<PAGE> 1
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SUBMICRON SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3674 13-3607944
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
6330 HEDGEWOOD DRIVE - #150
ALLENTOWN, PENNSYLVANIA 18106
(610) 391-9200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID J. FERRAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
6330 HEDGEWOOD DRIVE - #150
ALLENTOWN, PENNSYLVANIA 18106
(610) 391-9200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
STEVEN N. HAAS, ESQUIRE
COZEN AND O'CONNOR
1900 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 665-2000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.[ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE REGISTERED OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) PRICE PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8% CONVERTIBLE SUBORDINATED NOTES DUE 2002 $8,692,028 100% $8,692,028 $2,634
COMMON STOCK, PAR VALUE $.0001 (2) -- -- NONE
====================================================================================================================================
</TABLE>
(1) Estimated pursuant to Rule 457 solely for the purposes of calculating
the registration fee.
(2) Such presently indeterminate number of shares of Common Stock as may be
issuable from time to time upon conversion of the Notes being
registered hereunder.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
SUBJECT TO COMPLETION, DATED OCTOBER __, 1997
PROSPECTUS
SUBMICRON SYSTEMS CORPORATION
OFFER TO EXCHANGE ITS 8% CONVERTIBLE
SUBORDINATED NOTES DUE 2002, WHICH
HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT,
FOR ANY AND ALL OF ITS OUTSTANDING 8% CONVERTIBLE SUBORDINATED NOTES DUE 2002
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON __________________, 1997, UNLESS EXTENDED
SubMicron Systems Corporation, a Delaware corporation ("SubMicron" or the
"Company"), hereby offers to exchange, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal" and which, together with this
Prospectus, constitutes the "Exchange Offer"), up to $8,692,028 in aggregate
principal amount of the Company's new 8% Convertible Subordinated Notes due 2002
(the "Exchange Notes"), for $8,692,028 in aggregate principal amount of the
Company's outstanding 8% Convertible Subordinated Notes due 2002 (the "Original
Notes"). The Original Notes and the Exchange Notes are sometimes referred to
herein collectively as the "Notes."
The terms of the Exchange Notes are substantially identical in all respects
(including principal amount, interest rate and maturity) to the terms of the
Original Notes for which they may be exchanged pursuant to this Exchange Offer,
except that the Exchange Notes will be freely transferable by holders thereof
and issued free of any covenant restricting transfer absent registration. The
Exchange Notes will evidence the same debt as the Original Notes (which they
replace) and will be entitled to the benefits of an Indenture dated as of
_________, 1997 governing the Exchange Notes (the "Indenture"). For a complete
description of the terms of the Exchange Notes, see "Description of the Exchange
Notes." There will be no cash proceeds to the Company from the Exchange Offer.
The Exchange Notes are redeemable at the option of the Company, in whole or
in part, at any time from and after the date of issuance until maturity, at a
redemption price equal to 100% of the principal amount of the Exchange Notes
then outstanding, plus accrued and unpaid interest to the date of redemption.
See "Description of the Exchange Notes--Redemption."
The Exchange Notes are convertible, at the option of the holder, at any
time from and after the date of issuance until maturity or the business day
immediately preceding the date fixed by the Company for redemption, into shares
of Common Stock of the Company, par value $.0001 per share ("Common Stock"), at
a conversion price of $3.70, subject to adjustment in certain events. The
Exchange Notes are also convertible, at the option of the Company, at any time
from and after the date of issuance until maturity or the business day
immediately preceding the date fixed by the Company for redemption, upon ten
days prior written notice, if the closing bid price for the Common Stock for a
period of 20 consecutive trading days equals or exceeds $5.10 per share, subject
to adjustment in certain events. See "Description of the Exchange Notes -
Conversion." The Common Stock is included for quotation on the Nasdaq Stock
Market National Market under the symbol "SUBM." The closing sale price of the
Common Stock on __________, 1997, as reported by Nasdaq, was $____ per share.
The Exchange Notes will bear interest from the most recent date to which
interest has been paid on the Original Notes or, if the Original Notes are
surrendered for exchange on a date within a period which includes the record
date for any interest payment date to occur on or after the date of such
exchange and as to which interest will be paid, the date of such interest
payment date. Holders whose Original Notes are accepted for exchange will not
receive any payment in respect of interest on such Original Notes otherwise
payable on any interest payment date the record date for which occurs on or
after consummation of the Exchange Offer. See "The Exchange Offer -- Terms of
the Exchange Offer."
The Notes will be general unsecured obligations of the Company subordinate
in right of payment to all existing and future Senior Indebtedness (as defined
in the Indenture) of the Company. As of September 30, 1997, the Company had
$21.6 million of Senior Indebtedness outstanding.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
ANY HOLDERS OF ORIGINAL NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING
ORIGINAL NOTES IN THE EXCHANGE OFFER. EACH HOLDER OF ORIGINAL NOTES MUST MAKE
HIS OWN DECISION AS TO WHETHER TO ACCEPT THE EXCHANGE OFFER.
SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF THE NOTES.
___________
<PAGE> 3
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is , 1997
<PAGE> 4
The Original Notes were sold on March 26, 1997 in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon an exemption provided in the Securities Act. Accordingly, the
Original Notes may not be offered, resold or otherwise pledged, hypothecated or
transferred in the United States unless registered under the Securities Act or
unless an exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered to satisfy the obligations of
the Company under the Subordinated Note and Preferred Stock Purchase Agreement
pursuant to which the Original Notes, together with shares of the Company's
Series A Convertible Non-Redeemable Preferred Stock, were sold (the "Purchase
Agreement"). See "The Exchange Offer -- Purposes and Effects of the Exchange
Offer." Each holder receiving Exchange Notes, other than a broker-dealer, will
represent that the holder is not engaging in or intending to engage in a
distribution of such Exchange Notes. Exchange Notes issued pursuant to the
Exchange Offer in exchange for the Original Notes, and shares of Common Stock
issuable upon conversion of the Exchange Notes, may be offered for resale,
resold or otherwise transferred by the holders thereof (other than any holder
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holders' business and such holders
have no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that, by acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "The Exchange Offer
- -- Purposes and Effects of the Exchange Offer" and "Plan of Distribution."
The Exchange Offer is not conditioned on any minimum aggregate principal
amount of Original Notes being tendered for exchange. The Company will accept
for exchange any and all validly tendered Original Notes not withdrawn prior to
5:00 p.m., New York City time, on _____________, 1997, unless extended by the
Company, in its sole discretion (the "Expiration Date"). Tenders of Original
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is subject to certain customary conditions. See "The Exchange Offer --
Conditions." Original Notes may be tendered only in integral multiples of
$1,000. The Company will pay all expenses incident to the Exchange Offer.
The Notes constitute securities for which there is no established trading
market. Any Original Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Original Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Original
Notes could be adversely affected. There is no active trading market for the
Exchange Notes and none is expected to develop. The Company does not intend to
list the Exchange Notes on any securities exchange. See "Risk Factors." No
assurances can be given as to the liquidity of the trading market for either the
Original Notes or the Exchange Notes.
<PAGE> 5
AVAILABLE INFORMATION
SubMicron 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 filed by the Company with the Commission may be
inspected and copied at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Room 1400, 75 Park Place, New
York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. 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:\\www.sec.gov). SubMicron's Common Stock is listed on the Nasdaq Stock
Market National Market, and such reports, proxy statements and other information
concerning SubMicron are available for inspection at the offices of the National
Association of Securities Dealers, Inc., 1735 "K" Street, N.W., Washington,
D.C., 20006.
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes and Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus omits certain information, exhibits and undertakings contained
in the Registration Statement. For further information with respect to the
Company, the Exchange Notes and the Common Stock issuable upon conversion of the
Exchange Notes, reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified by such
reference.
The principal address of the Company is 6330 Hedgewood Drive, #150,
Allentown, Pennsylvania 18106, and its telephone number is 610-391-9200.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements contained elsewhere in this Prospectus. Except as otherwise indicated
by the context, references to "SubMicron" and the "Company" include SubMicron
Systems Corporation and its consolidated subsidiaries.
THE COMPANY
SubMicron Systems Corporation 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.
The Company is a Delaware corporation with its principal executive offices
located at 6330 Hedgewood Drive, #150, Allentown, PA 18106, and its telephone
number is 610-391-9200.
THE EXCHANGE OFFER
Purpose of the Exchange Offer............ The Original Notes were sold,
together with shares of the
Company's Series A Convertible
Non-Redeemable Preferred Stock
("Series A Preferred Stock"), in a
transaction exempt from the
registration requirements of the
Securities Act by the Company on
March 26, 1997. In connection
therewith, the Company agreed to
undertake the Exchange Offer so
that the Exchange Notes will be
freely transferable by the holders
thereof without registration or any
prospectus delivery requirements
under the Securities Act, except
that a "dealer" or any of its
"affiliates," as such terms are
defined under the Securities Act,
who exchanges Original Notes held
for its own account will be
required to deliver copies of this
Prospectus in connection with any
resale of the Exchange Notes issued
in exchange for such Original
Notes. See "The Exchange Offer--
Purposes and Effects of the
Exchange Offer" and "Plan of
Distribution."
The Exchange Offer....................... The Company is offering to exchange
$1,000 principal amount of Exchange
Notes for each $1,000 principal
amount of Original Notes that are
properly tendered and accepted on
or prior to the Expiration Date.
The Company will issue Exchange
Notes on or promptly after the
Expiration Date. There is
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<PAGE> 7
$8,692,028 aggregate principal
amount of Original Notes
outstanding. The Original Notes and
the Exchange Notes are collectively
referred to herein as the "Notes."
The terms of the Exchange Notes are
substantially identical in all
respects (including principal
amount, interest rate and maturity)
to the terms of the Original Notes
for which they may be exchanged
pursuant to the Exchange Offer,
except that the Exchange Notes are,
and the shares of Common Stock
issuable upon conversion of the
Exchange Notes will be, upon
issuance, freely transferable by
the holders thereof (other than as
provided herein), and are not
subject to any covenant restricting
transfer absent registration under
the Securities Act.
The Exchange Offer is not
conditioned upon any minimum
aggregate principal amount of
Original Notes being tendered for
exchange.
Based on an interpretation by the
staff of the Commission set forth
in no-action letters issued to
third parties, the Company believes
that the Exchange Notes issued
pursuant to the Exchange Offer in
exchange for Original Notes may be
offered for resale, resold and
otherwise transferred by a holder
thereof (other than (i) a
broker-dealer who purchases such
Exchange Notes directly from the
Company to resell pursuant to Rule
144A under the Securities Act or
any other available exemption under
the Securities Act or (ii) a person
that is an affiliate (as defined in
Rule 405 under the Securities Act)
of the Company), without compliance
with the registration and
prospectus delivery provisions of
the Securities Act, provided that
the holder is acquiring the
Exchange Notes in the ordinary
course of its business and is not
participating, and has no
arrangement or understanding with
any person to participate, in the
distribution of the Exchange Notes.
Registration Rights Obligations.......... The Original Notes were issued by
the Company pursuant to a
Subordinated Note and Preferred
Stock Purchase Agreement dated as
of March 26, 1997 (the "Purchase
Agreement"), in which the Company
granted the holders of the Original
Notes certain exchange and
registration rights. See "The
Exchange Offer--Termination of
Certain Rights." This Exchange
Offer is intended to satisfy such
rights, which will terminate upon
the consummation of the Exchange
Offer. The holders of the Exchange
Notes are not entitled to any
exchange or registration rights
with respect to the Exchange Notes.
3
<PAGE> 8
Expiration Date........................... The Exchange Offer will expire at
5:00 p.m., New York City time, on
_____________, 1997, unless the
Exchange Offer is extended by the
Company in its reasonable
discretion, in which case the term
"Expiration Date" shall mean the
latest date and time to which the
Exchange Offer is extended.
Accrued Interest on the Exchange
Notes and Original Notes.................. Interest on the Exchange Notes will
accrue from the later of (i) the
last interest payment date on which
interest was paid on the Original
Notes surrendered in exchange
therefor or (ii) if the Original
Notes are surrendered for exchange
on a date within a period which
includes the record date for an
interest payment date to occur on
or after the date of such exchange
and as to which interest will be
paid, the date of such interest
payment date. Holders whose
Original Notes are accepted for
exchange will be deemed to have
waived the right to receive any
interest accrued on the Original
Notes.
Conditions to the
Exchange Offer............................ The Exchange Offer is subject to
certain customary conditions, which
may be waived by the Company. See
"The Exchange Offer--Conditions.
The Exchange Offer is not
conditioned upon any minimum
aggregate principal amount of
Original Notes being tendered for
exchange. The Company reserves the
right to terminate or amend the
Exchange Offer at any time prior to
the Expiration Date upon the
occurrence of any such conditions.
Procedures for Tendering
Original Notes........................... Each holder of Original Notes
wishing to accept the Exchange
Offer must complete, sign and date
the Letter of Transmittal, or a
facsimile thereof, in accordance
with the instructions contained
herein and therein, and mail or
otherwise deliver such Letter of
Transmittal, or such facsimile,
together with the Original Notes
and any other required
documentation to American Stock
Transfer & Trust Company, which is
serving as the exchange agent for
the Exchange Offer (the "Exchange
Agent"), at the address set forth
herein. Original Notes must be
tendered by physical delivery;
delivery by book-entry transfer of
Original Notes will not constitute
valid delivery. By executing the
Letter of Transmittal, each holder
will represent to the Company that,
among other things, the Exchange
Notes acquired pursuant to the
Exchange Offer are being obtained
in the ordinary course of business
of the person receiving such
Exchange Notes, whether or not such
person is the holder, that neither
the holder nor any such other
person is engaged in, or
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<PAGE> 9
intends to engage in, or has an
arrangement or understanding with
any person to participate in, the
distribution of such Exchange Notes
and that neither the holder nor any
such other person is an
"affiliate," as defined under Rule
405 of the Securities Act, of the
Company. See "The Exchange Offer--
Procedures for Tendering" and "Plan
of Distribution."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Original
Notes are registered in the name of
a nominee and who wishes to tender
should contact such registered
holder promptly and instruct such
registered holder to tender on such
beneficial owner's behalf. If such
beneficial owner wishes to tender
on such owner's own behalf, such
owner must, prior to completing and
executing the Letter of Transmittal
and delivering his Original Notes,
either make appropriate
arrangements to register ownership
of the Original Notes in such
owner's name or obtain a properly
completed bond power from the
registered holder. The transfer of
registered ownership may take
considerable time. See "The
Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery Procedures........... Holders of Original Notes who wish
to tender their Original Notes and
whose Original Notes are not
immediately available or who cannot
deliver their Original Notes, the
Letter of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent
prior to the Expiration Date, must
tender their Original Notes
according to the guaranteed
delivery procedures set forth in
the "Exchange Offer--Guaranteed
Delivery Procedures."
Acceptance of the Original Notes and
Delivery of the Exchange Notes........... Subject to the satisfaction or
waiver of the conditions to the
Exchange Offer, the Company will
accept for exchange any and all
Original Notes which are properly
tendered in the Exchange Offer and
not withdrawn prior to the
Expiration Date. The Exchange Notes
issued pursuant to the Exchange
Offer will be delivered on the
earliest practicable date following
the Expiration Date. See "The
Exchange Offer--Terms of the
Exchange Offer."
Withdrawal Rights.......... Tenders of Original Notes may be
withdrawn at any time prior to the
Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
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<PAGE> 10
Certain Federal Income Tax
Considerations........................... For a discussion of certain federal
income tax considerations relating
to the exchange of the Exchange
Notes for the Original Notes, see
"Certain Federal Income Tax
Considerations."
Exchange Agent........................... American Stock Transfer & Trust
Company is serving as the Exchange
Agent in connection with the
Exchange Offer. See "The Exchange
Offer--Exchange Agent."
Effect on Holders of
the Original Notes....................... As a result of the making of, and
upon acceptance for exchange of all
validly tendered Original Notes
pursuant to the terms of the
Exchange Offer, the Company will
have fulfilled one of the covenants
contained in the Purchase
Agreement. Holders of the Original
Notes who do not tender their
Original Notes will be entitled to
all the rights and limitations
applicable thereto under the
Purchase Agreement and as set forth
in the Original Notes, except for
any registration or exchange rights
under the Purchase Agreement which,
by their terms, terminate or cease
to have further effectiveness as a
result of the making of, and the
acceptance for exchange of all
validly tendered Original Notes
pursuant to, the Exchange Offer.
Holders of Original Notes who do
not tender their Original Notes for
exchange in the Exchange Offer will
continue to be subject to
substantial restrictions on
transferability of the Original
Notes.
Use of Proceeds......................... There will be no cash proceeds to
the Company from the exchange
pursuant to the Exchange Offer.
THE EXCHANGE NOTES
The Exchange Notes....................... The Exchange Offer applies to
$8,692,028 aggregate principal
amount of the Original Notes. The
form and terms of the Exchange
Notes are substantially the same as
the form and terms of the Original
Notes, except that the Exchange
Notes will have been registered
under the Securities Act and,
therefore, the Exchange Notes will
not bear legends restricting their
transfer pursuant to the Securities
Act. The Exchange Notes will
evidence the same debt as the
Original Notes (which they replace)
and will be issued under, and be
entitled to the benefits of, the
Indenture. See "Description of the
Exchange Notes" for further
information and for definitions of
certain capitalized terms used
below.
Issuer................................... SubMicron Systems Corporation
Maturity Date............................ March 26, 2002
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<PAGE> 11
Interest Rate............................ The Notes will bear interest at a
rate of 8% per annum.
Interest Payment Dates................... Interest will be payable quarterly
on each March 31, June 30,
September 30 and December 31,
commencing _________________ to the
holders of record on the March 15,
June 15, September 15 and December
15 preceding the applicable
interest payment date, and will
accrue interest from the later of
(i) the last interest payment date
on which interest was paid on the
Original Notes surrendered in
exchange therefor or (ii) if the
Original Notes are surrendered for
exchange on a date within a period
which includes the record date for
an interest payment date to occur
on or after the date of such
exchange and as to which interest
will be paid, the date of such
interest payment date.
Ranking.................................. The Exchange Notes will be general
unsecured obligations of the
Company, will rank pari passu with
the Original Notes in right of
payment, and will be subordinate in
right of payment to all existing
and future Senior Indebtedness of
the Company. As of September 30,
1997, the Company had approximately
$21.6 million of Senior
Indebtedness outstanding.
Mandatory Redemption..................... There will be no mandatory
redemption requirements with
respect to the Exchange Notes.
Optional Redemption...................... The Exchange Notes will be
redeemable at the option of the
Company, in whole or in part, at
any time on or after their date of
issuance until maturity, at a
redemption price equal to 100% of
the principal amount of the
Exchange Notes then outstanding,
plus accrued and unpaid interest to
the date of redemption.
Conversion............................... The Notes are convertible, at the
option of the holder, at any time
prior to maturity or the business
day immediately preceding the date
the Company gives notice of
redemption, into shares of Common
Stock at a conversion price of
$3.70 per share; provided, however,
that the conversion price will be
adjusted to equal the greater of
(i) $2.50 per share and (ii) the
average closing bid price of the
Common Stock for the 20 consecutive
trading days beginning on March 15,
1999, so long as the conversion
price as adjusted is not greater
than the conversion price in effect
immediately prior to the
adjustment. The Notes are also
convertible, at the option of the
Company, upon ten days prior
written notice, at any time prior
to maturity or the business day
immediately preceding the date the
Company gives notice of redemption,
at the conversion price then in
effect, if the
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<PAGE> 12
closing bid price for the Common
Stock equals or exceeds $5.10 per
share, subject to adjustment in
certain events, for 20 consecutive
trading days. In addition to the
adjustment in the conversion price
as described above, the conversion
price is subject to adjustment upon
certain changes in the Company's
capitalization and upon issuances
by the Company of securities at
prices below the conversion price
then in effect.
Trustee.................................. The Exchange Note will be issued
under a Trust Indenture qualified
under the Trust Indenture Act of
1939, as amended. The Trustee is
The United States Trust Company of
New York.
Listing and Trading of Securities........ The Company does not currently
intend to list the Exchange Notes
on any securities exchange. The
Common Stock is currently listed on
the Nasdaq Stock Market National
Market under the symbol "SUBM".
There is no trading market for the
Original Notes.
Common Stock Outstanding................. As of __________, 1997, there were
____ shares of Common Stock issued
and outstanding.
Market Price for Common Stock............ On ________, 1997, the last
reported sale price of the Common
Stock, as reported by Nasdaq, was
$____ per share.
RISK FACTORS
Prospective purchasers of the Exchange Notes should consider carefully the
information set forth under the caption "Risk Factors," and all other
information set forth in this Prospectus, in evaluating the Exchange Notes and
the Company.
