants so tendered.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Original 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 Original 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
Original 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 Original 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 MODIFICATION AND WAIVER OF CERTAIN PROVISIONS
OF ORIGINAL NOTES
The Original Notes contain certain restrictions on the payment of dividends
and other distributions and the incurrence of certain unsecured debt (Sections 7
and 8, respectively, of the Original Notes). In addition, the Original Notes
provide that it shall be an Event of Default if the Company has earnings per
share of less than $.20 for fiscal years 1995 or 1996 (Section 5.7 of the
Original Notes). The New Notes contain none of these provisions. In addition,
the Original Notes contain anti-dilution provisions that adjust the Conversion
Price at which the Original Notes are converted into shares of Common Stock and,
therefore, the number of shares of Common Stock issuable upon conversion of the
Original Notes. Depending on the price of a share of Common Stock on the
Expiration Date, issuance of Common Stock pursuant to the Exchange Offer would
likely cause an adjustment to the Conversion Price and the number of shares
issuable upon subsequent conversion of any Original Notes that are not tendered
for exchange. THE UNDERSIGNED, THE REGISTERED HOLDER OF THE ORIGINAL NOTES
LISTED IN BOX 1, BY SIGNING THIS LETTER OF TRANSMITTAL IN BOX 5 BELOW, HEREBY
CONSENTS TO (I) MODIFY THE ORIGINAL NOTES BY ELIMINATING SECTIONS 7 AND 8
THEREOF (THE RESTRICTIONS ON DIVIDENDS AND DISTRIBUTIONS AND ON CERTAIN
INDEBTEDNESS, RESPECTIVELY), SECTION 5.7 (THE EARNINGS PER SHARE EVENT OF
DEFAULT), SECTION 5.8 (THE EVENT OF DEFAULT FOR NONCOMPLIANCE WITH SECTIONS 7 OR
8) AND ALL REFERENCES IN THE ORIGINAL NOTES TO THE FOREGOING PROVISIONS AND (II)
THE WAIVER OF ANY ANTI-DILUTION ADJUSTMENTS WITH RESPECT TO THE CONVERSION PRICE
OR THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE ORIGINAL
NOTES AS A RESULT OF THE EXCHANGE OFFER. IN THE EVENT HOLDERS OF AT LEAST 51% OF
THE AGGREGATE PRINCIPAL AMOUNT OF THE ORIGINAL NOTES OUTSTANDING SO CONSENT,
SUCH MODIFICATIONS WILL BE APPROVED AND THERE WILL BE NO ADJUSTMENT TO THE
CONVERSION PRICE OR THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THE ORIGINAL NOTES AS A RESULT OF THE EXCHANGE OFFER.
The undersigned requests that the certificates representing the Common
Stock and the New Notes 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 and New
Notes are to be registered, complete Box 2 below titled "Special Issuance
Instructions."
---------------------------------------------------------------
BOX 2 SPECIAL ISSUANCE
INSTRUCTIONS
TO BE COMPLETED ONLY if the certificates for the Common Stock and the
New Notes are to be registered in the name(s) of someone other than the
registered holder of Original 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 AND NEW NOTES)
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 Original 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 and the New Notes 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 and New Notes are to be registered
in the name of the registered holder of the Original Notes and Warrants named in
Box 1, BUT ARE 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 Original 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 ORIGINAL NOTES DESCRIBED IN
BOX 1, HEREBY CONSENTS TO (I) THE MODIFICATION OF THE ORIGINAL NOTES BY
ELIMINATING SECTIONS 7 AND 8 THEREOF (THE RESTRICTIONS ON DIVIDENDS AND
DISTRIBUTIONS AND ON CERTAIN INDEBTEDNESS, RESPECTIVELY), SECTION 5.7 (THE
EARNINGS PER SHARE EVENT OF DEFAULT), SECTION 5.8 (THE EVENT OF DEFAULT FOR
NONCOMPLIANCE WITH SECTIONS 7 OR 8) AND ALL REFERENCES IN THE ORIGINAL NOTES TO
THE FOREGOING PROVISIONS AND (II) THE WAIVER OF THE APPLICABILITY OF ANY
ANTI-DILUTION PROVISIONS IN THE ORIGINAL 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
INTEREST PAYABLE ON THE NEW NOTES AND ON DIVIDENDS ON THE COMMON STOCK THAT
MIGHT BE PAYABLE IN THE FUTURE. SEE INSTRUCTION 10.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
PAYER'S NAME: SUBMICRON SYSTEMS CORPORATION
- ---------------------------------------------------------------------------------------------------------
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 PART III --
exempt from backup withholding, or (b) I Awaiting TIN
have not been / /
notified by the Internal Revenue Service
("IRS") that I am
subject to backup 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)
- ---------------------------------------------------------------------------------------------------------
SIGNATURE DATE , 1996
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<S> <C> <C>
SIGNATURE DATE , 1996
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF INTEREST PAYABLE ON THE NEW NOTES AND 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.