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<PAGE> 13
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data, insofar as it relates to each of
the five years in the period ended December 31, 1996, has been derived from the
Company's audited consolidated financial statements, including the consolidated
balance sheets at December 31, 1996 and 1995 and the related consolidated
statements of operations for each of the three years in the period ended
December 31, 1996 and the notes thereto, appearing elsewhere in this Prospectus.
The summary historical consolidated balance sheet data as of June 30, 1997 and
statement of operations data for the six months ended June 30, 1997 and 1996,
have been derived from the Company's unaudited condensed consolidated financial
statements appearing elsewhere in this Prospectus. The summary pro forma
consolidated balance sheet data as of June 30, 1997 and statement of operations
data for the six months then ended and for the year ended December 31, 1996,
have been derived from the Company's unaudited "Pro Forma Consolidated Financial
Information" appearing elsewhere in this Prospectus.
On August 7, 1997, the Company completed the sale of certain assets, net of
liabilities assumed, of its wholly-owned subsidiary, Systems Chemistry
Incorporated ("Systems Chemistry"), to British Oxygen Company for a negotiated
sales price of $17.3 million before closing adjustments. The Company received
$15.8 million in cash after a holdback allowance of $1.5 million to cover
potential post-closing working capital adjustments. In addition, the Company
received the proceeds from a $5.0 million subordinated, non-interest bearing
note due in August 2000. The Company applied $18.5 million, after transaction
costs and bank fees, to reduce the outstanding balance on its line of credit.
The summary pro forma consolidated statement of operations data for the
year ended December 31, 1996 and the six months ended June 30, 1997 reflect the
operations of the Company as if the above disposition had occurred at the
beginning of the periods presented. The summary pro forma consolidated balance
sheet as of June 30, 1997 reflects the financial position of the Company as if
the disposition had occurred as of June 30, 1997. The summary pro forma
consolidated statement of operations data for each period presented does not
reflect the estimated gain on this sale of approximately $2.0 million.
The summary consolidated financial data should be read in conjunction with
the information contained in the Company's historical consolidated financial
statements and the notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Unaudited Interim Condensed
Consolidated Financial Statements, and the Unaudited Pro Forma Consolidated
Financial Information included elsewhere herein.
9
<PAGE> 14
SUMMARY CONSOLIDATED FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------------------------------------ ---------------------------------
Pro Forma Pro Forma
1992(1) 1993(1) 1994(1) 1995(1) 1996 1996 1996 1997 1997
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net Sales $ 34,408 $ 57,607 $ 86,119 $ 123,068 $ 171,484 $ 113,727 $ 91,920 $ 56,465 $ 34,186
Cost of sales 23,598 37,839 57,882 84,352 142,748 95,969 65,566 52,772 31,034
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit 10,810 19,768 28,237 38,716 28,736 17,758 26,354 3,693 3,152
Selling, general and
administrative 7,791 12,860 21,465 29,109 41,337 30,194 18,420 18,587 14,468
Research and development 1,574 2,059 3,357 5,678 9,373 8,488 4,023 4,891 4,485
Restructuring charges -- -- -- -- -- -- -- 3,792 3,792
Special charges 397 787 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating (loss) income 1,048 4,062 3,415 3,929 (21,974) (20,924) 3,911 (23,577) (19,593)
Other (expense) income,
net (245) (259) 72 1,258 (4,701) (3,191) (1,945) (2,779) (2,003)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(Loss) income before income
taxes, extraordinary
charge and cumulative
effect of accounting
change 803 3,803 3,487 5,187 (26,675) (24,115) 1,966 (26,356) (21,596)
Income tax (benefit)
expense (302) 1,049 1,454 1,498 (6,566) (6,566) 713 3,000 3,000
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(Loss) income before
extraordinary charge
and cumulative effect
of accounting change 1,105 2,754 2,033 3,689 (20,109) $ (17,549) 1,253 (29,356) $ (24,596)
========= =========
Extraordinary charge -- -- -- -- -- -- (1,169)
--------- --------- --------- --------- --------- --------- ---------
(Loss) income before
cumulative effect of
accounting change 1,105 2,754 2,033 3,689 (20,109) 1,253 (30,525)
Cumulative effect of
accounting change -- 440 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net (loss) income $ 1,105 $ 3,194 $ 2,033 $ 3,689 $ (20,109) $ 1,253 $ (30,525)
========= ========= ========= ========= ========= ========= =========
Net (loss) income per
common share $ -- $ -- $ 0.13 $ 0.23 $ (1.20) $ .07 $ (1.80)
========= ========= ========= ========= ========= ========= =========
Net loss before
extraordinary charge
per common share $ (1.05) $ (1.44)
========= =========
Ratio of Earnings to Fixed (2) (2) (2) (2)
Charges 4.08 10.44 10.58 3.64
========= ========= ========= =========
</TABLE>
10
<PAGE> 15
<TABLE>
<CAPTION>
(in thousands) December 31, June 30, 1997
---------------------------------------------------- --------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996 Actual Pro Forma
-------- -------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $ 17,006 $ 48,309 $ 59,992 $119,948 $125,934 $ 93,045 $ 67,813
Long-term debt $ 2,503 $ 2,585 $ 4,268 $ 20,103 $ 27,489 $ 18,562 $ 22,262
Working capital (deficit) $ 2,557 $ 28,128 $ 24,178 $ 47,100 $ 25,618 $ (388) $ 8,373
Stockholders' equity $ 2,762 $ 28,783 $ 31,808 $ 46,023 $ 28,676 $ 7,304 $ 9,604
</TABLE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
- ---------------------
(1)In February 1995, the Company acquired all of the outstanding stock of
Systems Chemistry in exchange for 3,400,000 shares of Common stock. In March
1996, the Company acquired all of the outstanding Common stock of IMTEC
Acculine, Inc. ("IMTEC") in exchange for 575,000 shares of Common stock. Each
transaction was accounted for as a pooling of interests and, accordingly,
historical financial data has been restated to include Systems Chemistry and
IMTEC.
(2) In 1996 and 1997, earnings are inadequate to cover fixed changes.
11
<PAGE> 16
RISK FACTORS
Prospective purchasers of the Exchange Notes should consider carefully the
following risk factors, in addition to the other information set forth in this
Prospectus, before making an investment in the Exchange Notes.
RECENT LOSSES AND QUARTERLY FLUCTUATIONS
The Company recorded a net loss of $30,525,000 for the six months ended
June 30, 1997, including a net loss of $8,457,000 in the first quarter of 1997.
The Company also reported a net loss of $20,109,000 for 1996, which included net
losses in the second, third and fourth quarters of $197,000, $16,138,000 and
$5,224,000, respectively. Certain factors impacting the Company's recent results
are described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and its Quarterly Reports on Form 10-Q for the quarters ended
March 31, and June 30, 1997. 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 $351,000, respectively. These fluctuations, which are
likely to continue, are a result of several factors, including, in particular,
the fluctuations in the semiconductor market, the relatively high price of the
Company's products in relation to quarterly sales, the high costs of certain
customized orders, 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 the 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 response to significant losses from operations in each of the past four
quarters, the Company implemented a worldwide restructuring plan. The plan is to
refocus the Company on its core technology and will involve, among other things,
restructuring the Company's corporate organization and selling certain
non-strategic assets to generate liquidity. Results for the second quarter of
1997 included restructuring charges of approximately $3.8 million, primarily
related to severance costs and lease termination costs associated with vacating
the Company's corporate office. The Company expects to incur additional charges
related to the continuation of the restructuring plan of approximately $1.5
million and $1.0 million in the third and fourth quarters of 1997, respectively.
In addition, the Company recorded a one-time noncash extraordinary debt
extinguishment charge in the first quarter of 1997 of $1,169,000 relating to the
issuance by the Company of the Original Notes and the Series A Preferred Stock.
SIGNIFICANT CAPITAL REQUIREMENTS
In recent years, the Company has been substantially dependent upon
borrowings to finance its operations. In February 1996, the Company entered into
a $30.0 million credit facility with a banking group. The Company used the
proceeds from the credit facility to refinance its previous lines of credit and
to provide working capital. Borrowings under the credit facility bore interest
at the lender's prime rate plus 3.0%, and are secured by substantially all of
the assets of the Company. The Company is not in compliance with certain
requirements of the credit facility. The banking group has separately agreed to
extend the due date of the credit facility from its maturity date of August 18,
1997 to October 31, 1997 and, upon completion of certain currently pending
conditions, to December 1, 1997. Subsequent
12
<PAGE> 17
to June 30, 1997, the Company has applied the net proceeds generated from the
sale of certain net assets of Systems Chemistry against its outstanding
borrowings. Borrowings under the extended agreement are permitted up to $9.5
million, with the interest rate at the lender's prime rate, as defined, plus
4.0%, effective June 1, 1997. Borrowings under the extended credit facility were
$8.6 million at September 30, 1997. The agreement also restricts the Company's
ability to pay dividends. Management's estimates of the cash requirements to
fund operating, investing and financing activities for the remainder of 1997 and
1998 will require replacement of the funds currently available under the credit
facility. Without the availability of a sufficient credit facility, the Company
is susceptible to severe cash shortages which may impact its ability to operate.
On August 7, 1997, the Company completed the sale of certain assets, net of
liabilities assumed, of Systems Chemistry for $17.3 million, subject to certain
working capital adjustments. The Company received $15.8 million in cash after a
holdback allowance of $1.5 million to cover potential post closing working
capital adjustments. In addition, the Company received the proceeds from a $5.0
million subordinated, non-interest bearing note due in August 2000. The Company
applied $18.5 million, after transaction costs and bank fees, to reduce the
outstanding balance on its line of credit. The Company estimates a gain on the
sale of approximately $2.0 million to be recorded in the third quarter of 1997.
The Company is also exploring alternative lending and other financial
arrangements, such as equity financing and strategic partnering agreements, to
provide for the Company's working capital and cash requirements. There can be no
assurance, however, that any such arrangements will be available on acceptable
terms or at all. In addition, management has instituted programs designed to
reduce costs and improve performance. Further, management is considering selling
other non-strategic assets to generate liquidity. There can be no assurance,
however, that such programs, actions and arrangements will be consummated or, if
consummated, will provide the working capital and cash required. In addition,
unless converted, the Company will be required to repay in December 1997 up to
$650,000 of any 9% Convertible Subordinated Notes due December 1997 (the "9%
Notes") that remain outstanding as of such date.
PRODUCT CONCENTRATION AND RESEARCH AND DEVELOPMENT EFFORTS
Approximately 70% of the Company's net sales during the six months ended
1997 were from sales of its automated wet stations. The decline in sales of
automated wet stations has already affected the Company's results of operations,
and any further decline in such sales will continue to materially adversely
affect the Company's results of operations. 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.
CUSTOMER CONCENTRATION
Sales of the Company's products to three customers accounted for 43% of the
Company's total sales for the six months ended June 1997, and sales to a
different customer accounted for 30% of the Company's total sales for the
comparable period in 1996. Accounts receivable due from three customers
represented 14% of consolidated receivables as of June 30, 1997. There is no
indication that customer concentration will decrease in the foreseeable future.
In the event any of these or other
13
<PAGE> 18
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.
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.
Although the Company has historically targeted its products to advanced future
generation manufacturers which, generally, have been less sensitive to
short-term market fluctuations, the Company has experienced a softening of
demand which has led to reduced sales and pricing pressures. Future operations
of the Company are, therefore, 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.
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 aspects 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.
14
<PAGE> 19
SECURITY INTERESTS AND 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 of a default due to non-compliance with the covenants under the
credit facility and the exercise by the secured lender of its rights thereunder,
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.
RELIANCE ON KEY EXECUTIVES AND EMPLOYEES
The ability of the Company to compete successfully in the future depends in
large part on its ability to recruit and maintain qualified executives and a
technically competent research and development staff. Competition for qualified
executives and 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.
SHARES ELIGIBLE FOR FUTURE SALE
At September 30, 1997, the Company had outstanding a total of 17,174,663
shares of Common Stock, and outstanding warrants, options and convertible
securities entitling the holders thereof to purchase or acquire an aggregate of
7,005,809 additional shares of Common Stock. In addition, the Original Notes are
convertible into 2,349,197 shares of Common Stock. All outstanding shares are,
and all shares issuable upon the exercise of options and warrants (and the
conversion of any Preferred Stock or Exchange Notes) will be available for
resale in the public market without restriction (other than, as to the shares
underlying the Preferred Stock, 9% Notes and Warrants, a prospectus delivery
requirement), with the exception of an aggregate of 2,640,938 outstanding shares
held by affiliates of the Company and 2,060,084 shares issuable upon the
exercise of options or warrants held by such affiliates. If the outstanding
options and warrants are exercised, or the convertible securities are converted,
the stockholders of the Company will be subject to additional dilution.
Under Rule 144 promulgated under the Securities 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.
15
<PAGE> 20
POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW; CLASSIFIED BOARD; POSSIBLE
ISSUANCE OF ADDITIONAL 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, in addition to the shares of Series A Preferred Stock
outstanding, 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 such Preferred Stock
that are or may be issued. Although the ability to issue preferred stock may
provide flexibility in connection with possible acquisitions and other corporate
purposes, any 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
additional shares of Preferred Stock.
SUBORDINATION OF THE EXCHANGE NOTES
The Exchange Notes will be subordinated in right of payment to all existing
and future Senior Indebtedness of the Company, as defined in the Indenture. At
September 30, 1997, the Company had approximately $21.6 million in Senior
Indebtedness. In addition, under the Indenture, the Company will be able to
borrow additional Senior Indebtedness. In the event of a bankruptcy, liquidation
or reorganization of the Company or in the event that any default in payment of,
or the acceleration of, any debt occurs, holders of Senior Indebtedness will be
entitled to payment in full from the proceeds of all assets of the Company prior
to any payment of such proceeds to the holders of the Exchange Notes. In
addition, the Company may not make any principal or interest payments in respect
of the Exchange Notes if any payment default exists with respect to Senior
Indebtedness and the maturity of such indebtedness is accelerated, or in certain
circumstances prior to such acceleration for a specified period of time, unless,
in any case, such default has been cured or waived, any such acceleration has
been rescinded or such indebtedness has been repaid in full. Consequently, there
can be no assurance that the Company will have sufficient funds remaining after
such payments to make payments to the holders of the Exchange Notes. See
"Description of the Exchange Notes--Subordination."
ABSENCE OF PUBLIC MARKET FOR EXCHANGE NOTES
There is no existing trading market for the Exchange Notes, and the Company
does not intend to list any Notes on any securities exchange. There can be no
assurance that
16
<PAGE> 21
an active trading market for the Notes will develop, or, if it develops, that it
will continue. Future trading prices for the Notes will depend on many factors,
including, among other things, the Company's operating results, the market for
similar securities and changes in prevailing interest rates. See "Description of
the Exchange Notes -- Trading Market."
PROCEDURES FOR TENDER OF ORIGINAL NOTES
The Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the Exchange Agent of such Original Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Original Notes desiring to tender such Original
Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of
Original Notes for exchange. Any holder of Original Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE ORIGINAL NOTES
The Original Notes have not been registered under the Securities Act and
are subject to substantial restrictions on transfer. Original Notes that are not
tendered in exchange for Exchange Notes or are tendered but not accepted will,
following consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof. The Company does not currently
anticipate that it will register the Original Notes under the Securities Act. To
the extent that Original Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Original Notes
could be adversely affected. See "The Exchange Offer."
FORWARD LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Exchange Act, and is subject to the safe-harbor created by such
sections. Such forward-looking statements concern the Company's operations,
economic performance and financial condition, including in particular sales and
the Company's financing arrangements. Such statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions; changes
in customer preferences; competition; changes in technology; changes in business
strategy; the indebtedness of the Company; quality of management, business
abilities and judgment of the Company's personnel; the availability, terms and
deployment of capital; and various other factors referenced in this Prospectus.
The forward-looking statements are made as of the date of this Prospectus, and
the Company assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
17
<PAGE> 22
THE EXCHANGE OFFER
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
Effective March 26, 1997, in a negotiated transaction, the Company issued
and sold $8,692,028 principal amount of Original Notes and 1,302.85 shares of
its Series A Preferred Stock in retirement of $18,350,000 principal amount of
the Company's 9% Notes and associated warrants held by such persons. The Board
of Directors believes it was in the Company's best interests to consummate the
transaction, the result of which substantially reduced the annual cash interest
payments required to be made by the Company (approximately $1.7 million annual
interest payment on the 9% Notes compared to approximately $754,000 annual
interest payment on the Original Notes); reduced the non-cash accretion and
amortization charges related to the discount on the 9% Notes and deferred
issuance costs; and substantially reduced the short-term indebtedness of the
Company.
As a condition to the sale of the Original Notes, the Company agreed that
it would (i) file with the Commission a Registration Statement under the
Securities Act with respect to the Exchange Notes within 90 days after the date
of issuance of the Original Notes (which period was extended by mutual agreement
of the Company and the Noteholders to a date promptly following stockholder
approval of the conversion feature of the Original Notes) and (ii) use its best
efforts to cause such Registration Statement to become effective under the
Securities Act. If the Exchange Notes are not registered by January 31, 1998,
the principal amount outstanding under the Original Notes will become due and
payable in full. Under existing Commission interpretations, the Exchange Notes
would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act; provided, that in the case of
broker-dealers, a prospectus meeting the requirements of the Securities Act will
be delivered as required. A broker-dealer that delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act. The Registration Statement
of which this Prospectus is a part is intended to satisfy certain of the
Company's obligations to file the Registration Statement with respect to the
Exchange Notes and to commence the Exchange Offer under the Purchase Agreement.
The Company is generally not required to file any registration statement to
register any outstanding Original Notes. Holders of Original Notes who do not
tender their Original Notes or whose Original Notes are tendered but not
accepted will have to rely on exemptions to registration requirements under the
securities laws, including the Securities Act, if they wish to sell their
Original Notes.
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant an
available exemption under the Securities Act or (ii) any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who exchanges Original Notes for Exchange Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement with any person to participate, in the distribution of the
Exchange Notes, will be allowed to resell the Exchange Notes to the public
without further registration under the Securities Act and without delivering to
the purchasers of the Exchange Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires the Exchange Notes in the Exchange Offer for the purpose of
distributing or participating in the distribution of the Exchange Notes or is a
broker-dealer, such holder cannot rely on the position of the staff of the
18
<PAGE> 23
Commission enumerated in certain no-action letters issued to third parties and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Original Notes validly tendered and not withdrawn prior to the Expiration
Date. The Company will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of outstanding Original Notes
surrendered pursuant to the Exchange Offer. Holders may tender some or all of
their Original Notes pursuant to the Exchange Offer; provided, however, that
Original Notes may be tendered only in integral multiples of $1,000. The
Exchange Offer is not conditioned upon any minimum aggregate principal amount of
Original Notes being tendered for exchange.
The form and terms of the Exchange Notes are the same as the form and terms
of the Original Notes except that (i) the Exchange Notes will be registered
under the Securities Act and, therefore, will not bear legends restricting their
transfer and (ii) the Exchange Notes will be issued under, and entitled to the
benefits of, the Indenture in compliance with the Trust Indenture Act of 1939,
as amended. The Exchange Notes will evidence the same debt as the Original Notes
(which they replace). Any Original Notes which are not tendered in the Exchange
Offer will remain subject to the terms, and shall be entitled to the benefits
under, the Purchase Agreement.
Interest on the Exchange Notes will accrue from the later of (i) the last
interest payment date on which interest was paid on the Original Notes
surrendered in exchange therefor or (ii) if the Original Notes are surrendered
for exchange on a date in a period which includes the record date for an
interest payment date to occur on or after the date of such exchange and as to
which interest will be paid, the date of such interest payment date. Original
Notes accepted for exchange will cease to accrue interest from and after the
date of the consummation of the Exchange Offer. Holders whose Original Notes are
accepted for exchange will not receive any payment in respect of interest on
such Original Notes otherwise payable on any interest payment date, the record
date for which occurs on or after consummation of the Exchange Offer.
As of the date of this Prospectus, $8,692,028 aggregate principal amount of
the Original Notes are outstanding. Only a registered holder of the Original
Notes (or such holder's legal representative or attorney-in-fact) as reflected
on the records of the Company may participate in the Exchange Offer. There will
be no fixed record date for determining registered holders of the Original Notes
entitled to participate in the Exchange Offer.
Holders of the Original Notes do not have any appraisal or dissenters'
rights under the Purchase Agreement or otherwise in connection with the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Purchase Agreement and the applicable requirements of the
Securities Act, the Exchange Act, and the rules and regulations of the
Commission thereunder.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will
19
<PAGE> 24
act as agent for the tendering holders of Original Notes for the purposes of
receiving the Exchange Notes from the Company.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender, or due to the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Original Notes will be
returned without expense to the tendering holders thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
Holders who tender Original Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "The Exchange Offer -- Fees and Expenses."
EXPIRATION DATE, EXTENSIONS AND TERMINATION
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
_______________, 1997 unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer the Company will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written notice
and will make a public announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date of the Exchange Offer. Without limiting the manner in which the Company may
choose to make a public announcement of any delay, extension, amendment or
termination of the Exchange Offer, the Company shall have no obligation to
publish, advertise or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Original Notes, (ii) to extend the Exchange Offer, (iii) if any
conditions set forth below under "-- Certain Conditions to the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(iv) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
Original Notes, and the Company will extend the Exchange Offer for a period of
five to ten business days, depending upon the significance of the amendment and
the manner of disclosure to such registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period. The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "-- Certain Conditions of the Exchange
Offer."
If the Company extends the period of time during which the Exchange Offer
is open, or if it is delayed in accepting for exchange of, or in issuing and
exchanging the Exchange Notes for, any Original Notes, or is unable to accept
for exchange of, or issue Exchange Notes for, any Original Notes pursuant to the
Exchange Offer for any reason, then, without prejudice to the Company's rights
under
20
<PAGE> 25
the Exchange Offer, the Exchange Agent may, on behalf of the Company, retain all
Original Notes tendered, and such Original Notes may not be withdrawn except as
otherwise provided below in "--Withdrawal of Tenders." The adoption by the
Company of the right to delay acceptance for exchange of, or the issuance and
the exchange of the Exchange Notes, for any Original Notes is subject to
applicable law, including Rule 14e-1(c) under the Exchange Act, which requires
that the Company pay the consideration offered or return the Original Notes
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of the Exchange Offer.
PROCEDURES FOR TENDERING
Only a registered holder of Original Notes may tender such Original Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, or facsimile thereof, have the
signature thereon guaranteed if required by the Letter of Transmittal and mail
or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth below under "The Exchange Offer --
Exchange Agent" for receipt prior to the Expiration Date. In addition, either
(i) certificates for such Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) the holder must comply with the
guaranteed delivery procedures described below. Delivery of Original Notes to
the Exchange Agent by book-entry transfer will not constitute a valid delivery
of the Original Notes.
The Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at its addresses
set forth under "-- Exchange Agent" below prior to 5:00 p.m., New York City
time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute a binding agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES
SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of the Original Notes whose Original Notes are
registered in the name of a nominee and who wishes to tender should contact the
registered holder promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing and executing the
Letter of Transmittal and delivering such owner's Original Notes, either make
appropriate arrangements to register ownership of the Notes in such owner's name
(to the extent permitted by the terms of the
21
<PAGE> 26
Original Notes) or obtain a properly completed assignment from the registered
holder. The transfer of registered ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes or if delivery of the Exchange Notes is
to be made to a person other than the registered holder, such Original Notes
must be endorsed or accompanied by a properly completed bond power, in either
case signed by such registered holder as such registered holder's name appears
on such Original Notes with the signature on the Original Notes or the bond
power guaranteed by an Eligible Institution (as defined below).
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed by
an Eligible Institution unless the Original Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be made by a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or another "Eligible Guarantor Institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (any of the foregoing,
an "Eligible Institution").
If the Letter of Transmittal or any Original Notes or assignments are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Original Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Original Notes not properly tendered or any Original Notes, the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Original Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Original Notes must be cured within such time as the
Company shall determine. Although the Company intends to request the Exchange
Agent to notify holders of defects or irregularities with respect to tenders of
Original Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Original Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
While the Company has no present plan to acquire any Original Notes which
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Original Notes which are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Original Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "-- Certain
Conditions to the Exchange Offer," to terminate the Exchange Offer and, to the
extent permitted by applicable law, purchase Original Notes in privately
22
<PAGE> 27
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Original
Notes in connection with the Exchange Offer are being acquired by the holder in
the ordinary course of business of the holder, (ii) the holder has no
arrangement or understanding with any person to participate in the distribution
of Exchange Notes, (iii) the holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in certain no-action letters, (iv) the holder understands that a
secondary resale transaction described in clause (iii) above and any resales of
Exchange Notes obtained by such holder in exchange for Original Notes acquired
by such holder directly from the Company should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission, and (v) the holder is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company.
RETURN OF NOTES
If any tendered Original Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Original Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Original Notes
will be returned without expense to the tendering holder thereof as promptly as
practicable.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of such Original Notes (if available) and the
principal amount of Original Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five New York Stock Exchange trading
days after the Expiration Date, the Letter of Transmittal (or a facsimile
thereof) together with the certificate(s) representing the Original Notes in
proper form for transfer and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(c) such properly executed Letter of Transmittal (or facsimile thereof), as
well as the certificate(s) representing all tendered Original Notes in proper
form for transfer and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within five New York Stock Exchange trading
days after the Expiration Date.
23
<PAGE> 28
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original
Notes to be withdrawn (including the certificate number or numbers (if
applicable) and principal amount of such Original Notes), and (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Original Notes were tendered (including any required
signature guarantees). All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company in
its sole discretion, whose determination shall be final and binding on all
parties. Any Original Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Original Notes so withdrawn are validly
retendered. Properly withdrawn Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Original Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Original
Notes, if any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Company, might impair the ability of the Company
to proceed with the Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company or there shall have
occurred any material adverse development in any existing action or proceeding
with respect to the Company or any of its subsidiaries; or
(b) there shall have been any material change, or development involving a
prospective change, in the business or financial affairs of the Company or any
of its subsidiaries which, in the reasonable judgment of the Company, could
reasonably be expected to materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated benefits
of the Exchange Offer to the Company; or
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the judgment of the Company, could reasonably be
expected to materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the Exchange
Offer to the Company; or
24
<PAGE> 29
(d) any governmental approval which the Company shall, in its reasonable
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby shall have not been obtained.
If the Company determines in its reasonable discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Original
Notes and return all tendered Original Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Original Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Original Notes (see "The Exchange Offer -- Withdrawal of Tenders")
or (iii) waive such unsatisfied conditions with respect to the Exchange Offer
and accept all properly tendered Original Notes which have not been withdrawn.
If such waiver constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver by means of a prospectus supplement that will
be distributed to the registered holders of the Original Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Holders may have certain rights and remedies against the Company under the
Purchase Agreement and pursuant to the terms of the Original Notes should the
Company fail to consummate the Exchange Offer, notwithstanding a failure of the
conditions stated above. Such conditions are not intended to modify those rights
or remedies in any respect.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in the Company's reasonable discretion. The failure by the
Company at any time to exercise the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
TERMINATION OF CERTAIN RIGHTS
All rights under Purchase Agreement (including registration rights) of
holders of the Original Notes eligible to participate in this Exchange Offer
will terminate as to those holders who receive Exchange Notes in exchange for
tendered Original Notes upon consummation of the Exchange Offer except (i) with
respect to the Company's continuing obligations to indemnify the holders
(including any broker-dealers) and certain parties related to the holders
against certain liabilities (including liabilities under the Securities Act) and
(ii) with respect to provisions in the Purchase Agreement which grant holders of
Original Notes and Exchange Notes certain rights to designate directors of the
Company. See "Executive Management" and "Description of the Exchange Notes."
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offer. All questions and requests for assistance as well
as all correspondence in connection
25
<PAGE> 30
with the Exchange Offer and the Letter of Transmittal should be addressed to the
Exchange Agent, as follows:
By Facsimile: By Mail, Overnight Courier or Hand Delivery:
(718) 234-5001 American Stock Transfer & Trust Company
(For Eligible Institutions Only) 40 Wall Street
New York, NY 10005
Confirm by Telephone:
(718) 921-8237
Requests for additional copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery should be directed to the
Exchange Agent.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$____________. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees, and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes, or Original Notes for principal amounts not
tendered or acceptable for exchange, are to be delivered to, or are to be issued
in the name of, any person other than the registered holders of the Original
Notes tendered, or if tendered Original Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Original Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder of Original
Notes.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Original Notes as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss for
26
<PAGE> 31
accounting purposes will be recognized. The expenses of the Exchange Offer will
be deferred and amortized over the term of the Exchange Notes.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Original Notes which are not exchanged for the Exchange Notes pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such
Original Notes may be resold only (i) in a transaction meeting the requirements
of Rule 144 under the Securities Act, (ii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, (iii) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel if the
Company so requests), (iv) to the Company or (v) pursuant to an effective
registration statement and, in each case, in accordance with any applicable
securities laws of any state of the United States or any other applicable
jurisdiction.
27
<PAGE> 32
THE COMPANY
SubMicron Systems Corporation 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.
The Company is a Delaware corporation with its principal executive
offices located at 6330 Hedgewood Drive, #150, Allentown, PA 18106, and its
telephone number is 610-391-9200.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange
Original Notes in like principal amount, the terms of which are substantially
identical to the Exchange Notes. The Original Notes surrendered in exchange for
Exchange Notes will be retired and cancelled. Accordingly, the issuance of the
Exchange Notes will not result in any increase in the indebtedness of the
Company.
28
<PAGE> 33
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 and on a pro forma basis giving effect to the sale of substantially all
of the assets of Systems Chemistry. Upon issuance of Exchange Notes
in the Exchange Offer, the Company will receive in exchange therefor Original
Notes in a like principal amount, the terms of which are substantially identical
to the Exchange Notes. Accordingly, the issuance of Exchange Notes will not
result in any increase in the Company's indebtedness. This table should be read
in conjunction with the information contained in "Use of Proceeds" as well as
the Company's historical and pro forma consolidated financial statements and
notes thereto included elsewhere herein:
<TABLE>
<CAPTION>
(dollars in thousands, except per share data) June 30, 1997
------------------------
Actual Pro Forma
<S> <C> <C>
Cash and cash equivalents $ 2,792 $ 1,447
======== ========
Long-term debt, less current portion $ 15,943 $ 19,643
Stockholders' equity:
Preferred stock, stated value,
5,000 shares authorized,
1,211 shares issued
and outstanding 9,415 9,415
Common stock, $.0001 par
value, 100,000,000 shares
authorized, 17,066,587
shares issued and outstanding
2 2
Additional paid-in capital 41,418 41,418
Accumulated deficit (43,531) (41,231)
-------- --------
Total stockholders'
equity 7,304 9,604
-------- --------
Total Capitalization $ 23,247 $ 29,247
======== ========
</TABLE>
29
<PAGE> 34
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data, insofar as it relates to each of
the five years in the period ended December 31, 1996, has been derived from the
Company's audited consolidated financial statements, including the consolidated
balance sheets at December 31, 1996 and 1995 and the related consolidated
statements of operations for each of the three years in the period ended
December 31, 1996 and the notes thereto, appearing elsewhere in this Prospectus.
The selected historical consolidated balance sheet data as of June 30, 1997 and
statement of operations data for the six months ended June 30, 1997 and 1996,
have been derived from the Company's unaudited condensed consolidated financial
statements appearing elsewhere in this Prospectus. The selected pro forma
consolidated balance sheet data as of June 30, 1997 and statement of operations
data for the six months then ended and for the year ended December 31, 1996,
have been derived from the Company's unaudited "Pro Forma Consolidated Financial
Information" appearing elsewhere in this Prospectus.
On August 7, 1997, the Company completed the sale of certain assets, net of
liabilities assumed Systems Chemistry to British Oxygen Company, for a
negotiated sales price of $17.3 million before closing adjustments. The Company
received $15.8 million in cash after a holdback allowance of $1.5 million to
cover potential post-closing working capital adjustments. In addition, the
Company received the proceeds from a $5.0 million subordinated, non-interest
bearing note due in August 2000. The Company applied $18.5 million, after
transaction costs and bank fees, to reduce the outstanding balance on its line
of credit.
The selected pro forma consolidated statement of operations data for the
year ended December 31, 1996 and the six months ended June 30, 1997 reflect the
operations of the Company as if the above disposition had occurred at the
beginning of the periods presented. The selected pro forma consolidated balance
sheet as of June 30, 1997 reflects the financial position of the Company as if
the disposition had occurred as of June 30, 1997. The selected pro forma
consolidated statement of operations data for each period presented does not
reflect the estimated gain on this sale of approximately $2.0 million.
The selected consolidated financial data should be read in conjunction with
the information contained in the Company's historical consolidated financial
statements and the notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Unaudited Interim Condensed
Consolidated Financial Statements, and the Unaudited Pro Forma Consolidated
Financial Information included elsewhere herein.
30
<PAGE> 35
SELECTED CONSOLIDATED FINANCIAL DATA
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
------------------------------------------------------------------ ---------------------------------
Pro Forma Pro Forma
1992(1) 1993(1) 1994(1) 1995(1) 1996 1996 1996 1997 1997
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net Sales $ 34,408 $ 57,607 $ 86,119 $ 123,068 $ 171,484 $ 113,727 $ 91,920 $ 56,465 $ 34,186
Cost of sales 23,598 37,839 57,882 84,352 142,748 95,969 65,566 52,772 31,034
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit 10,810 19,768 28,237 38,716 28,736 17,758 26,354 3,693 3,152
Selling, general and
administrative 7,791 12,860 21,465 29,109 41,337 30,194 18,420 18,587 14,468
Research and development 1,574 2,059 3,357 5,678 9,373 8,488 4,023 4,891 4,485
Restructuring charges -- -- -- -- -- -- -- 3,792 3,792
Special charges 397 787 -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating (loss) income 1,048 4,062 3,415 3,929 (21,974) (20,924) 3,911 (23,577) (19,593)
Other (expense) income,
net (245) (259) 72 1,258 (4,701) (3,191) (1,945) (2,779) (2,003)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(Loss) income before income
taxes, extraordinary
charge and cumulative
effect of accounting
change 803 3,803 3,487 5,187 (26,675) (24,115) 1,966 (26,356) (21,596)
Income tax (benefit)
expense (302) 1,049 1,454 1,498 (6,566) (6,566) 713 3,000 3,000
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(Loss) income before
extraordinary charge
and cumulative effect
of accounting change 1,105 2,754 2,033 3,689 (20,109) $ (17,549) 1,253 (29,356) $ (24,596)
========= =========
Extraordinary charge -- -- -- -- -- -- (1,169)
--------- --------- --------- --------- --------- --------- ---------
(Loss) income before
cumulative effect of
accounting change 1,105 2,754 2,033 3,689 (20,109) 1,253 (30,525)
Cumulative effect of
accounting change -- 440 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net (loss) income $ 1,105 $ 3,194 $ 2,033 $ 3,689 $ (20,109) $ 1,253 $ (30,525)
========= ========= ========= ========= ========= ========= =========
Net (loss) income per
common share $ -- $ -- $ 0.13 $ 0.23 $ (1.20) $ .07 $ (1.80)
========= ========= ========= ========= ========= ========= =========
Net (loss) before
extraordinary charge
per common share (1.05) $ (1.45)
========= =========
Ratio of Earnings to Fixed
Charges 4.08 10.44 10.58 3.64
========= ========= ========= =========
</TABLE>
31
<PAGE> 36
<TABLE>
<CAPTION>
(in thousands) December 31, June 30, 1997
---------------------------------------------------- --------------------
1992(1) 1993(1) 1994(1) 1995(1) 1996 Actual Pro Forma
-------- -------- -------- -------- -------- -------- --------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $ 17,006 $ 48,309 $ 59,992 $119,948 $125,934 $ 93,045 $ 67,813
Long-term debt $ 2,503 $ 2,585 $ 4,268 $ 20,103 $ 27,489 $ 18,562 $ 22,262
Working capital (deficit) $ 2,557 $ 28,128 $ 24,178 $ 47,100 $ 25,618 $ (388) $ 8,373
Stockholders' equity $ 2,762 $ 28,783 $ 31,808 $ 46,023 $ 28,676 $ 7,304 $ 9,604
</TABLE>
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
- ---------------------
(1)In February 1995, the Company acquired all of the outstanding stock of
Systems Chemistry in exchange for 3,400,000 shares of Common stock. In March
1996, the Company acquired all of the outstanding Common stock of IMTEC
Acculine, Inc. ("IMTEC") in exchange for 575,000 shares of Common stock. Each
transaction was accounted for as a pooling of interests and, accordingly,
historical financial data has been restated to include Systems Chemistry and
IMTEC.
(2) In 1996 and 1997, earnings are inadequate to cover fixed charges.
32
<PAGE> 37
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq Stock Market
National Market under the symbol "SUBM." The following table sets forth for the
periods indicated the closing price range of the Common stock as furnished by
Nasdaq.
<TABLE>
<CAPTION>
Quarter Ended High Low
- ------------- ---- ---
<S> <C> <C>
March 31, 1995 $7-3/16 $4-1/8
June 30, 1995 12 6-3/4
September 30, 1995 14 8-3/8
December 31, 1995 11-7/8 9-3/8
March 31, 1996 11-1/4 8
June 30, 1996 11-11/16 7-7/8
September 30, 1996 8-7/8 4-5/8
December 31, 1996 5-9/16 3-41/64
March 31, 1997 5-1/4 3-1/4
June 30, 1997 3-1/2 2-5/16
September 30, 1997 4-5/8 2-11/16
</TABLE>
On March 25, 1997, the date immediately preceding the date of public
announcement of the Exchange Offer, the closing sale price of the Common Stock,
as reported by Nasdaq, was $3 9/16 per share. On ________________, 1997, the
closing sale price of the Common Stock, as reported by Nasdaq, was $_______ per
share.
At September 30, 1997, there were 974 record holders of the Company's
Common stock. The Company has not paid any dividends on its Common stock. The
Company does not anticipate paying dividends on its Common Stock in the
foreseeable future, and its banking agreements also restrict the Company's
ability to pay dividends.
33
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Selected Consolidated Financial Data and the Consolidated Financial Statements
and the Notes thereto and the other financial and operating information included
elsewhere in this Prospectus.
GENERAL
SubMicron, through its subsidiaries, designs, manufactures and markets
automated chemical processing and delivery systems for use in the production of
semiconductor wafers and integrated circuits. Revenue related to system sales is
recognized at the time of title transfer, which ordinarily occurs at the time of
shipment. Revenue related to service activities and sales of items from
inventory is recognized when the service has been performed or when the items
are shipped. Revenue from construction services is recognized when the service
has been performed or when the items are shipped. Revenue from construction
services is recognized on a method similar to the percentage-of-completion
basis. SubMicron's results of operations have varied significantly from quarter
to quarter. These fluctuations, which are likely to continue, are a result of
several factors including, in particular, the relatively high price of
SubMicron's products in relation to quarterly sales and the lead time to
manufacture such products. Accordingly, quarterly results are likely to
fluctuate and the results for any fiscal quarter may not be indicative of the
results for future fiscal quarters.
Cost of systems sold consists of materials, labor and related expenses
associated with the production of a system and are charged to expense when the
revenue related to the system is recognized. Cost of service and other sales
consists primarily of construction costs, including subcontractor costs, labor
and related expenses, resale goods, which includes only the cost of materials as
no parts or labor are incurred as "added costs" to resale items, and labor and
related expenses on service contracts.
On August 7, 1997, the Company completed the sale of certain assets,
net of liabilities assumed, of Systems Chemistry for $17.3 million, subject to
certain working capital adjustments. The Company received $15.8 million in cash
after a holdback allowance of $1.5 million to cover potential post closing
working capital adjustments. In addition, the Company received proceeds from a
$5.0 million subordinated, non-interest bearing note due in August 2000. Results
of operations through the periods ended June 30, 1997 include the results of
Systems Chemistry.
In March 1996, the Company acquired all of the outstanding stock of
IMTEC in exchange for 575,000 shares of Common stock. In February 1995, the
Company acquired all of the outstanding stock of Systems Chemistry in exchange
for 3,400,000 shares of Common stock. Each of the transactions was accounted for
as a pooling of interests and, accordingly, historical financial data has been
restated.
The Company's future results will depend on its ability to generate
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.
34
<PAGE> 39
The following table sets forth, for the periods indicated, the percentage of net
sales represented by certain items in the Company's consolidated statements of
operations.