<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 Original Note and Warrant
Certificates which you desire to tender. Please do not send Original Note and
Warrant Certificates directly to the Company. Holders who cannot deliver the
Original Note and Warrant Certificates and all other required documents to the
Exchange Agent by the Expiration Date must tender such Original 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
Original 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 ORIGINAL 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 Original 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 Original Note and Warrant Certificates transmitted. If the
Original 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
Original Note and Warrant Certificates transmitted. If the Original 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. NO PARTIAL TENDERS
All Units of Original Notes and Warrants held by a holder must be tendered
if any Units are tendered. Partial tenders are prohibited, and if less than all
holder's Units are tendered, the Company may reject such Units as are tendered.
4. ISSUANCE OF CERTIFICATE FOR COMMON STOCK AND NEW NOTES IN SAME NAME
If the certificate representing the Common Stock and the New Notes are to
be issued in the name of the registered holder(s) set forth on the surrendered
Original Note and Warrant Certificates and be mailed to the address set forth in
Box 1, the 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).
7
<PAGE> 8
5. ISSUANCE OF CERTIFICATE FOR COMMON STOCK AND NEW NOTE IN DIFFERENT NAME
If the certificate representing the Common Stock and the New Note are to be
issued in the name of someone other than the registered holder(s) of the
surrendered Original 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 Original 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 Original Note and Warrant Certificates to the
person who is to receive the Common Stock and the New Note. 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 Original 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 certificates for the Common Stock and the New
Notes 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 certificates representing the Common Stock and the New Note 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. IMPROPER TENDER
Shares of Common Stock and New Notes will be distributed only if a Letter
of Transmittal, properly completed and signed, is received by the Exchange
Agent, together with all of the the Original 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
8
<PAGE> 9
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 Original Notes and Warrants is unable to deliver
to the Exchange Agent the Original 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 interest payable on the New Notes
and 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 and the New Notes are 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 Original 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 and the New Notes 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
interest and 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 Original 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> 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 "Original 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 September 16, 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 ORIGINAL 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 Original Notes and (ii)
Warrants to purchase 60 shares of Common Stock, which represent all of the Units
held by such record holder, pursuant to the guaranteed delivery procedures set
forth in the Offering Circular, the record holder thereof to be entitled to
receive 142 shares of the Company's Common Stock, par value $.0001 per share,
and $218 principal amount of the Company's 9% Convertible Subordinated Notes due
March 31, 1998, 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 Original
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 ORIGINAL NOTE OR WARRANT CERTIFICATES WITH THIS FORM.
SUCH CERTIFICATES SHOULD BE SENT WITH
THE LETTER OF TRANSMITTAL.