<TABLE>
<CAPTION>
Percentage Of Net Sales
Year Ended December 31, Six Months Ended June 30,
------------------------------------ ---------------------------
1996 1995 1994 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Total net sales 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of sales 83.2 68.5 67.2 93.5 71.3
------ ------ ------ ------ ------
Gross Profit 16.8 31.5 32.8 6.5 28.7
Operating Expenses:
Selling, general and administrative 24.1 23.7 24.9 32.9 20.0
Research and development 5.5 4.6 3.9 8.7 4.4
Restructuring charges -- -- -- 6.7 --
------ ------ ------ ------ ------
Total operating expenses 29.6 28.3 28.8 48.3 24.4
------ ------ ------ ------ ------
Operating (loss) income (12.8) 3.2 4.0 (41.8) 4.3
Other (expense) income, net (2.7) 1.0 0.1 (4.9) 2.1
------ ------ ------ ------ ------
(Loss) income before income taxes (15.5) 4.2 4.1 (46.7) 2.2
Income tax (benefit) expense (3.8) 1.2 1.7 5.3 .8
------ ------ ------ ------ ------
(Loss) income before extraordinary item charge (11.7) 3.0 2.4 (52.0) 1.4
Extraordinary charge -- -- -- (2.1) --
------ ------ ------ ------ ------
Net (loss) income (11.7)% 3.0% 2.4% (54.1%) 1.4%
====== ====== ====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
Six months ended June 30, 1997 compared to the six months ended June 30, 1996
Net sales decreased 39% for the six month period ended June 30, 1997
compared to the same period in the prior year. The decrease in sales was
primarily attributable to continued soft market conditions and the rescheduling
of the delivery of five systems that were expected to be shipped in the second
quarter of 1997. The sales value of the five systems is approximately $9.3
million. These systems were shipped in July 1997.
Gross profit was 7% of sales for the six months ended June 30, 1997
compared to gross profit of 29% for the comparable period in the prior year. The
decreases in gross margin compared to the prior year period was primarily due
to the shipment of several low margin customized systems. The six months ended
June 30, 1997 also included a writedown of $1.8 million of certain inventory
associated with a specific customer order. Gross margins may vary significantly
from quarter to quarter based upon product mix. See "Risk Factors."
Selling, general and administrative expenses were 33% of net sales for
the six month period ended June 30, 1997 compared to 20% for the comparable
period in the prior year. The increase in selling, general and administrative
expenses as a percentage of sales was the result of the significant decrease
in sales volume in comparison to the Company's high proportion of fixed costs
included in selling, general and administrative expenses. Selling, general and
administration expenses for the six months ended June 30, 1997 also included a
$700,000 charge related to a prepaid royalty that management had determined has
no future value to the Company.
35
<PAGE> 40
Results for the six months ended June 30, 1997 include restructuring
charges of approximately $3.8 million primarily related to severance costs and
lease termination costs associated with vacating the Company's corporate
offices. These restructuring charges were incurred as a result of a plan to
restructure the corporate organization and to refocus the Company on its core
technology.
Research and development expenses were 9% of net sales for the six
month period ended June 30, 1997 compared to 4% of net sales for the prior year
comparable period. The increase as a percentage of sales was primarily
attributable to the significant decrease in sales volume. Research and
development expense increased to approximately $4.9 million for the six month
period ended June 30, 1997 compared to $4.0 million for the respective period in
the prior year, primarily as a result of the Company's continued development of
its 300MM wet bench systems and Primaxx(R) product lines.
Other expense, net was approximately $2.8 million for the six month
period ended June 30, 1997 compared to other expense of approximately $1.9
million for the prior year comparable period. Other expense for the six months
ended June 30, 1997 and 1996 consisted primarily of interest charges associated
with the Company's convertible debt and borrowings under the Company's line of
credit.
The income tax provision for the six month period ended June 30, 1997
included non-cash charges of $3.0 million related to additional charges to
increase the Company's valuation allowance against its net deferred tax asset.
Results for the six months ended June 30, 1997 include an extraordinary
loss for debt extinguishment of $1.2 million or $0.07 per share, in connection
with the Company's issuance of the Original Notes and Preferred Stock.
Net loss for the six months ended June 30, 1997 was approximately $30.5
million compared to net income of approximately $1.3 million for the six months
ended June 30, 1996.
Year ended December 31, 1996 compared to the year ended December 31, 1995
Net sales consist of revenues from sales of systems, construction and
installation of systems, spare parts and service contracts. Net sales increased
$48.4 million, or 39%, to $171.5 million for the year ended December 31, 1996
from $123.1 million for the year ended December 31, 1995. Systems sales
accounted for a majority of the increase. Systems sales for the year ended
December 31, 1996 increased 54% to $140.8 million compared to system sales of
$91.2 million for the year ended December 31, 1995. The increase in system sales
was primarily attributed to the ability of the Company to conform its systems to
the needs of its customers. Service and other sales remained near 1995 levels.
Gross profit decreased 26% to $28.7 million for the year ended December
31, 1996 compared to gross profit of $38.7 million for the year ended December
31, 1995. Gross profit as a percentage of net sales decreased to 17% of net
sales for the year ended December 31, 1996 from 31% of net sales
36
<PAGE> 41
for the year ended December 31, 1995. The decrease in 1996 gross profit was in
part attributed to a cyclical slowdown in the semiconductor industry which has
led to pricing pressures and an increase in the number of customized systems. A
majority of the costs associated with the deterioration of the gross profit
margins occurred in the third quarter of 1996, primarily due to higher than
anticipated production costs on several customized orders. During 1996 the
Company recorded significant increases in its inventory, warranty and
installation reserves. In addition, the Company recorded a $3 million writedown
of inventory in the third quarter of 1996, representing approximately 9% of net
inventories at December 31, 1995, due to the inability of a customer to complete
a scheduled purchase of eleven SSI units. The writedown represented
approximately 40% of the total cost of the units produced under this order.
Selling, general and administrative expenses were approximately 24% of
net sales for the year ended December 31, 1996 and 1995. Selling general and
administrative expenses were $41.3 million for the year ended December 31, 1996
compared to $29.1 million for the year ended December 31, 1995, representing a
42% increase. The increase in selling, general and administrative expenses
related primarily to an increase in sales volume and related sales and marketing
expenses. The increase was also due to professional fees incurred in connection
with the Company's financing activities, an increase in the Company's allowance
for uncollectible accounts, and a charge for value ascribed to warrants and
options issued for professional services.
Research and development expenses consist of salaries, project
materials, laboratory costs, consulting fees and other costs associated with the
Company's research and development efforts. Research and development expenses
were $9.4 million, or 5% of net sales, for the year ended December 31, 1996
compared to $5.7 million, or 5% of net sales, for the comparable period of the
prior year. Spending on research and development increased $3.7 million, or 65%,
over the prior year due to an increased complexity and testing of the Company's
PRIMAXX(R) gas phase products.
Other expense, net, was $4.7 million or 3% of net sales for the year
ended December 31, 1996 compared with other income, net, of $1.3 million or 1%
of net sales for the year ended December 31, 1995. Other expense for the year
ended December 31, 1996 consisted primarily of interest charges associated with
borrowings on the Company's line of credit, 9% Notes, and capital leases. Other
income for the year ended December 31, 1995 represented interest expense on the
Company's line of credit and convertible notes, offset by interest income on
investments and income recognized from the favorable outcome of a lawsuit.
The effective tax rate in 1996 of approximately 25%, less than the
statutory federal and state rates, was principally a result of the Company's
recording a valuation allowance of $2.6 million against its deferred tax asset
as of December 31, 1996, thereby reducing the benefit realized on the Company's
1996 net operating loss. In 1995, the effective tax rate of approximately 29%
was benefited principally from the implementation of a foreign sales
corporation.
Year ended December 31, 1995 compared to the year ended December 31, 1994
Total net sales in 1995 were $123.1 million, a 43% increase over 1994
total net sales of $86.1 million. The increase was primarily attributable to an
increase in market demand for the Company's products. Systems sales increased to
$91.2 million for the year ended December 31, 1995, compared to $67.6 million
for the year ended December 31, 1994, an increase of 35%. The increase in demand
for the Company's products also contributed to the increase in the Company's
service and other sales.
Service and other sales increased to $31.9 million for the year ended December
31, 1995 compared to $18.5 million for the year ended December 31, 1994, an
increase of 72%.
37
<PAGE> 42
Gross profit increased 37% to $38.7 million in 1995 compared to gross
profit of $28.2 million in 1994. Gross profit as a percentage of sales decreased
to 31% of sales for the year ended December 31, 1995 compared to 33% of sales
for the year ended December 31, 1994. The decrease in the gross profit
percentage is due primarily to introductory pricing and certain cost overruns in
the startup production for GAMA-1(TM) units in the second quarter of 1995.
Selling, general and administrative expenses were $29.1 million for the
year ended December 31, 1995, a 36% increase over the selling, general and
administrative expenses for the year ended December 31, 1994 of $21.5 million.
The increase was primarily attributable to an increase in commission expense and
the hiring of additional sales personnel to accommodate the growth in sales for
the year ended December 31, 1995 compared to the year ended December 31, 1994.
Selling, general and administrative expenses, as a percentage of sales,
decreased to 24% for the year ended December 31, 1995 compared to 25% for the
year ended December 31, 1994. The decrease as a percentage of sales was
attributable to the significant increase in 1995 sales and the effects of fixed
costs included in selling, general and administrative expenses.
Research and development expenses increased 69% to $5.7 million for the
year ended December 31, 1995 from $3.4 million for the year ended December 31,
1994. Research and development expenses, as a percentage of sales, were 5% for
the year ended December 31, 1995 and 4% of sales for the year ended December 31,
1994. The increase in research and development expense was primarily
attributable to the hiring of personnel to increase the amount of research and
development efforts and to expand the applications laboratory.
Other income (expense) consists of interest income on the Company's
investments offset by interest charges on the Company's lines of credit, capital
leases, and term note. Other income for the year ended December 31, 1995,
includes amounts collected from the favorable outcome of a lawsuit, and is shown
net of legal fees incurred.
The effective tax rate decreased to 29% in 1995 from 42% in 1994,
primarily due to tax benefits received from the use of a foreign sales
corporation.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by approximately $2.6 million
during the six month period ended June 30, 1997, to approximately $2.8 million.
Cash provided by operations totaled approximately $67,000 for the six months
ended June 30, 1997, which was largely due to the net loss recognized during the
first six months of 1997 offset by collections of accounts receivable,
depreciation and amortization and the non-cash extraordinary loss on debt
extinguishment. Accounts receivable decreased approximately $20.4 million from
$47.6 million at December 31, 1996 to $27.2 million at June 30, 1997. Inventory
balances of $33.9 million at June 30, 1997 were consistent with inventory
balances at December 31, 1996 of $35.0 million. Investing activities utilized
cash of approximately $423,000 to purchase equipment. Financing activities
utilized approximately $2.3 million of cash to repay borrowings on the Company's
line of credit and to pay down long-term debt and capitalized lease obligations.
The Company's working capital decreased approximately $26.0 million to a working
capital deficit of ($388,000) at June 30, 1997, compared to working capital of
$25.6 million at December 31, 1996, primarily due to the collections of accounts
receivable.
In February 1996, the Company entered into a $30.0 million credit
facility with a banking group. The Company used the proceeds from the credit
facility to refinance its previous lines of credit
38
<PAGE> 43
and to provide working capital. Borrowings under the credit facility bore
interest at the lender's prime rate plus 3.0%, and are secured by substantially
all of the assets of the Company. The Company is not in compliance with certain
requirements of the credit facility. The banking group has separately agreed to
extend the due date of the credit facility from its maturity date of August 18,
1997 to October 31, 1997, and, upon completion of certain currently pending
conditions, to December 1, 1997. Subsequent to June 30, 1997, the Company has
applied the net proceeds generated from the sale of certain net assets of
Systems Chemistry against its outstanding borrowings. Borrowings under the
extended agreement are permitted up to $9.5 million, with the interest rate at
prime plus 4.0%, effective June 1, 1997. Borrowings under the extended credit
facility were $8.6 million at September 30, 1997.
In March 1997, the Company issued shares of its Preferred Stock
convertible into approximately 2.6 million shares of Common Stock and
approximately $8.7 million principal amount of Original Notes to the previous
holders of $18,350,000 of its 9% Notes and associated investor warrants. The
Original Notes are convertible into shares of Common Stock at $3.70 per share,
subject to adjustment. Under the agreement pursuant to which the Preferred Stock
and the Original Notes were issued, the Company is required to undertake certain
registration obligations of the Original Notes. The Registration Statement of
which this Prospectus is part is intended to satisfy these registration
obligations. If such obligations are not fulfilled by January 31,1998, the
Original Notes will become due as of such date.
On August 7, 1997, the Company completed the sale of certain assets,
net of liabilities assumed, of Systems Chemistry for $17.3 million, subject to
certain working capital adjustments. The Company received $15.8 million in cash
after a holdback allowance of $1.5 million to cover potential post closing
working capital adjustments. In addition, the Company received proceeds from a
$5.0 million subordinated, non-interest bearing note due in August 2000. The
Company applied $18.5 million, after transaction costs and bank fees, to reduce
the outstanding balance on its line of credit. The Company estimates a gain on
the sale of approximately $2.0 million to be recorded in the third quarter of
1997.
Management of SubMicron initially budgeted approximately $3 million for
capital expenditures in 1997 to expand its production facilities. The Company
has currently suspended the expansion of its production facilities and has
sharply curtailed spending on capital equipment.
In response to significant losses from operations in each of the last
four quarters, the Company developed a worldwide restructuring plan. The plan is
to refocus the Company on its core technology. The plan will also restructure
the Company's corporate organization and includes the sale of certain
non-strategic assets to generate liquidity. As a result of the restructuring,
the Company recorded a $3.8 million restructuring charge in the second quarter
of 1997. The restructuring charge includes, among other things, substantial
employee severance and lease termination costs. The Company expects to incur
additional charges related to the continuation of the restructuring plan of
approximately $1.5 million and $1.0 million in the third and fourth quarter of
1997, respectively.
In recent years, the Company has been substantially dependent upon
borrowings to finance its operations. Management estimates that the cash
requirements to fund operating, investing and financing activities will require
replacement of the funds currently available under the credit facility. Without
the availability of a sufficient credit facility, the Company is susceptible to
severe cash shortages which may impact its ability to operate. To provide for
the Company's cash and working capital requirements, management is pursuing
additional funding arrangements and believes it can improve the Company's
operating performance and cash flows sufficiently as follows:
39
<PAGE> 44
- In response to the problems associated with the Company's rapid
growth and the semiconductor industry slowdown which negatively
impacted the Company's operations, management has instituted programs
designed to reduce costs and improve performance. Management is
pursuing an improvement in gross margins through the implementation of
enhanced quality systems, controlled operations resulting from the
reduction in the direct labor workforce and increased management review
of all contract bidding. Additionally, the Company has altered its
strategy from revenue growth to operating efficiency and management is
focusing its resources on the application of the Company's core
technology.
- Management is in active negotiations with a number of lending
organizations to replace its existing credit facility.
- Management is evaluating its alternatives and currently plans to sell
certain non-strategic assets to generate liquidity.
- As needs require or market opportunities arise, management from time
to time may consider raising additional funds through equity financing
or strategic partnering arrangements.
Although there can be no assurance, management is confident that its
cost reduction and performance improvement programs, controlled growth strategy,
current negotiations with lending organizations, and pursuit of other
alternatives will result in the successful funding of its working capital and
cash requirements for at least the next year; however, if the financial results
during such period do not meet management's expectations and sufficient
additional financing is not available, management has the ability and intent to
reduce certain expenditures and accelerate collection of receivables to minimize
additional capital requirements.
The Company believes that future results of operations will be
influenced by a number of factors, including general economic conditions, timely
new product introduction, the volume, mix and timing of orders received and
numerous other factors. Due to the continued weakness in the semiconductor
industry and the Company's current financial condition, it has experienced a
period of soft bookings which has created an uncertainty in the expected
revenues for the remainder of 1997.
The Company's future results will depend upon its ability to achieve
profitable 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 significantly. The Company's results will also
be affected by the condition of the semiconductor industry, as well as the
general economy.
Inflation has not significantly affected the Company's financial
position or operations. Inflation will have the general effect of increasing the
Company's operating expenses. A substantial portion of the Company's
indebtedness bears interest that fluctuates with the prime rate. No assurance
can be given that the prime rate of interest will not fluctuate significantly,
which could have an adverse effect on operations.
40
<PAGE> 45
BUSINESS
GENERAL
SubMicron, through its subsidiaries, designs, manufactures and markets
silicon wafer surface preparation equipment and other technologies for use in
the production of semiconductor wafers and integrated circuits (IC).
SUBMICRON SYSTEMS, INC. (SSI)
SSI designs, manufactures and markets advanced wet processing equipment
for sale primarily to the semiconductor and silicon wafer manufacturing
industries. Utilizing advanced robotics systems and sophisticated software, this
equipment carries out precise and highly controlled critical cleaning, etching
and stripping steps in the production process. Modular in design, SSI wet
stations provide the customer with the flexibility to reconfigure or extend the
systems to meet future needs by replacing or adding individual modules.
UNIVERSAL PLASTICS (UP)
Complementing the product line offered by SSI, UP manufactures a broad
line of wet processing equipment, including manual and semi-automatic models
which require greater operator assistance to accomplish wafer processing tasks.
UP also offers wet stations which incorporate a higher degree of automation and
robotics. The utilization of UP's systems extends beyond the semiconductor
sector to include such applications as circuit boards, parts cleaning, plating,
and substrates of other electronic devices. The systems are typically utilized
in research and development, and pilot line applications as well as volume
manufacturing.
SYSTEMS CHEMISTRY INCORPORATED (SYSTEMS CHEMISTRY)
On August 7, 1997, the Company completed the sale of certain assets,
net of liabilities assumed, of Systems Chemistry. As a result of this sale,
SubMicron will no longer sell chemical delivery and management systems. Systems
Chemistry provided automated chemical distribution and management systems to the
semiconductor, flat-panel display, recording head and related industries. The
systems control and dispense high purity acid, caustic, oxidizer, and solvent
chemicals throughout a factory, typically from bulk chemical storage to
point-of-use locations. Advanced control capabilities provide the customer with
improved chemical quality, lower emissions, reduced consumption, special mixing
techniques and safety.
IMTEC ACCULINE, INC. (IMTEC)
IMTEC designs, develops, tests, manufactures and markets temperature
regulated baths, megasonics systems, as well as a number of ancillary products
for the semiconductor manufacturing and related industries. Many of IMTEC's
products are developed for use in wet processing equipment. The Company's
megasonics systems, for instance, produce high-frequency acoustical waves in
tank baths to augment chemical action taking place on the wafers.
41
<PAGE> 46
PRIMAXX(TM) CORPORATION
In July 1996, the Company formed a new subsidiary, PRIMAXX(TM)
Corporation, to design, manufacture and market tools for single-wafer
processing. Using gas-phase chemistries to remove organics, particulates and
metals from wafer substrates, PRIMAXX(TM) provides the foundation for the thin
films necessary for high-yield production of advanced Ics. Based on the
PRIMAXX(TM) platform, the PRIMAXX2F(TM) has been designed to deposit
ferroelectric material on wafer surfaces.
INDUSTRY BACKGROUND
The need for new processes and systems capable of manufacturing silicon
wafers and high performance electronic devices with increasingly complex
circuits has increased the demand for new semiconductor production equipment.
Since 1980, the semiconductor industry has met the growing demand for more
advanced Dynamic Random Access Memory (DRAM) by providing integrated circuits
with smaller circuit designs and increased memory capacity. With the successive
development of the 64KB, 256KB, IMB, 4MB and 16MB DRAMs, feature sizes of the
circuits have declined from a size greater than 2.0 microns to 0.5 micron for a
16MB DRAM. At the same time, the size of the wafers has increased from four
inches (100mm) in diameter to eight inches (200mm) in diameter. The first wafer
fabrication facility built specifically to process 12-inch wafers (300mm) is
scheduled to begin production in 1998.
Silicon wafers are transformed into semiconductor chips in a
specialized production facility known as a wafer fabrication line. Integrated
circuit manufacturing involves a complex series of repetitive process steps to
transform a raw silicon wafer into an integrated circuit. The number of steps
involved in the manufacture of DRAMs has increased from approximately 60 process
steps for the 64KB (64 thousand bits) circuit to as many as 250 process steps
for the 16MB (16 million bits) circuit. A critical part of the fabrication
process is the cleaning of the wafers to remove particles, oxides and metal
contamination which, if not removed, can render a circuit inoperable,
particularly if the size of the contaminant particle is larger than the geometry
of the integrated circuitry. As the circuits on DRAMs have become smaller, the
tolerance levels for contaminants on the wafer surface have declined in order to
maintain commercially acceptable yields.
WAFER AND SEMICONDUCTOR DEVICE FABRICATION
The basic component in the manufacture of semiconductor devices is a
thin, circular crystalline wafer, typically 100mm to 200mm in diameter, composed
of silicon or another semiconductor material. During the fabrication process,
several layers of conductive or dielectric materials are sequentially grown or
deposited on the wafer surface through a series of thermal or chemical
procedures. Production occurs in a controlled environment known as a "clean
room," which is a manufacturing facility separated from the outside environment
and which employs specialized filters to reduce the number of particulates in
the air within the facility. Each layer undergoes a series of processes to etch
and strip away a portion of the layer, leaving the desired integrated circuit
pattern. The wafers are ultimately separated into individual integrated circuits
or discrete components and are then packaged, assembled and tested.
The typical integrated circuit fabrication process takes between eight
and twelve weeks. The primary stages of this process are discussed below. The
typical "base" silicon wafer fabrication process takes between three and six
weeks.
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<PAGE> 47
Cleaning. The wafer surface must be cleaned and prepared in order to
begin the IC fabrication. As the integrated circuits' geometry becomes smaller
and more complex, the reduction of organic, metal and particle contamination of
the wafer becomes a critical factor in wafer processing. Specific contaminants
are organic, oxide films and metals. These contaminants can destroy individual
circuits and must be removed prior to the growth or deposit of subsequent layers
on the wafer. Contamination removal is also required prior to high temperature
operations so that the contamination is not diffused into the wafer during such
operations. The wafer must also be cleaned at various other stages in the
fabrication process to continue to remove contaminants and particulates.
Cleaning is generally performed by exposing the wafer to a sequence of
liquid chemical baths or gas vapors. SSI's products are designed to perform
these functions throughout the integrated circuit fabrication process. As many
as 50 of the 250 process steps involved in manufacturing an advanced IC take
place in a wet station. In addition to contamination from particles left over
from the various steps in the fabrication process, such as etching or stripping,
contaminants may also be introduced from the equipment and chemicals utilized in
the manufacturing process.
SSI has designed its automated wet stations to reduce the level of
contamination to which the wafer is exposed during operation of its equipment.
SSI's "rear-mounted" system has two-axis robots which permit the front of the
system to be closed off to the outside environment, thereby reducing particulate
contamination. The Company's GAMA-1(TM) is a self contained system not exposed
to the outside environment. Both types of equipment are assembled in a clean
room, which reduces the risk of equipment contamination during assembly.
Layering. After initial cleaning and wafer surface preparation, a thin
film of either conductive or dielectric material is grown or deposited on the
wafer surface. Depending upon its particular electrical properties, a layer
functions as an insulator, semiconductor or conductor.
Photolithography. After the film layer is deposited on the wafer, it is
covered with photoresist, a light sensitive material. Integrated circuit
patterns are then projected onto the photoresist by exposing it to an energy
source. Chemical changes occur in the portion of the photoresist exposed to the
energy source. These changes result in a transfer of the image of the desired
circuit onto the wafer.
Etching. After a circuit pattern has been imprinted, the image on the
film is developed, which creates precisely defined areas of protected and
unprotected photoresist. The next step in the fabrication process is etching,
which involves removal of the unprotected areas of the patterned film, leaving
behind the desired circuit pattern. The etching can be accomplished with either
a wet chemistry process, using liquid chemicals, or a dry chemistry (typically
plasma) process, using chemical gases. The circuit is then electrically charged,
or doped, through the diffusion or implantation of ions.
Stripping. After the surface has been electrically charged, the
remaining areas of photoresist are stripped off the wafer with either a wet
chemistry or a dry chemistry process.
These operations are repeated numerous times during the fabrication
process; the exact number depends upon the type and complexity of the
semiconductor device. A finished integrated circuit consists of a number of film
layers which together form thousands of extremely small electronic components
that combine to perform the desired electrical functions. Each step in the
fabrication process requires precision and must be rigorously controlled to
attain commercially acceptable yields and cost performance.
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PRODUCTS
Automated Wet Stations. SubMicron's primary business is the design and
manufacture of automated wet stations, accounting for approximately 60% of net
sales (90% of sales, excluding sales by Systems Chemistry) for the year ended
December 31, 1996. A wet station consists of an interconnected series of
chemical processing modules, each programmed to apply specific chemicals, gases
or vapors to the wafer surface in order to remove particles and other
contaminants, to etch deposited layers or strip photoresist from the wafer.
Wafers are processed in the wet station primarily by immersing the wafer in a
chemical bath or by placing the wafer into a vapor chamber. Other modules in a
system are used to rinse and dry the wafer. Wafers are transported from module
to module by a robotic arm. The robot and specific chemical or vapor used with
each module, including the chemical or vapor concentration and temperature, are
controlled by a computer and customized software included with each system.
SubMicron's automated systems are designed to minimize the level of
contaminants introduced into the fabrication process by reducing both the
contamination level of its components and the chemicals used in its systems as
well as the degree of operator interaction necessary for operation. Each system
is based on a standardized modular design which is intended to permit
reconfiguration of the system to meet particular customer needs and
specifications. The modular design also provides certain flexibility in
reconfiguring or expanding the system as integrated circuits become more complex
and processing requirements change.
SubMicron's new generation of automated wet station, called GAMA-1, is
designed to achieve the future industry requirements for fabrication of silicon
wafers of up to 300mm and device features as small as 0.25/0.35 microns,
required for manufacturing 64MB DRAMs.
GAMA-1 is designed to provide lower operating costs and reduced
emissions compared to other cleaning systems. The GAMA-1 incorporates the
following features:
Reduced Exhaust Emissions: GAMA-1 utilize a proprietary Class 1
mini-environment which emits less exhaust emission compared to
conventional systems. This makes the tool more environmentally friendly
and safer for human operators than certain other systems.
Point-of-Use Concentration Control: Each chemical bath incorporates a
point-of-use concentration control called In-situ Chemical Efficiency
(ICE) which extends the useful chemical life, thus reducing chemical
consumption and waste.
Semi-Cassetteless Carriers: Typical wet stations utilize a cassette to
hold the silicon wafers, which requires the equipment and chemical
tanks to perform the cleaning process on the cassette as well as the
wafers. A semi-cassetteless system reduces the cleaning load by
enabling a reduction in the size of tanks and the volume of the
chemical required to process wafers.
Smaller Footprint: The GAMA-1 station incorporates chemical dispense
and mix units, which in the past had been remote, into the design of
the wet station. This enables a reduction in overall floor space
required.
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To further reduce the level of contaminants introduced into the
fabrication process by its automated wet stations, SSI assembles and packages
all of its automated wet station systems in a Class 10 clean room (fewer than
ten particles per cubic foot of air per minute contained in the air circulating
through the clean room).
SSI's systems also offer the following features, many of which are sold
separately as additions to, or replacements for, existing systems:
Megasonic Cleaning System (Phaser). SubMicron's high frequency/high
power energy cleaning system (the "TurboPhaser") uses high frequency energy
waves to remove particle contamination from a batch of wafers immersed in a
chemical bath. This process, also known as megasonic cleaning, is designed to
assist in the removal of contaminants from the wafer surface which generally
cannot be removed by standard spray wafer processing. The TurboPhaser is
operated by an electronic controller and possesses transducer assemblies capable
of operating (from a single power supply) at a frequency range of .75 Mhz to 1.2
Mhz and emitting over 1600 watts per transducer utilized in a wet station. There
are patent applications pending for portions of the megasonic cleaning system.
The TurboPhaser may be used in both UP and SSI wet benches, and is also
available as an OEM subsystem for incorporation or retrofit into other wet
benches. This technology has been transferred to IMTEC to complement and extend
its line of products.
Point-of-Use Chemical Generation System (POUCG). This patented system
mixes liquid chemicals at the point of use (the particular tank in the wet
station) by injecting specific gases into purified water contained in station
processing tanks. Many semiconductor manufacturing facilities supply chemicals
to processing tanks from a central plant system often located hundreds of feet
from the processing tanks. Because chemicals can be transported from a central
plant system with few contaminants, the POUCG system is generally able to
produce purer chemicals for application in processing tanks than those
distributed in liquid form from a central plant system. Furthermore, this system
reduces the need to utilize certain commercially prepared liquid chemicals which
typically are not at the purity levels attained by the chemicals generated by
SubMicron's system.
Point-of-Use Chemical Concentration System (ICE, In-situ Chemical
Efficiency). The concentration of chemicals utilized in process tanks, whether
supplied in liquid form from a central plant system or generated from gas at the
point-of-use, diminishes over time. SubMicron's system continuously monitors the
chemical concentration in the process tanks and injects chemical gases into
processing tank solutions as necessary in order to maintain chemical
concentration. The system's ability to replenish depleting chemicals reduces the
need to replace chemicals, resulting in lower customer chemical usage and
disposal costs. SubMicron has patented a portion of this system.
High-Temperature Recirculation/Filtration System. The continuous
recirculation and filtration of the chemicals in a tank provides an alternative
to conventional, stagnant process solutions which require more frequent chemical
changes. Although this product has a higher initial cost than conventional
recirculation systems, the Company believes the system is generally less
expensive to operate than conventional systems because it reduces chemical
consumption, contamination and disposal costs.
Sulfuric Ozone Injection and Recirculation System. This system, for
which SubMicron has received a patent, is designed for continuous sulfuric
filtration and solution oxidation. The system has certain advantages over
conventional liquid oxidized solutions, including the reduction of the
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contaminants and chemical consumption and disposal, the minimization of sulfuric
dilution, the extension of sulfuric bath life and the elimination of certain
metal cleaning process steps.
All Teflon Recirculation/Filtration System. This product offers a
high-purity process recirculation and filtration system for chemicals utilized
in SSI's process tanks. The system features a pneumatic pump surge suppressor
designed to extend pump and filter life and to provide continuous flow and
standard aspirated draining of the entire wet station system.
Turbo DI Water Rinse. SubMicron's Turbo DI (Deionized) Water Rinse is a
processing tank utilized for combination quick-dump/spray/high-flow cascade
rinsing and gas injection. SubMicron has received a patent for this processing
tank's design. The design allows for uniform chemical application to wafer
surfaces, and the tank may be programmed for continuous variable temperature
liquid injection.
Cluster Tool Dry Cleaning System (PRIMAXX(TM) Corporation product
line). SubMicron's current automated chemical process systems make primary use
of liquid (wet) chemical processing. SubMicron believes that as semiconductor
devices become more complex, the industry will move towards single wafer
processing and that gas (dry) processing techniques will be employed in more
phases of the fabrication process. Several companies are utilizing dry chemical
vapor deposition (CVD) techniques to deposit layers on single wafers for
subsequent process applications. These CVD techniques are most effective when
performed in a nonatmospheric (vacuum) environment. In order to maintain a
vacuum as wafers proceed through the fabrication process, a standard industry
interface, called MESC, has been established which permits processing tools to
be connected to each other so that wafers may be transferred between processing
steps without being exposed to atmospheric or human contact. The MESC interface
provides the means for tools to be clustered together, thereby taking up less
space in a fabrication line. Moreover, cluster tools are completely closed to
the outside environment and do not need to be kept in clean room conditions.
In order to successfully perform dry CVD processing, the wafer must
first be cleaned. Wet stations, which use liquid chemicals in atmospheric
conditions, permit oxidation contamination on the wafer surface and therefore
cannot be used in the cluster module. PRIMAXX(TM) has been designed to remove
certain contaminants as well as moisture in a vacuum, and permits vacuum wafer
transfer to the CVD reactor, thereby preventing oxidation contamination.
SubMicron has obtained a patent relating to the dry cluster cleaning tool and
has developed proprietary processes used in connection with the dry cluster
cleaning tool.
Accordingly, SubMicron is expending a significant portion of its
research and development efforts in the area of dry processing. It has provided
a grant through December 1997 to Pennsylvania State University which funds
research to evaluate prospects for extending PRIMAXX(TM) technology for further
use in the semiconductor manufacturing industry.
SubMicron does not believe that dry cluster tools will replace the need
for its automated wet station. Dry cluster cleaning tools remove moisture,
organics, oxides and metals from wafer surfaces but the technology cannot clean
heavily contaminated wafers, nor can it remove particles. SubMicron's
wetstations, which remove particle contamination with the aid of
megasonics-enhanced chemical processing tanks (acoustical energy cannot be
transmitted in a vacuum/gas environment) is still expected to be needed to
prepare the wafer surface prior to cluster tool processing and for other
processing steps which do not utilize dry technology.
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The Company also has developed an extension of PRIMAXX(TM) to perform
etching steps as well as a deposition tool called the PRIMAXX2F(TM) which is
designed to deposit uniform films of ferroelectric materials used in advanced
applications, such as non-volatile memory devices. In September, 1997, the
Company entered into a license agreement with AG Associates, Ltd. for its
PRIMAXX(TM) dry cleaning technology concerning a specific field of use for $1.25
million in cash with potential additional royalties of $2.5 million over a
multiyear period.
RESEARCH AND DEVELOPMENT
The market for semiconductor manufacturing equipment is characterized
by rapid technological change and product innovation. SubMicron believes that
continued and timely development of new products and enhancements to existing
products are necessary to maintain its competitive position within the industry.
Accordingly, SubMicron is committed to an active research and development
program and regularly consults with customers, industry groups and academic
institutions to determine the changing needs of the industry.
SubMicron's research and development programs are primarily focused on
devising methods for producing cleaner wafer surfaces required for smaller
geometry integrated circuits, increasing process control and flexibility through
monitoring and software management systems, and further developing robotic
automation in the clean room for single wafer processing. The Company believes
that evolving technological challenges in the manufacturing process of advanced
semiconductor devices present significant opportunities and challenges.
SubMicron maintains a 2,600 square-foot Class 1 Applications Laboratory
in a portion of its Allentown facility. The Applications Lab provides the
Company's customers with the ability to process their wafers on the Company's
equipment. The equipment in the Applications Lab includes a GAMA-1 station, a
PRIMAXX(TM) module, a semi-automatic wet station and a rear mount station. The
Applications Lab also contains equipment for analytical process performance data
on the quality of the Company's equipment. This capability includes defect
analysis for particles and ionics as well as oxide uniformity analysis. The
Applications Lab also provides a test facility for the Company's future
products. SubMicron currently maintains a research and development process
engineering staff of 48.
Expenditures for research and development are charged to expense as
incurred. During 1996, 1995 and 1994 research and development expenses were
approximately $9.4 million, $5.7 million and $3.4 million, respectively.
MARKETING, SALES AND SERVICE
SubMicron markets and sells its products for use in both new
fabrication lines and as replacement systems or components for existing
fabrication lines. Potential customers for SubMicron's products include advanced
semiconductor manufacturers worldwide. Geographically, four principal markets
exist: Japan; the United States; Europe; and the Far East.
In 1996, approximately 70% of the Company's net sales were to major
chip manufacturers in the United States and, therefore, the Company has directed
the majority of its sales and marketing efforts in the U.S. SubMicron sells its
products in the United States through a combination of a direct sales force and
manufacturer's representatives.
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SubMicron is increasing its marketing effort in Europe and the Far
East. SubMicron has a sales office in France and a subsidiary in Singapore.
SubMicron also has a joint venture agreement with a Japanese company whereby
SubMicron has given exclusive manufacturing and distribution rights in Japan for
one of its products. In exchange, SubMicron receives exclusive manufacturing and
distribution rights in the United States for one of the Japanese company's
products. The Company believes this agreement enhances its ability to penetrate
the Japanese market.
SubMicron has experienced and expects to continue to experience
variations in its customer mix. The timing of an order for SubMicron's products
is primarily dependent upon the customer's expansion program, replacement needs
or requirements to improve semiconductor device fabrication productivity and
yields. Consequently, a customer that places significant orders in one year may
not necessarily place significant orders in subsequent years.
Due to the substantial operational and financial commitments customers
make when they purchase a system, SubMicron believes that its ability to provide
prompt and effective field support is critical to its marketing efforts.
SubMicron employs 62 full-time field service engineers to assist and train its
customers in performing preventative maintenance and to service SubMicron's
equipment. For certain large domestic and international orders, SubMicron
provides full-time on-site technical support and maintenance for the first year.
After the first year. SubMicron offers maintenance contracts whereby one or more
employees of SubMicron will work full time at the customer's facility and
provide service, maintenance and/or training for customer personnel on a fee
basis. SubMicron typically provides its customers with a one-year
parts-and-labor warranty on products, which generally begins two months after
delivery of a product. In an attempt to reduce the cost of such warranties,
SubMicron generally requires its vendors to provide a comparable parts warranty
on the component parts not manufactured by SubMicron.
BACKLOG
SubMicron schedules production of its systems based upon order backlog.
SubMicron includes in its backlog only those customer orders for which it has
accepted purchase orders and assigned shipment dates within the next
twelve-month period. As of September 30, 1997 and 1996, SubMicron's backlog was
approximately $20.8 million and $55.4 million, respectively (as restated to give
effect to the Systems Chemistry transaction). Because of possible changes in
delivery schedules and cancellations of orders, SubMicron's backlog at any
particular date is not necessarily representative of actual sales for any
succeeding period.
MANUFACTURING AND ASSEMBLY
SubMicron performs a performance/cost analysis of each component of its
products and manufactures only those component parts for which it believes there
is a functional, quality or major cost advantage. Other components are purchased
from third-party vendors. Many of these purchased items are standard products,
although certain parts are made to SubMicron's specifications. Accordingly,
SubMicron's manufacturing activities consist primarily of assembling and testing
components and subassemblies, and integrating them into a finished system.
SubMicron believes that this method allows it to achieve relatively flexible
manufacturing capacity, while lowering overhead expenses.
SubMicron assembles its automated wet systems in a Class 10 clean room
environment which is similar to the clean rooms used by many semiconductor
manufacturers for wafer fabrication. Universal Plastics also assembles and tests
its finished products in clean rooms. This procedure is
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intended to reduce the amount of particulate and other contaminants in its
system, thereby improving yield for its customers. Following assembly, the
completed system is packaged in a clean room environment to maintain clean room
standards prior to shipment.
COMPETITION
The semiconductor equipment manufacturing industry is highly
competitive. The principal competitive factors in the industry are the quality,
performance, reliability, price and operating cost of the processing equipment.
There can be no assurance that levels of competition in SubMicron's particular
product markets will not intensify or that SubMicron's technological advantages
may not be reduced or lost as a result of technological or other advantages by
competitors or changes in semiconductor processing technology. Many of
SubMicron's competitors have greater financial and other resources than
SubMicron.
The primary competition to SubMicron's automated wet station equipment
is from Japanese companies, principally DaiNippon Screen Manufacturing Co.,
Ltd., Sugai Chemical Industry Co., and Sankyo Engineering Co., Ltd. SubMicron
also competes with a number of non-Japanese companies, including Santa Clara
Plastics Manufacturing Co., a U.S. company. In addition, SubMicron faces
competition from a number of domestic companies which supply manual wet stations
at a price significantly lower than the price of SubMicron's automated system.
PATENTS AND TRADEMARKS
SubMicron holds ten United States patents, has three allowed United
States patent applications and has several patent applications pending in the
United States covering various features of its products and products under
development. SubMicron currently has six foreign patents and five patent
applications pending outside of the United States. Although SubMicron believes
that the protection of its proprietary technologies and products is important,
it believes that patent protection is less important to its success than other
competitive factors such as a skilled workforce, technical expertise and the
ability to adapt quickly to changes in the marketplace. SubMicron attempts to
protect its proprietary information through non-disclosure agreements with its
key employees.
EMPLOYEES
At September 30, 1997, the Company had 395 full time employees, of whom
141 were engaged in manufacturing, 62 were engaged in field service, 64 were
engaged in research and development, 27 were engaged in engineering, 42 in sales
and marketing and 59 held general and administrative positions.
SubMicron is not subject to any collective bargaining agreements.
COMPANY HISTORY
Trinity Capital Enterprise Corp. (Trinity) was formed in March 1991 to
serve as a vehicle to effect a merger, exchange of capital stock, asset
acquisition or other similar business combination with an operating business. On
August 31, 1993, SSI merged into a subsidiary of Trinity, and Trinity changed
its name to SubMicron Systems Corporation (the Company). Under the terms of the
merger, Trinity issued a total of 5,666,440 shares of its Common stock in
exchange for all outstanding shares
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of SSI Common stock. For financial reporting purposes, the acquisition was
treated as a recapitalization of SSI with SSI as the acquired company (reverse
merger).
In May 1994, the Company acquired the assets of DiPiero, Inc. (d/b/a
Universal Plastics) in exchange for assuming liabilities of approximately $2.3
million. For financial reporting purposes, the acquisition was accounted for as
a purchase. In February 1995, the Company acquired all of the outstanding stock
of Systems Chemistry for 3,400,000 shares of Common stock. In March 1996, the
Company acquired all of the outstanding Common stock of IMTEC for 575,000 shares
of Common stock. Each of the Systems Chemistry and IMTEC for transactions was
accounted for as a pooling of interests and, accordingly, historical financial
data has been restated. In August 1997, the Company completed the sale of
substantially all of the assets and certain liabilities of Systems Chemistry. As
such, the Company will no longer participate in the bulk chemical distribution
industry.