<PAGE> 1
(Exhibit (a)(12) to Schedule 13E-4
[SubMicron Systems Corporation Letterhead]
FOR IMMEDIATE RELEASE
- ---------------------
SUBMICRON SYSTEMS CORPORATION AMENDS
EXCHANGE OFFER FOR PRIVATELY PLACED NOTES AND WARRANTS
ALLENTOWN, PA, SEPTEMBER 16, 1996 -- SUBMICRON SYSTEMS CORPORATION
(NASDAQ:SUBM) today announced that is has amended its Exchange Offer for Units
of $1,000 principal amount of its 9% Convertible Subordinated Notes due 1997
and Warrants to purchase 60 shares of Common Stock at $14 per share. The
Company will offer to exchange 142 shares of its Common Stock and $218
principal amount of its 9% Convertible Subordinated Notes due March 31, 1998
for each Unit. The New Notes are convertible into shares of Common Stock at
$6.30 per share. The Exchange Offer is made pursuant to an Offering Circular
dated September 16, 1996 and the 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 80% of the 19,000 Units are tendered, SubMicron will accept for
exchange any and all Units properly tendered and not withdrawn prior to 5:00
p.m., New York City time, on September 30, 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 will recognize a non-cash extraordinary debt extinguishment charge
in the quarter in which the Exchange Offer is consummated equal to (i) the fair
market value of the 142 shares of Common Stock and $218 principal amount of New
Notes issued above the carrying value of the Original Notes, plus (ii) the
unamortized deferred financing costs associated with the Original Notes, less
(iii) the fair market value of the Warrants exchanged. The non-cash
extraordinary debt extinguishment charge of approximately $2,241,000, which is
net of a related tax benefit of $1,494,000, will be recorded assuming a value of
$5.875 per share for the Common Stock. The actual charge to be recorded will be
based on the value of the stock on the expiration date of the Exchange Offer.
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 a bulk-chemical distribution, management and recovery systems; Imtec
Acculine, Inc., providing chemical process vessels and thermal control of
process chemicals to the equipment segment of the semiconductor industry; and
PRIMAXX Corp., producer of single wafer products for ferroelectric deposition,
as well as gas-phase cleaning.
###
<PAGE> 1
[SUBMICRON SYSTEMS LETTERHEAD] (Exhibit (a)(13) to Schedule 13E-4)
September 16, 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 September 16,
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") has amended its
exchange offer and is now offering you the opportunity to exchange (the
"Exchange Offer") 142 shares of the Company's Common Stock, $.0001 par value
(the "Common Stock"), and $218 principal amount of a 9% Convertible Subordinated
Note due March 31, 1998 (the "New Note") for each Unit you hold of (i) $1,000
principal amount of the Company's 9% Convertible Subordinated Notes due December
15, 1997 (the "Original Notes") and (ii) Warrants to purchase 60 shares of the
Company's Common Stock.
The Exchange Offer will expire at 5:00 p.m. on September 30, 1996, unless
extended. The Company has conditioned the Exchange Offer upon, among other
things, at least 15,200 (80%) of the 19,000 Units being tendered for exchange
and not withdrawn. As described in the Offering Materials, the terms of the
Exchange Offer are subject to amendment. If you wish to participate in the
Exchange Offer, you must tender all of your Units; partial tenders will not be
accepted.
The Company decided to undertake the Exchange Offer because its
consummation will (i) substantially reduce the annual cash interest payments
required to be made by the Company, (ii) reduce the non-cash amortization
charges related to the discount on the Original Notes and deferred debt issuance
cost, and (iii) result in a substantial reduction in the leverage of the
Company. The Company will, however, recognize an extraordinary debt
extinguishment charge in the quarter in which the Exchange Offer is consummated.
Neither the Company nor its Board of Directors makes any recommendations to
you as to whether you should accept the 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.
<PAGE> 2
[SUBMICRON SYSTEMS CORPORATION LETTERHEAD]
The Exchange Offer is described in detail in the Offering Materials,
which include the Offering Circular and the Letter of Transmittal as well as
the Company's Annual Report on Form 10-K for the year ended December 31, 1995,
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31
and June 30, 1996, the Notice of the Annual Meeting of Stockholders and Proxy
Statement for the Company's 1996 Annual Meeting of Stockholders, the Company's
Current Report on Form 8-K dated March 26, 1996, as amended, and the form of
the New Notes as Exhibits to the Offering Circular. PLEASE READ THE
ACCOMPANYING OFFERING MATERIALS FOR A FULL DESCRIPTION OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER.
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 the 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