PROPERTIES
SubMicron's principal manufacturing and design facilities of SSI occupy
approximately 90,000 square feet of three separate buildings in Allentown,
Pennsylvania. The lease for these facilities expires in January 1998. The
current monthly rental expense, including expenses, is $58,125.
In November 1996, the Company entered into a lease with a related party
for a 35,000 square foot facility near its main Allentown operations. The seven
year lease provides for monthly rental expense ranging from $21,565 to $23,453
with rental adjustments on the second and fourth anniversary of the lease
agreement. The Company vacated the facility in June 1997 and has agreed to
sublet the facility for a minimum of 18 months with an outside third party. The
subleasee's payments approximate the Company's monthly rental payments.
UP occupies 26,340 square feet of a building in Santa Clara, California
with current monthly rental expense of $18,916. IMTEC occupies 16,400 square
feet of a building in Sunnyvale, California with a current monthly rental
expense of $7,360. The Company's Singapore subsidiary occupies 700 square feet
of office space in Singapore. SubMicron also leases four sales offices, two in
Texas, one in California and one in France. The Company's facilities are
expected to be adequate to support its operations.
LEGAL PROCEEDINGS
The Company is subject to lawsuits arising, from time to time, in the
ordinary course of its business. In the opinion of management, the ultimate
resolutions of such matters will not have a material impact on SubMicron's
financial position, liquidity or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the Company's
directors and executive officers:
Name Age Position
David J. Ferran 41 President; Chief Executive Officer; Class A
Director
David W. Dedman 44 Executive Vice President
John W. Kizer 56 Chief Financial Officer
Leonard R. Weisberg 67 Class A Director
Maurice J. Gallagher, Jr. 47 Class B Director
Barry W. Ridings 45 Class B Director
Ronald B. Booth 48 Class C Director
The Board of Directors is divided into three classes serving staggered
three-year terms, the term of one class of directors to expire each year. The
term of the Class A Directors expires at the 1999 Annual Meeting of
Stockholders; the term of the Class B Directors expires at the 1998 Annual
Meeting of Stockholders; and the term of the Class C Directors expires at the
2000 Annual Meeting of Stockholders. Officers of the Company serve at the
pleasure of the Board of Directors.
In connection with the issuance of the Original Notes and Series A
Preferred Stock in March 1997, the Company agreed to appoint two representatives
of the holders of the Original Notes (the "Noteholders") as directors of the
Company. Messrs. Booth and Gallagher are such representatives. In addition, the
Board of Directors agreed to continue to nominate Messrs. Booth or Gallagher (or
other nominees reasonably acceptable to the Company and the representatives of
the Noteholders) upon the expiration of their respective terms if more than 50%
of the aggregate principal amount of the Notes (which will include the Exchange
Notes upon consummation of the Exchange Offer) remains outstanding at the
expiration of such term or was outstanding at any time within six months prior
to the end of such term. Beginning six months after less than 50% but more than
25% of the aggregate principal amount of the Notes remains outstanding, the
Noteholders will be entitled to have only one designee on the Board, and six
months after less than 25% of the aggregate principal amount of the Notes
remains outstanding, the Noteholders will no longer be entitled to
representatives on the Board. Accordingly, one or both of the designees is
intended to resign as a director at such time as the Noteholders are entitled to
only one or no representatives on the Board.
David J. Ferran became President, Chief Executive Officer and a
director of the Company in May 1997. Prior thereto, Mr. Ferran served as
President and Chief Executive Officer of Tylan General Corporation and its
predecessor from 1984 and as Chairman of its Board of Directors from February
1994 until February 1997, when Tylan General was acquired. Mr. Ferran has a B.S.
in Business Administration from the University of New Hampshire.
David W. Dedman became Executive Vice President, Global Business
Development in May 1997. He has 15 years experience in the international
semiconductor equipment market and is responsible for the formation of strategic
partnerships and equipment sales and support. Previously, he worked with Tylan
General as Senior Vice President and sales and support and was also a member of
that company's executive committee. Prior work experience includes Emerson
Electric and E.I. Dupont. Mr. Dedman
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has been instrumental in securing mutually profitable strategic partnerships
with major worldwide semiconductor device manufacturers.
John W. Kizer became Vice President Finance & Chief Financial Officer
in July 1997. Mr. Kizer holds a B.B.A. degree from the University of Toledo and
is a Certified Public Accountant. Most recently, he was a Vice President and
Corporate Controller of Tylan General Corporation, a global supplier of
semiconductor processing equipment that was acquired by Millipore Corporation in
February 1997. Prior to joining Tylan General, he served as Vice President,
Finance and Chief Financial Officer for Robershaw Controls Company and also held
financial management positions at Trustcorp Bank Ohio and Champion Spark Plug
Company. He has over 25 years in senior financial management positions.
Leonard R. Weisberg has been a director of the Company and its
predecessor since 1989. Mr. Weisberg was Vice President, Research and
Engineering for Honeywell Inc. from 1980 until his retirement at the end of
1994. Prior to joining Honeywell, Mr. Weisberg served as Director of Electronics
and Physical Sciences in the Office of the Secretary of Defense of the United
States Department of Defense. Previously, Mr. Weisberg was Vice President and
Director of the Central Research Laboratory of Itek Corporation and was Director
of the Semiconductor Device Research Laboratory of RCA Laboratories. Mr.
Weisberg has a B.A. in Physics from Clark University and an M.A. in Physics from
Columbia University.
Maurice J. Gallagher, Jr., has been a director of the Company since
April 1997. Mr. Gallagher participated in the founding of ValuJet Airlines, Inc.
in July 1992 and has served as a director of ValuJet since its inception. He
served as ValuJet's President from its inception until June 1993 and as its
Chief Financial Officer until May 1994. Mr. Gallagher also served as Vice
Chairman of the Board of ValuJet from June 1993 until October 1996. In addition,
since May 1992, Mr. Gallagher has been involved as an investor in various
aviation related and other companies. From May 1992 until March 1993, he served
as a director of Mesa Airlines, Inc. and from 1983 to August 1992, he served as
an executive officer and director of WestAir Holding, Inc., the parent of a
regional airline headquartered in Fresno, California. WestAir Holding, Inc. was
acquired by Mesa Airlines in May 1992. Mr. Gallagher has an M.B.A. from the
University of California at Berkeley.
Barry W. Ridings has been a director of the Company since 1991. Since
March 1990, Mr. Ridings has been a Managing Director for Alex. Brown & Sons.
From June 1986 to March 1990, Mr. Ridings was a Managing Director for Drexel
Burnham Lambert, investment bankers. Mr. Ridings is also a director of Noodle
Kidoodle, Inc., New Valley Corporation, Norex Industries, Inc., Telemundo Group,
Inc., Search Capital Group, Inc. and TransCor Waste Services, Inc. Mr. Ridings
received an M.B.A. from Cornell University.
Ronald B. Booth has been a director of the Company since April 1997.
Mr. Booth has been President of Pacific Air Aviation, Inc., an air charter
company in Las Vegas, Nevada, since October 1993. From October 1992 to September
1993, Mr. Booth was Chief Financial Officer of Arcadian Motor Carrier, Inc., a
nationwide trucking operation, and from September 1984 to October 1992, he was
Vice President of Finance for WestAir Commuter Airlines. Mr. Booth is a
Certified Public Accountant and has a B.S. degree in Business
Administration/Accounting from California State University, Chico.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash compensation paid by the Company as
well as certain other compensation paid or accrued during fiscal year 1994, 1995
and 1996 to David F. Levy, the Company's Chief Executive Officer during fiscal
year 1996, and to each of the Company's three other executive officers during
1996 (collectively, the "Named Executives"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY ($) BONUS COMPENSATION AWARDS COMPENSATION
POSITION YEAR ($) ($) (1) OPTIONS (#) ($)
<S> <C> <C> <C> <C> <C>
David F. Levy, Chairman 1996 360,000 34,000 47,617(2) 73,000 ____
of the Board, President 1995 340,000 46,320 ____ 55,000 ____
and Chief Executive 1994 300,000 ____ ____ ____ ____
Officer
R. G. Holmes, 1996 150,000 ____ 23,894(2) 20,000 ____
Chief Financial Officer 1995 75,000(3) ____ ____ 20,000 ____
and Treasurer
Daniel G. Hajjar, 1996 150,000 15,000 ____ 36,500 ____
Chief Operating Officer 1995 150,000 ____ ____ 40,000 ____
James S. Molinaro, 1996 340,000 34,000 ____ 25,000 ____
President, SubMicron 1995 340,000 46,320 ____ 45,000 ____
1994 300,000 ____ ____ ____ ____
</TABLE>
- --------------------------
(1) Except as noted below, none of the Named Executives received any other
annual compensation not categorized as salary or bonus except for
perquisites and other personal benefits which in the aggregate did not
exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for such Named Executive.
(2) Includes automobile reimbursement of $24,042 and $23,894 for Messrs.
Levy and Holmes, respectively.
(3) Mr. Holmes joined the Company in June 1995.
STOCK OPTION GRANTS
The following table contains information concerning grants of stock
options under the Stock Option Plan to the Named Executives during 1996. The
Company does not have any plan pursuant to which stock appreciation rights
("SARs") may be granted.
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<PAGE> 58
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term (1)
Number of
Securities % of Total
Underlying Options Granted
Options to Employees in Exercise Price Expiration
Name Granted(#)(2) 1996 ($/Sh) Date 5% 10%
- ---------------- ------------- --------------- --------------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
David F. Levy 50,000 4.8 8.875 3/14/06 279,250 707,250
23,000 2.2 8.50 3/25/06 123,050 311,650
R.G. Holmes 20,000 1.9 9.625 1/30/06 121,100 306,700
Daniel G. Hajjar 25,000 2.4 9.625 1/30/06 151,375 383,375
11,500 1.1 8.50 3/25/06 61,525 155,825
James S. Molinaro 25,000 2.4 9.625 1/30/06 151,375 383,375
</TABLE>
- --------------------
(1) Illustrates the value that might be realized upon exercise of options
immediately prior to the expiration of their term, assuming specified
compounded rates of appreciation on the Common Stock over the term of
the options. Assumed rates of appreciation are not necessarily
indicative of future stock performance.
(2) All options granted vest on the first anniversary of their date of
grant.
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<PAGE> 59
STOCK OPTION EXERCISES AND HOLDINGS
The following table sets forth certain information regarding the stock
options exercised by each of the Named Executives during 1996 and the value of
unexercised options held by each of the Named Executives at December 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996
AND OPTION VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED
DECEMBER 31, 1996 (#) IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1996 ($)(1)
SHARES ACQUIRED VALUE
ON EXERCISE (#) REALIZED
NAME ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
David F. Levy ____ ____ 323,125 73,000 ____ ____
R. G. Holmes ____ ____ 5,000 35,000 ____ ____
Daniel G. Hajjar ____ ____ 35,000 49,000 ____ ____
James S. Molinaro ____ ____ 313,125 25,000 ____ ____
</TABLE>
(1) None of the Named Executives had outstanding options as of December 31,
1996 with an exercise price below $4.125, the last sale price of the
Common Stock on the Nasdaq National Market on December 31, 1996.
EMPLOYMENT CONTRACTS
James S. Molinaro entered into an employment agreement with the Company
which initially provided for an annual base salary of $265,200, subject to
increase or decrease from time to time in the sole discretion of the Company's
Board. In no event, however, may such annual base salary be less than $240,000.
For fiscal 1996, the annual base salary of Mr. Molinaro was fixed at $340,000.
The employment agreement has an initial five-year term expiring in August 1998
that is automatically renewable at the end of such term for an additional year
and each year thereafter unless either party to the agreement gives notice of
nonrenewal. In addition, Mr. Molinaro is eligible to participate in any bonus or
profit sharing plan adopted by the Company and will be afforded the use of a
leased automobile, inclusive of maintenance and insurance costs, during the term
of his employment.
In the event the Company should terminate the employment of Mr.
Molinaro without cause, or if Mr. Molinaro should terminate his employment
because of a material breach by the Company of his employment agreement, Mr.
Molinaro will be entitled to receive a severance benefit equal to his then
annual base salary for a period of three years. However, if such termination
follows a merger or sale of all or substantially all of the Company's assets,
Mr. Molinaro will be entitled to receive a severance benefit equal to his then
annual base salary for a period of five years.
In May 1997, David F. Levy resigned as President, Chief Executive
Officer and Chairman of the Board of Directors of the Company. In connection
therewith, and in lieu of his previous employment agreement (which was
substantially similar to Mr. Molinaro's agreement), Mr. Levy entered into a
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<PAGE> 60
severance agreement which generally provides for Mr. Levy to be paid amounts
similar to those paid under his previous employment agreement until June, 2000.
David J. Ferran entered into an employment agreement with the Company
in May, 1977 which provides for him to earn an annual base salary of $333,333,
which may be increased or decreased from time to time, but to not less than
$333,333. The employment agreement has no specific term; however, in the event
the Company terminates Mr. Ferran's employment without "cause" or if he should
terminate his employment because of "good reason" (each as defined in the
Agreement), Mr. Ferran will be entitled to receive a lump sum payment equal to
the greater of (i) the amount, if any, by which $1,000,000 exceeds the total
amount paid to Mr. Ferran in base salary under this Agreement and (ii) the sum
of his salary for 18 months at the rate in effect immediately prior to such
termination and an amount equal to the bonus actually paid to Mr. Ferran for the
preceding fiscal year. If such termination follows a "change in control" (as
defined in the Agreement), Mr. Ferran will be entitled to the amount set forth
above plus certain additional amounts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Barry W. Ridings, a member of the Compensation Committee, is a Managing
Director of Alex. Brown & Sons. During 1996, Alex. Brown provided certain
investment banking advice to the Company for which it received customary fees.
CERTAIN TRANSACTIONS
During 1996, the Company began leasing certain new facilities in
Allentown, Pennsylvania from a partnership owned by Messrs. Levy and Molinaro
which owned the facilities. During 1996, the Company made a rental payment to
such partnership in the aggregate amount of $22,565. The facility was sold to a
third party in March 1997.
On January 31, 1990, SubMicron entered into a Tax Indemnification
Agreement with its stockholders which provided for distributions to be made by
SubMicron for payment of personal tax liabilities imposed on the stockholders as
a result of SubMicron's S Corporation status.
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<PAGE> 61
BENEFICIAL OWNERSHIP OF EQUITY SECURITIES BY
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership as of September 30, 1997 of each person who was known to
the Company to be the beneficial owner of more than 5% of the Common Stock or
the Class A Preferred Stock. Each of the stockholders named below has sole
voting and investment power with respect to such shares, unless otherwise
indicated.
<TABLE>
<CAPTION>
Name and Address of Number of Percent of Percent of Total
Beneficial Owner Title of Class Shares (1) Class Voting Power
- ------------------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
David F. Levy Common 2,482,625 26.6% 23.2%
2775 E. Oakland Park Stock
Fort Lauderdale, FL 33308
James S. Molinaro Common 2,482,625 26.6 23.2
6330 Hedgewood Drive Stock
Allentown, PA 18106
Maurice J. Gallagher, Jr. Series A 177.50 13.6 1.8
6900 Westcliff Drive Preferred
Suite 505 Stock
Las Vegas, NV 89128
Timothy P. Flynn Series A 177.50 13.6 1.8
6900 Westcliff Drive Preferred
Suite 505 Stock
Las Vegas, NV 89128
J.F. Shea Co., Inc. Series A 142.00 10.9 1.5
655 Brea Canyon Road Preferred
Walnut, CA 91789 Stock
Robert L. Priddy Series A 213.00 16.3 2.2
3435 Kingsboro Road NE, Preferred
#1601 Stock
Atlanta, GA 30326
Lewis H. and Peggy S. Series A 142.00 10.9 1.5
Jordan Preferred
610 Wingspread Stock
Peachtree City, GA 30269
CRIM Partners, L.P. Series A 81.65 6.3 *
7078 Westchester Avenue Preferred
White Plains, NY 10604 Stock
</TABLE>
* Less than 1 percent.
(1) With respect to each stockholder, includes any shares issuable upon
exercise of any options held by such stockholder that are or will
become exercisable within sixty days of the record date.
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<PAGE> 62
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership as of September 30, 1997 of (i) each director, (ii) each of
the Named Executives (as hereinafter defined) and (iii) all the directors and
executive officers as a group. Each of the stockholders named below has sole
voting and investment power with respect to such shares, unless otherwise
indicated.
<TABLE>
<CAPTION>
Percent of
Name of Number of Total Voting
Beneficial Owner Title of Class Shares(1) Percent of Class Power
- ---------------- -------------- --------- ---------------- -----
<S> <C> <C> <C> <C>
James S. Molinaro Common Stock 2,482,625 26.6 23.2
Ronald B. Booth Common Stock ___ ___
Series A *
Preferred Stock 7.1 *
David J. Ferran Common Stock 33,332(2) * *
Maurice J. Gallagher, ___ ___
Jr. Common Stock 1.8
Series A 177.5 13.6
Preferred Stock
Barry W. Ridings Common Stock 64,000(3) *
Series A *
Preferred Stock 7.1 *
Leonard R. Weisberg Common Stock 40,655(4) * *
Daniel G. Hajjar Common Stock 81,139(5) * *
R. G. Holmes Common Stock 35,822(6) * *
All executive officers Common Stock 5,256,840(7) 29.3
and directors as a Series A 27.5
group (11 persons) Preferred Stock 191.7 14.7
</TABLE>
* Less than 1 percent.
(1) With respect to each stockholder, includes any shares issuable upon
exercise of any options held by such stockholder that are or will
become exercisable within sixty days of the record date.
(2) Consists of immediately exercisable options to purchase 33,332 shares
of Common Stock.
(3) Includes immediately exercisable options to purchase 8,000 shares of
Common Stock.
(4) Includes immediately exercisable options to purchase 18,000 shares of
Common Stock.
(5) Includes immediately exercisable options to purchase 74,000 shares of
Common Stock.
(6) Includes immediately exercisable options to purchase 25,000 shares of
Common Stock.
(7) Includes immediately exercisable options to purchase an aggregate of
1,042,582 shares of Common Stock.
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<PAGE> 63
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under an Indenture, dated as of _______
__, 1997 (the "Indenture") between the Company and The United States Trust
Company of New York, as trustee (the "Trustee"). The terms of the Exchange Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Notes are subject to all such terms, and holders of the Exchange
Notes are referred to the Indenture and the Trust Indenture Act for a statement
of such terms.
The following is a summary of the material terms and provisions of the
Exchange Notes. This summary does not purport to be a complete description of
the Exchange Notes and is subject to the detailed provisions of, and qualified
by reference to, the Exchange Notes and the Indenture (including the definitions
contained therein). Capitalized terms that are used but not otherwise defined
herein have the meanings assigned to them in the Indenture, and such definitions
are incorporated herein by reference. The Indenture has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The form of
the Exchange Notes and the Original Notes are identical in all material respects
except that the Exchange Notes will have been registered under the Securities
Act and, therefore, will not bear legends restricting their transfer. The
Exchange Notes will not represent new indebtedness of the Company and will rank
pari passu with the Original Notes.
GENERAL
The Exchange Notes are limited in aggregate principal amount to $8,692,028.
The Exchange Notes are general unsecured obligations of the Company,
subordinated in right of payment to Senior Indebtedness of the Company, except
as otherwise provided therein.
MATURITY, INTEREST AND PRINCIPAL
The Exchange Notes will mature on March 26, 2002. The Exchange Notes will
bear interest at a rate of 8% per annum from the date of original issuance until
maturity, subject to an increase in the per annum interest rate upon the
occurrence and continuance of an Event of Default. Interest is payable quarterly
in arrears on March 31, June 30, September 30 and December 31, commencing
____________, 1997 to holders of record of the Notes at the close of business on
the immediately preceding March 15, June 15, September 15 and December 15,
respectively. Interest on the Exchange Notes will accrue from the later of (i)
the last interest payment date on which interest was paid on the Original Notes
surrendered in exchange therefor or (ii) if the Original Notes are surrendered
for exchange on a date within a period which includes the record date for an
interest payment date to occur on or after the date of such exchange and as to
which interest will be paid, the date of such interest payment date.
OPTIONAL REDEMPTION
The Exchange Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after issuance until maturity at a redemption price
equal to 100% of the then unpaid principal amount outstanding, together with
accrued and unpaid interest to the date fixed for redemption.
In the event of redemption of fewer than all of the Exchange Notes, the
Trustee shall select either on a pro rata basis or by lot or in such other
manner as it shall deem fair and appropriate the Exchange Notes to be redeemed.
The Exchange Notes will be redeemable in whole or in part upon not less than
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<PAGE> 64
15 days' prior written notice, mailed by registered or certified mail to a
holder's last address as it shall appear on the register maintained by the
Registrar of the Exchange Notes. If any Exchange Note is to be redeemed in part
only, the notice of redemption that relates to such Exchange Note shall state
the portion of the principal amount thereof to be redeemed. A new Exchange Note,
in a principal amount equal to the unredeemed portion thereof, will be issued in
the name of the holder thereof upon cancellation of the original Exchange Note.
On and after any redemption date, interest will cease to accrue on the Exchange
Notes or portions thereof called for redemption unless the Company shall fail to
redeem any such Exchange Note.
CONVERSION
The Exchange Notes are convertible, at the option of the holder, at any
time prior to maturity or the business day immediately preceding the date the
Company gives notice as the date fixed for redemption of the Exchange Notes (the
"Redemption Date"), into shares of Common Stock at the initial conversion price
of $3.70 per share, subject to adjustment as provided below. The Exchange Notes
are also convertible, at the option of the Company, upon ten days prior written
notice, at any time prior to maturity or the business day immediately preceding
the Redemption Date, at the conversion price then in effect, if the closing bid
price for the Common Stock for 20 consecutive trading days equals or exceeds
$5.10 per share, subject to adjustment due to the occurrence of certain changes
in the Company's capitalization. The shares of Common Stock issuable upon
conversion of the Exchange Notes will be registered under the Securities Act and
will be freely transferable, subject to certain limited exceptions relating to
those holders who are affiliates, as defined under Rule 405 under the Securities
Act, and those holders who are broker-dealers. See "Plan of Distribution." Upon
conversion, whether at the option of the holder or of the Company, the Company
shall pay to the holder any unpaid interest accrued on the converted portion of
the Exchange Note through the date of conversion.
The initial conversion price will be adjusted to the greater of (i) $2.50
per share and (ii) the average closing bid price for the Common Stock for the 20
consecutive trading days commencing on March 15, 1999, so long as the adjusted
conversion price does not exceed the conversion price in effect immediately
preceding the adjustment. In addition, the conversion price is subject to
adjustment as set forth in the Indenture upon the occurrence of certain events,
including, the issuance of Common Stock as a dividend on Common Stock;
reclassifications, subdivisions and combinations of Common Stock; the issuance
to all holders of Common Stock of warrants or similar rights entitling them to
purchase or subscribe for shares of Common Stock at less than the conversion
price then in effect; the issuance of additional shares of Common Stock or
options, warrants or rights to purchase or subscribe for (other than as provided
in the immediately preceding clause), or securities convertible into shares of
Common Stock at an exercise price or conversion price, or for consideration,
less than the conversion price then in effect; and the issuance to holders of
Common Stock of evidences of indebtedness or other assets (excluding cash
dividends paid from retained earnings). No adjustment in the conversion price
then in effect will be required unless an adjustment would require an increase
or decrease in the conversion price of at least 1% in such rate; provided, that
if any such adjustment shall be less than 1% of the conversion price, such
adjustment shall be carried forward and added to any subsequent adjustment for
purposes of determining the adjustment in the conversion price.
No fractional shares of Common Stock shall be issuable upon conversion of
Exchange Notes, 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 the Exchange
Note, or portion hereof, for conversion. Such payment shall be based on the
closing bid price of the Common Stock on the date of conversion. No adjustment
in the
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<PAGE> 65
conversion price will be made upon the issuance of options or Common Stock
pursuant to the Company's existing stock option plans or newly established plans
for which stockholder approval is obtained, or upon the issuance or sale of
Common Stock upon the exercise of any option granted under any such stock plan,
or upon the issuance or sale of any Common Stock pursuant to the exercise of any
options or warrants or upon conversion of any convertible security, in each case
issued and outstanding at March 26, 1997, the issue date of the Original Notes.
SUBORDINATION
The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
payment and satisfaction in full in cash of all existing and future Senior
Indebtedness of the Company. As of September 30, 1997, there was $21.6 million
in Senior Indebtedness outstanding.
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 Company, whether in cash or kind, upon any
dissolution, winding up, liquidation, readjustment or reorganization of the
Company 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 Company
or otherwise, 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 holders
of Exchange Notes shall be entitled to receive any payment on account of the
principal of, or interest on, the Exchange Notes.
The holders of Exchange Notes will be deemed to have assigned to the
holders of Senior Indebtedness, for the purposes and to the extent relating to
the subordination of the Exchange Notes to Senior Indebtedness, all their
respective right, title and interest to and in any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, other than securities of the Company as reorganized or readjusted or
securities of the Company 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 the Indenture, 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 subordination of the Exchange Notes to
Senior Indebtedness as provided in the Indenture (the "Subordinated
Securities"). The Indenture authorizes and directs the Company (or any receiver,
trustee in bankruptcy, liquidating trustee or agent or other person acting for
the Company) 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,
the Exchange Notes, and in connection therewith and for such purpose, the
holders of the Senior Indebtedness are authorized and permitted to assert, file,
prosecute and vote any claim or other interest on account of the Exchange Notes
which may be required in order to seek and obtain payment on account of the
Exchange Notes under the circumstances described in the Indenture.
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<PAGE> 66
In the event that, notwithstanding the provisions of the
Indenture, any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than Subordinated
Securities), shall be received by the holders of Exchange Notes 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.
The Company shall not make any payment of the principal of, or
interest on, the Exchange 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 Company shall have given
the Trustee 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, the Exchange Notes under
circumstances described in clause (a) and (b) above shall be held by the holders
of the Exchange Notes in trust for the holders of Senior Indebtedness, provided
the Company shall give the Trustee written notice of the occurrence of any
default referred to in the preceding sentence.
Prior to the date on which the Senior Indebtedness shall have
been paid in full, neither the Trustee, on behalf of the holders of the Exchange
Notes, nor any such holder shall: (a) sue for, take or receive from the Company,
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 the Exchange Notes; provided, however, that
absent the occurrence and continuance of any default under the terms of the
Senior Indebtedness, the Trustee and the holders of the Exchange Notes 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. or any replacement lender, the absence of
such default to be evidenced by the prior written acknowledgement of CoreStates
Bank, N.A. or its successors or such replacement lender, which acknowledgement
will not be unreasonably withheld), and interest on the Exchange Notes, pursuant
to the Exchange Notes and the Indenture; (b) foreclose or attempt to foreclose
upon any of the property of the Company, seek or obtain the appointment of a
receiver for the Company, exercise any right or power of sale or repossession,
or attempt to realize upon any portion of the property of the Company, or any
interest therein, seek relief from any stay imposed by the Bankruptcy Code or
exercise any other right or remedy granted in connection with the Exchange Notes
against the Company and/or the property of the Company; (c) pursue any other
remedies at law, in equity or otherwise available to the holders in connection
with the Exchange Notes against the Company and/or the property of the Company;
(d) accept any casualty insurance or other insurance proceeds or condemnation
award proceeds from the Company or otherwise on account of the Exchange Notes;
(e) assert any demand, objection, defense and/or counterclaim (including any
rights of marshalling or equitable subordination) relating to the Exchange Notes
and the Senior Indebtedness, against the holders of the Senior Indebtedness.
Notwithstanding any provision to the contrary set forth in the
Indenture: (a) interest at the Default Rate (as defined in the Indenture) shall
commence, and shall continue, to accrue upon the occurrence of any of the Events
of Default referred in the Indenture (see "---- Events of Default"); (b) the
holders of the Exchange Note shall not be prevented from, to the extent
permitted under Indenture, accelerating the
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<PAGE> 67
maturity of the principal of, and accrued interest on, their Exchange Notes upon
or following the occurrence of an Event of Default 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 the holder of the
Exchange Notes by the Company or any holder of Senior Indebtedness, provided
that only one such notice may be given to such holders 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.
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 holders of the Exchange Notes shall be subrogated to the rights of the
holder or holders of such Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to such Senior Indebtedness,
to the extent of the application thereto of moneys or other assets which would
have been received by the holders of the Exchange Notes but for the
subordination provisions of the Indenture, until the principal of, and interest
on, the Exchange Notes shall be paid in full.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
a. The liquidation, dissolution or winding up of the Company
or any vote in favor thereof by the Board of Directors and stockholders of the
Company without making provision for the payment in full of the Original Notes
and Exchange Notes in accordance with their terms; or
b. Certain events concerning bankruptcy, insolvency or
reorganization; or
c. The sale by the Company 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 Company with or into another corporation,
except for such mergers where the Company 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 Company under all of the Original
Notes and Exchange Notes; or
d. The failure by the Company to pay when due (other than in
connection with an acceleration of principal and interest due under the Original
Notes or Exchange Notes) the principal of, or accrued interest under, any of the
Original Notes or Exchange Notes, as and when the same shall become due and
payable; or
e. The Company 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 the Company or of 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
f. The failure by Company to comply in any material respect
with those provisions of the Purchase Agreement or the Indenture pertaining to
Board representation designated by the holders of the Notes (see "Executive
Management - Directors and Executive Officers") and maintaining the
effectiveness of the Company's registration statement under which the Common
Stock issuable upon conversion of the shares
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<PAGE> 68
of Series A Preferred Stock issued under the Purchase Agreement have been
registered under the Securities Act; provided, however, that an Event of Default
under this clause (f) for failure of the Company to use its best efforts shall
be deemed cured upon the date the event for which the Company was to use its
best efforts to cause to occur shall actually occur
The Indenture provides that if an Event of Default pursuant to clauses (a),
(b), (c), (d) or (f) above shall occur and, other than with respect to clauses
(a), (b) or (f) above shall continue uncured for five (5) days, and at any time
thereafter, while such event is continuing, the holders of Exchange Notes shall
have the right to declare the unpaid principal amount of their Exchange Notes,
together with accrued interest thereon, to be immediately due and payable,
whereupon the same shall be forthwith due and payable.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee in good faith determines it to be in
the best interest of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration and (i) such amounts shall become immediately due and payable;
provided, however, that after such acceleration but before a judgment or decree
based on acceleration is obtained by the Trustee, the holders of a majority in
aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than nonpayment of accelerated principal, premium, if any, or interest,
have been cured or waived as provided in the Indenture.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or Event of Default or
compliance with any provision of the Indenture or the Notes and to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, subject to certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and the Trustee shall have failed to institute such proceeding
within 60 days. However, such limitations do not apply to a suit instituted for
payment of principal, premium, if any, or interest on a Note on or after the
respective due dates expressed in such Note.
MODIFICATION OF INDENTURE
From time to time, the Company and the Trustee may, without the consent of
holders of the Notes, modify, amend, waive or supplement the provisions of the
Indenture or the Exchange Notes for certain specified purposes, including
providing for uncertificated Exchange Notes in addition to certificated Notes,
and curing any ambiguity, defect or inconsistency, or making any other change
that does not materially and adversely affect the rights of any holder. The
Indenture provides that no amendment,
64
<PAGE> 69
modification or waiver of any provision of the Indenture or the Exchange Notes,
and no consent to departure from performance or compliance with any of such
provisions, shall in any event be effective unless the same is in writing and
approved 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 Exchange 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 Indenture or the Exchange Note with respect to
the subordination of the Exchange 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.
The consent of the holders is not necessary to approve the particular form
of a proposed amendment. It is sufficient if such consent approves the substance
of the proposed amendment.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Exchange Notes.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 100 days after the end
of the Company's fiscal year and on or before 50 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
has occurred. If they do, the certificate will describe the Default or Event of
Default and its status.
THE TRUSTEE
The Trustee under the Indenture is the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default which is continuing, the Trustee will perform only such
duties as are specifically set forth in the Indenture. During the existence of
an Event of Default which is continuing, the Trustee will exercise such rights
and powers vested in it under the Indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under the circumstances
in the conduct of such person's own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption. Also,
the Registrar is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.
65
<PAGE> 70
The Original Notes were issued in a transaction exempt from registration
under the Securities Act and are subject to restrictions on transfer.
The registered holder of a Note may be treated as the owner of it for all
purposes.
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 September 30, 1997, 17,174,663 shares of Common Stock and 1,203
shares of Series A Convertible Non-Redeemable Preferred Stock were 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,
voting together with the shares of Series A Preferred Stock, as described below,
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, together with the holders of the Series A
Preferred Stock, as described below. 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, including the Series A Preferred Stock, 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.
On March 26, 1997, the Board of Directors designated 1,349 shares of
Preferred Stock as Series A Convertible Non-Redeemable Preferred Stock ("Series
A Preferred Stock"). The holders of Series A Preferred Stock vote together with
the holders of the Common Stock as a single class, except to the extent class
voting is required by law, and each share of Series A Preferred Stock is
entitled to one vote for each share of Common Stock into which such share is
convertible. There is no dividend preference attributable to the Series A
Preferred Stock and the holders shall be entitled to participate in the payment
66
<PAGE> 71
of dividends, together with the holders of the Common Stock, on the basis of the
shares of Common Stock into which the Series A Preferred Stock is convertible.
Each share of Series A Preferred Stock is convertible, at the option of the
holder, at any time, into 2,000 shares of Common Stock, and shall automatically
convert into shares of Common Stock, at the aforementioned conversion rate, upon
the sale, transfer, pledge or other disposition of the Series A Preferred Stock
by the initial holder thereof. The conversion rate is subject to adjustment upon
certain changes in the Company's capitalization.
In the event of a liquidation, dissolution or winding up of the Company,
the holder of Series A Preferred Stock are entitled to a preference of $3.70 for
each 1/2000 of a share before any payments may be made to the holders of Common
Stock. Upon payment of the foregoing liquidation preference, holders of Series A
Preferred Stock are not entitled to participate in any further distributions.
All of the outstanding shares of Class A Preferred Stock are fully paid and
non-assessable.
67
<PAGE> 72
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
considerations for holders who elect to exchange their Original Notes for
Exchange Notes in the Exchange Offer. This summary is for general information
purposes only and does not address specific tax aspects of the Exchange Offer
which may be relevant to certain holders such as foreign persons, financial
institutions, broker-dealers, tax-exempt organizations or insurance companies.
THEREFORE, EACH HOLDER OF A NOTE SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
CONCERNING THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
EXCHANGING HIS OR HER ORIGINAL NOTES FOR EXCHANGE NOTES IN THE EXCHANGE OFFER.
Under current provisions of the Internal Revenue Code of 1986, as amended,
the Treasury Regulations promulgated thereunder and current judicial authority
and administrative rulings and practice, an exchange of the debt instrument of
an issuer for a new debt instrument of the issuer will be treated as an
"exchange" for federal income tax purposes if the new debt instrument differs
materially either in kind or in extent from the old debt instrument. Because the
Exchange Notes are substantially identical to the Original Notes and because the
Exchange was contemplated by the Purchase Agreement pursuant to which the
Original Notes were sold, the Exchange Notes and Original Notes should not be
considered to differ materially either in kind or in extent and, accordingly,
the Exchange should not constitute an "exchange" for federal income tax
purposes. Therefore, for federal income tax purposes, no gain or loss should be
recognized by the holder on the exchange of an Original Note for an Exchange
Note, the holder's adjusted tax basis in the Exchange Note should be the same as
his or her basis in the Original Note and the holding period for the Exchange
Note should be the same as the holding period for the Original Note.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with the resale of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired as a result
of market-making activities or other trading activities. In addition, until
___________, 1997, all broker-dealers effecting transactions in the Exchange
Notes may be required to deliver a Prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act, and any profit
on any such
68
<PAGE> 73
resale of Exchange Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
By acceptance of this Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer agrees that, upon receipt of
notice from the Company of the happening of any event which makes any statement
in the Prospectus untrue in any material respect or which requires the making of
any changes in the Prospectus in order to make the statements therein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until the
Company has amended or supplemented the Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to such broker-dealer.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes and Common Stock
offered hereby will be passed upon for the Company by Cozen and O'Connor,
Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of SubMicron Systems Corporation as
of December 31, 1996, and for the year then ended, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, to the extent indicated in their report thereon also appearing
elsewhere herein and in the Registration Statement. Such consolidated financial
statements and related schedule have been included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements and schedule of SubMicron Systems
Corporation as of December 31, 1995, and for each of the two years then ended,
appearing in this Prospectus and Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
69
<PAGE> 74
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Reports of Independent Auditors..........................................................................F-2 to F-4
Consolidated Balance Sheets as of December 31, 1996 and 1995....................................................F-5
Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1995 and 1994.....................................................................F-6
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994.....................................................................F-7
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994.....................................................................F-9
Notes to Consolidated Financial Statements.....................................................................F-10
Supplemental Schedule........................................................................................ F-23
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at June 30, 1997 ..................................................................F-24
Consolidated Statements of Operations for the six months ended June 30, 1997 and
June 30, 1996.............................................................................................F-25
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and
June 30, 1996.............................................................................................F-26
Notes to Unaudited Interim Condensed Consolidated Financial Statements.........................................F-27
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Summary Pro Forma Financial Information........................................................................F-30
Pro Forma Consolidated Balance Sheet at June 30, 1997..........................................................F-31
Pro Forma Consolidated Statement of Operations for the six months ended
June 30, 1997.............................................................................................F-32
Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1996.........................................................................................F-33
Notes to Unaudited Pro Forma Consolidated Financial Information................................................F-34
</TABLE>
F-1
<PAGE> 75
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
SubMicron Systems Corporation
We have audited the accompanying consolidated balance sheet of SubMicron Systems
Corporation and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. Our audit also included the financial statement schedule
listed in the Index at Item 21(b). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SubMicron
Systems Corporation and subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, as to combination only, the accompanying consolidated
balance sheet of SubMicron Systems Corporation and subsidiaries as of December
31, 1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1995. We have also audited, as to combination only, the accompanying
financial statement schedule for the years ended December 31, 1995 and 1994. As
discussed in Note 3 to such statements, these statements and schedule have been
combined from the consolidated statements of SubMicron Systems Corporation and
subsidiaries and Imtec Acculine, Inc., which statements are not presented
separately herein. The reports of other auditors who have audited these
statements and schedule appear elsewhere herein. In our opinion, the
accompanying consolidated financial statements and schedule for 1995 and 1994
have been properly combined on the basis described in Note 3.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 8, 1997, except Notes 2 and 8
as to which the date is April 15, 1997
F-2
<PAGE> 76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SubMicron Systems Corporation:
We have audited the consolidated balance sheet of SubMicron Systems Corporation
(a Delaware Corporation) and Subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1995, prior to
restatement for the merger with Imtec Acculine, Inc. discussed in Note 3 to the
consolidated financial statements. We have not audited any financial statements
of Imtec Acculine, Inc. Our audits also included the financial statement
schedule listed in the Index at Item 21(b) for 1994 and 1995. These consolidated
financial statements and schedule are not presented separately herein. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements and
schedule based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SubMicron Systems
Corporation and Subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
March 6, 1996 (except with respect to the
matter discussed in Note 3, as to
which the date is March 26, 1996)
F-3
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Imtec Acculine, Inc.
We have audited the balance sheet of Imtec Acculine, Inc. (a California
Corporation) as of December 31, 1995, and the related statements of operations,
shareholder's equity and cash flows for each of the two years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Imtec Acculine, Inc. at
December 31, 1995, and the results of its operations and its cash flows for each
of the two years then ended, in conformity with generally accepted accounting
principles.
/s/IRELAND SAN FILIPPO, LLP
Palo Alto, California
February 23, 1996
F-4
<PAGE> 78
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
---- ----
(Note 3)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,426 $ 16,010
Accounts receivable, net 47,574 46,619
Inventories 34,951 34,132
Prepaids and other 7,307 2,736
Deferred income taxes 2,423 1,886
--------- ---------
Total current assets 97,681 101,383
Property and equipment, net 21,082 12,631
Goodwill, net 1,684 1,912
Intangibles and other assets, net 5,487 4,022
--------- ---------
$ 125,934 $ 119,948
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 28,100 $ 16,239
Current portion of long-term debt 2,294 1,194
Accounts payable 21,741 25,300
Accrued expenses and other 16,823 8,934
Deferred revenues 3,105 2,616
--------- ---------
Total current liabilities 72,063 54,283
Deferred income taxes -- 628
Deferred revenues -- 105
Long-term debt 25,195 18,909
Commitments and contingencies (Note 11) 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, 16,890,014 and 16,562,796
shares issued and outstanding 2 2
Additional paid-in capital 41,680 39,223
Retained earnings (deficit) (13,006) 7,103
Deferred compensation -- (224)
Notes receivable -- (81)
--------- ---------
Total stockholders' equity 28,676 46,023
--------- ---------
$ 125,934 $ 119,948
========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 79
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994
---- ---- ----
(Note 3) (Note 3)
<S> <C> <C> <C>
Systems sales $ 140,823 $ 91,198 $ 67,627
Service and other sales 30,661 31,870 18,492
------------ ------------ ------------
Total net sales 171,484 123,068 86,119
Cost of systems sales 118,800 62,925 45,738
Cost of service and other sales 23,948 21,427 12,144
------------ ------------ ------------
Total cost of sales 142,748 84,352 57,882
------------ ------------ ------------
Gross profit 28,736 38,716 28,237
Selling, general and administrative 41,337 29,109 21,465
Research and development 9,373 5,678 3,357
------------ ------------ ------------
Total operating expense 50,710 34,787 24,822
------------ ------------ ------------
Operating (loss) income (21,974) 3,929 3,415
Other (expense) income:
Interest income 383 400 436
Interest expense and other (5,244) (1,840) (364)
Other income 160 2,698 --
------------ ------------ ------------
Total other (expense) income (4,701) 1,258 72
------------ ------------ ------------
(Loss) income before income taxes (26,675) 5,187 3,487
Income tax (benefit) expense (6,566) 1,498 1,454
------------ ------------ ------------
Net (loss) income $ (20,109) $ 3,689 $ 2,033
============ ============ ============
Net (loss) income per Common share $ (1.20) $ 0.23 $ 0.13
============ ============ ============
Weighted average number of shares
of Common stock outstanding 16,712,610 16,159,687 15,712,339
============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 80
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN EARNINGS DEFERRED NOTES
SHARES AMOUNT CAPITAL (DEFICIT) COMPENSATION RECEIVABLE TOTAL
------ ------ ---------- --------- ------------ ---------- -----
Balance, December 31, 1993
<S> <C> <C> <C> <C> <C> <C> <C>
as previously reported 14,479 $ 1 $28,371 $ 217 $ (941) $ (47) $27,601
Adjustment for Imtec pooling
of interest 575 1 20 1,164 -- -- 1,185
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1993,
as adjusted 15,054 2 28,391 1,381 (941) (47) 28,786
Exercise of stock options 55 -- 122 -- -- -- 122
Exercise of Systems
Chemistry stock options 95 -- 42 -- -- (9) 33
Sale of Systems Chemistry
Common stock 73 -- 112 -- -- (112) --
Exercise of warrants 5 -- 25 -- -- -- 25
Issuance of Common shares
upon litigation settlement 80 -- 430 -- -- -- 430
Amortization of deferred
compensation -- -- -- -- 381 -- 381
Net income -- -- -- 2,033 -- -- 2,033
------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1994 15,362 2 29,122 3,414 (560) (168) 31,810
Exercise of stock options
and warrants 147 -- 461 -- -- -- 461
Exercise of Systems
Chemistry stock options 286 -- 337 -- -- (271) 66
Tax benefit on nonqualified
stock option exercises -- -- 440 -- -- -- 440
Payment on notes receivable -- -- -- -- -- 358 358
Issuance of Common stock 697 -- 5,986 -- -- -- 5,986
Issuance of Common stock
under employee stock
purchase plan 71 -- 369 -- -- -- 369
Value ascribed to warrants
issued with convertible
debt -- -- 2,508 -- -- -- 2,508
</TABLE>
F-7
<PAGE> 81
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS) (CONT'D)
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in Earnings Deferred Notes
Shares Amount Capital (Deficit) Compensation Receivable Total
------ ------ ---------- --------- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization of deferred
compensation -- -- -- -- 336 -- 336
Net income -- -- -- 3,689 -- -- 3,689
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1995 16,563 2 39,223 7,103 (224) (81) 46,023
Exercise of stock options
and warrants 181 -- 979 -- -- -- 979
Payment on notes receivable -- -- -- -- -- 81 81
Issuance of Common stock
under employee stock
purchase plan 146 -- 627 -- -- -- 627
Value ascribed to warrants
and options issued for
services -- -- 851 -- -- -- 851
Amortization of deferred
compensation -- -- -- -- 224 -- 224
Net loss -- -- -- (20,109) -- -- (20,109)
-------- -------- -------- -------- -------- -------- --------
Balance, December 31, 1996 16,890 $ 2 $ 41,680 $(13,006) $ -- $ -- $ 28,676
======== ======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-8
<PAGE> 82
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
---- ---- ----
(NOTE 3) (NOTE 3)
Cash flows used in operating activities:
<S> <C> <C> <C>
Net (loss) income $(20,109) $ 3,689 $ 2,033
Adjustments to reconcile net
(loss) income to net
cash used in operating activities:
Depreciation and amortization 5,124 2,685 1,579
Provision for valuation allowances 2,831 77 700
Amortization of deferred compensation 224 336 381
Deferred tax (benefit) expense (4,222) 624 (833)
Loss on the disposal of fixed assets -- -- 39
Accretion of note discount 1,179 127 --
Non cash compensation for services 851 -- --
Changes in operating assets and
liabilities:
Increase in accounts receivable (1,779) (26,008) (8,863)
Increase in inventories (6,537) (20,552) (8,156)
Increase in prepaid expenses and other (1,514) (1,772) (451)
Increase in other assets (1,294) (1,372) (272)
(Decrease) increase in accounts payable (4,348) 16,384 2,164
Increase in accrued expenses 7,889 3,454 1,580
Increase (decrease) in deferred revenues 384 2,412 (3,265)
Decrease (increase) in accrued
income taxes -- (770) 26
-------- -------- --------
Net cash used in operating activities (21,321) (20,686) (13,338)
-------- -------- --------
Cash flows used in investing activities:
Capital expenditures (6,724) (5,730) (3,221)
Purchase of intangible assets (182) (181) (519)
-------- -------- --------
Net cash used in investing activities (6,906) (5,911) (3,740)
-------- -------- --------
Cash flows provided by financing activities:
Net borrowings on lines of credit 11,861 7,539 8,197
Proceeds from sales-leaseback 5,287 -- 1,890
Proceeds from issuance of
convertible debt -- 19,000 --
Deferred debt issuance costs -- (1,594) --
Proceeds from term notes -- 4,032 --
Collection on notes receivable 81 358 --
Proceeds from exercise of
stock options and warrants 1,606 527 181
Net proceeds from sale of Common stock -- 6,355 --
Principal payments on long-term
debt and capital lease obligations (1,192) (6,169) (677)
-------- -------- --------
Net cash provided by financing
activities 17,643 30,048 9,591
-------- -------- --------
Net (decrease) increase in cash
and cash equivalents (10,584) 3,451 (7,487)
Cash and cash equivalents,
beginning of year 16,010 12,559 20,046
-------- -------- --------
Cash and cash equivalents,
end of year $ 5,426 $ 16,010 $ 12,559
======== ======== ========
</TABLE>
See accompanying notes.
F-9
<PAGE> 83
SUBMICRON SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND:
SubMicron Systems Corporation (the "Company") designs, manufactures and
markets advanced chemical processing and distribution systems used in the
fabrication of semiconductors.
In May 1994, the Company acquired the assets of DiPiero, Inc. (d/b/a
Universal Plastics) by assuming its net liabilities of approximately $2.3
million. For financial accounting purposes, the acquisition was accounted for as
a purchase. In February 1995, the Company acquired all of the outstanding stock
of Systems Chemistry Incorporated (Systems Chemistry) for 3,400,000 shares of
Common stock. In March 1996, the Company acquired all of the outstanding stock
of Imtec Acculine, Inc. (IMTEC) for 575,000 shares of Common stock. The Systems
Chemistry and IMTEC transactions have each been accounted for as a pooling of
interests and, accordingly, historical financial data has been restated (see
Note 3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: SubMicron Systems, Inc. (SSI),
Systems Chemistry (see Note 3), SubMicron Wet Process Stations, Inc. (Universal
Plastics), IMTEC (see Note 3), SubMicron Systems Investment Corporation,
SMICRON(S) PTE., LTD. (a Singapore Corporation), SubMicron Systems International
Ltd., and PRIMAXX(TM) Corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents which generally
consist of weekly and overnight repurchase agreements.
INVENTORIES
Inventories consist principally of raw materials and work-in-process
and are stated at the lower of cost (first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the related
assets, ranging from three to fifteen years. Amortization of assets under
capital leases and leasehold improvements, which is included in depreciation, is
determined using the straight-line method over the shorter of the lease term or
the economic life of the asset, ranging from three to five years.
F-10
<PAGE> 84
LONG-LIVED ASSETS, INCLUDING INTANGIBLES
Goodwill represents the excess of liabilities assumed over the
estimated fair value of assets acquired. Goodwill of approximately $2.3 million
is being amortized on a straight-line basis over ten years and is presented net
of accumulated amortization of approximately $586,000 and $358,000 at December
31, 1996 and 1995, respectively.
Intangible assets consist of patent, trademark and deferred financing
costs and are presented net of accumulated amortization. Patents and trademarks
are stated at cost and amortized using the straight-line method over five years.
Deferred financing costs consist of fees incurred as part of the issuance of
debt which are being amortized over the term of the debt.
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121," Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed" of, which required impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted SFAS No. 121 in 1996 and the effect of adoption was not
material.
The carrying amounts of the long-lived assets, including intangibles,
are reviewed if facts and circumstances suggest that they may be impaired. If
this review indicates that book value of assets to be held or disposed of
exceeds the undiscounted future cash flows, an impairment loss would be
recognized for the excess of book over fair values.
REVENUE RECOGNITION
Revenue related to system sales is recognized at the time of title
transfer, which ordinarily occurs at the time of shipment. From time to time,
customers request delayed shipment, usually because of construction or other
scheduling problems at their facilities. If the Company's substantial
performance obligations otherwise have been fulfilled, revenue on such delayed
shipment transactions generally is recognized upon acceptance of goods by the
customer at the Company's facility. Revenue related to service activities and
sale of items from inventory is recognized when the service has been performed
or when the items are shipped. Revenue from construction services is recognized
on a method similar to the percentage-of-completion basis.
WARRANTY AND INSTALLATION
The Company generally provides its customers with a warranty on systems
for a 14-month period commencing upon shipment. A provision for the estimated
cost of warranty and installation is recorded when the related revenue is
recognized. In 1996, the Company revised its warranty and installation provision
estimate, increasing its net loss by approximately $2.7 million, or $.16 per
Common share.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
F-11
<PAGE> 85
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." This Statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The Statement encourages all entities to adopt a fair value
based method of accounting, but allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company implemented SFAS No. 123 on January 1, 1996. Management
did not adopt the measurement provisions of SFAS No. 123, although the Company
has complied with the pro forma disclosure requirements of the Statement.
INCOME TAXES
The Company files a consolidated federal tax return and separate state
tax returns. Certain income and expense items are recorded for financial
reporting purposes in different time periods than for income tax purposes.
Provisions for current and deferred taxes are made in recognition of the
temporary differences and are computed in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109).
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
Common stock and Common stock equivalents (dilutive stock options and warrants
using the treasury stock method) outstanding during the year. All share and per
share amounts have been adjusted retroactively for the acquisitions of Systems
Chemistry and IMTEC discussed in Note 3.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with
current year presentations.
COMPANY OPERATIONS
The Company's consolidated financial statements have been presented on
a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. In 1996, 1995, and
1994, the Company's operating activities have required a net use of cash
totaling $21.3 million, $20.7 million, and $13.3 million, respectively. During
these years, sufficient debt and other credit arrangements were in place to fund
the net cash needs from operations. In addition, the Company incurred a net loss
of $20.1 million in 1996. Further at December 31, 1996, the Company was not in
compliance with certain requirements of its $30.0 million bank credit facility.
However, the banking group has agreed not to accelerate the August 18, 1997 due
date of the credit facility, assuming the Company's continued compliance with
the terms of a new agreement entered into on March 31, 1997 (see Note 8).
Borrowings under the new agreement may not exceed $28.1 million. Management's
estimates of the cash requirements to fund operating, investing and financing
activities in 1997 will require replacement of the funds currently available
under the credit facility. Without the availability of a sufficient credit
facility, the Company is susceptible to severe cash shortages which may impact
its ability to operate. To provide for the Company's 1997 cash and working
capital requirements, management is pursuing additional funding arrangements and
believes that it can improve the Company's operating performance and cash flows
sufficiently as follows:
- In response to the combination of the Company's rapid
growth, and the semiconductor industry slowdown which severely impacted the
Company's operations, management has instituted programs designed to reduce
costs and improve performance. Management believes that margin improvements will
result from improvements in quality control already implemented, more controlled
operations resulting from the reduction in the direct labor workforce that
occurred during 1996, and management review of all contract bidding. The Company
also has engaged a consulting firm specializing in high-technology companies to
suggest further operational improvements. Additionally, the Company has altered
its strategy from that of revenue growth to pursuing balanced, controlled growth
with emphasis on operating efficiency. The Company is focusing on application
specific products where it has significant market acceptance and concentrating
its resources accordingly to improve margins. Further, management believes that
its state-of-the-art products, such as the DIO3 process for photo-resist
stripping and organic cleaning, PRIMAXX(TM) tools (including the ferroelectric
deposition model), and GAMA3 wet bench for 300mm wafers, strategically enhance
the Company's position as a key supplier of next-generation technology.
F-12
<PAGE> 86
- Management is in active negotiations with a number of
lending organizations to replace its existing credit facility and to expand the
amounts available to the Company under such a facility at more favorable
interest rates.
- In March 1997, the Company issued shares of its Series A
Convertible Non-Redeemable Preferred Stock convertible into approximately 2.7
million shares of Common Stock and approximately $9 million principal amount of
its 8% Convertible Subordinated Notes due March 26, 2002 to previous holders of
its 9% Convertible Subordinated Notes due December 1997 and associated Warrants.
Under the terms of the agreement pursuant to which the new Preferred Stock and
8% Convertible Subordinated Notes were issued, management plans to seek
shareholder approval of the conversion privileges and register the notes with
the Securities and Exchange Commission (see Note 10).
- Management intends to evaluate its alternatives and
currently plans to sell certain nonstrategic assets to generate liquidity.
Management expects to complete this process by the maturity date of the credit
facility.
- As needs require or market opportunities arise, management,
from time to time, may consider raising additional funds through equity
financing or strategic partnering arrangements.
- Management is confident that its cost reduction and
performance improvement programs, controlled growth strategy, current
negotiations with lending organizations, and pursuit of other alternatives will
result in the successful funding of its 1997 working capital and cash
requirements; however, if 1997's financial results do not meet management's
expectations and sufficient additional financing are not available, management
has the ability and intent to reduce certain expenditures, accelerate collection
of receivables, or factor receivables not encumbered by existing loan agreements
to minimize additional capital requirements.
3. ACQUISITIONS:
On March 26, 1996, the Company acquired IMTEC, a Sunnyvale, California
company. IMTEC's principal business is designing, developing, testing,
manufacturing and marketing temperature regulated baths and high resolution
photo plates for the semiconductor market and related industries. The Company
acquired all the outstanding stock of IMTEC in exchange for 575,000 shares of
Common stock. The transaction was accounted as a pooling of interests and,
accordingly, historical financial data has been restated to include IMTEC.
On February 28, 1995, the Company acquired Systems Chemistry, a Santa
Clara, California manufacturer of advanced ultra-high purity chemical
distribution systems primarily for the semiconductor industry. The Company
acquired all the outstanding stock of Systems Chemistry in exchange for
3,400,000 shares of Common stock. The transaction was accounted for as a pooling
of interests and, accordingly, historical financial data has been restated to
include Systems Chemistry.
On May 31, 1994, the Company established SubMicron Wet Process
Stations, Inc. (SPSI), a California corporation, to effect the acquisition of
DiPiero, Inc. (d/b/a Universal Plastics). SPSI acquired the assets of DiPiero,
Inc. in consideration for assuming its net liabilities of approximately $2.3
million. For financial reporting purposes, the acquisition was accounted for as
a purchase. The assets acquired and liabilities assumed were included in the
balance sheet of the Company at their estimated fair market values on the date
of the acquisition. The amount of liabilities assumed in excess of assets
acquired was recorded as goodwill. The consolidated results of operations and
cash flows include SPSI after May 31, 1994. The Company's unaudited pro forma
results of operations and cash flows for 1994 would not be materially different
assuming that the acquisition occurred as of the beginning of 1994.
4 ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Billed $39,942 $42,776
Unbilled 8,929 4,316
-------- --------
48,871 47,092
Allowance for doubtful accounts (1,297) (473)
-------- --------
$47,574 $46,619
======== ========
</TABLE>
F-13
<PAGE> 87
5. INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw Materials and Parts $23,007 $20,231
Work in progress and finished goods 14,669 14,619
-------- --------
37,676 34,850
Excess and obsolescence reserve (2,725) (718)
-------- --------
$34,951 $34,132
======== ========
</TABLE>
The 1996 increase in the excess and obsolescence reserve increased the
net loss per Common share by approximately $.07.
6. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Production equipment $10,200 $7,038
Office furniture, equipment, and leasehold improvements 8,415 6,139
Equipment under capital lease 10,771 4,425
------ -----
29,386 17,602
Less - Accumulated depreciation and amortization (8,304) (4,971)
-------- --------
$21,082 $12,631
======== ========
</TABLE>
Accumulated amortization on equipment under capital leases was
approximately $1.3 million and $445,000 at December 31, 1996 and 1995,
respectively.
7. INTANGIBLES AND OTHER ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred income taxes $3,057 $--
Patent filing costs and trademarks 720 857
Deferred financing costs 914 1,594
Security deposits 288 494
Restricted cash -- 625
Other 813 768
------- -------
5,792 4,338
Less - Accumulated amortization (305) (316)
------- -------
$5,487 $4,022
======= =======
</TABLE>
8. CREDIT FACILITY:
In February 1996, the Company entered into a $30.0 million credit
facility with a banking group. The Company used the proceeds from the credit
facility to refinance its previous lines of credit and to provide working
capital. Borrowings under the credit facility bear interest at prime, as
defined, plus 3.0%, and are secured by substantially all of the assets of the
Company. As of December 31, 1996, the Company was not in compliance with certain
requirements of the credit facility, at which date $28.1 million was
outstanding. The banking group has separately agreed not to accelerate the due
date of the credit facility from its maturity date of August 18, 1997, assuming
the Company's continued compliance with the terms of a new agreement entered
into on March 31, 1997. Borrowings under the new agreement may not exceed $28.1
million, and the interest rate will be prime, as defined, plus 4.0%, effective
June 1, 1997. The Banking Agreement also restricts the Company's ability to pay
dividends.
F-14
<PAGE> 88
9. ACCRUED EXPENSES AND OTHER:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Warranty and installation costs $6,883 $2,332
Commissions 2,676 2,219
Other 7,264 4,383
------- ------
$16,823 $8,934
======= ======
</TABLE>
10. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
9% convertible subordinated notes, face value of
$19,000,000 (net of unamortized discount of
$1,202,000 and $2,381,000 at December 31, 1996
and 1995, respectively) with warrants to
purchase 1,140,000 shares of Common stock.
Interest is payable quarterly in arrears $17,798 $16,619
Various capital lease obligations with interest
from 5% to 14%, payable monthly with varying
maturities through October 2002 9,670 3,442
Other 21 42
------- -------
27,489 20,103
Less current portion (2,294) (1,194)
------- -------
$25,195 $18,909
======= =======
</TABLE>
In December 1995, the Company issued $19 million principal amount of 9%
convertible subordinated notes with warrants to purchase 1,140,000 shares of
Common stock. The notes were recorded at $16.5 million, net of the estimated
fair value ascribed to the warrants of $2.5 million. Amortization of the debt
discount was $1.2 million and $127,000 for the years ended December 31, 1996 and
1995, respectively. The warrants are exercisable at $14 per share and expire in
December 2000. The debt discount is being amortized over the two-year term of
the debt.
In March 1997, the Company issued shares of its Series A Convertible
Non-Redeemable Preferred Stock convertible into approximately 2.7 million shares
of Common Stock and approximately $9 million principal amount of its 8%
Convertible Subordinated Notes due March 26, 2002 to previous holders of its 9%
Convertible Subordinated Notes due December 1997 and associated warrants. The
New Notes are convertible, after stockholder approval, into shares of Common
Stock at $3.70 per share, subject to adjustment. Under the agreement pursuant to
which the Preferred Stock and the New Notes were issued, the Company is required
to undertake certain registration obligations and to obtain stockholder approval
of the convertibility feature of the New Notes. If such obligations are not
fulfilled by January 31, 1998, the New Notes will become due as of such date. As
a result of this transaction, $17.1 million of the 9% convertible subordinated
notes have been classified in the noncurrent portion of long-term debt in the
balance sheet at December 31, 1996.
F-15
<PAGE> 89
The following is a schedule of aggregate long-term debt maturities and
future minimum capital lease payments at December 31, 1996, which considers the
effects of the transaction described above:
<TABLE>
<CAPTION>
LONG-TERM CAPITAL
DEBT LEASES
(IN THOUSANDS)
<S> <C> <C>
1997 $643 $1,651
1998 6 1,759
1999 -- 1,922
2000 -- 1,888
2001 -- 1,147
Thereafter 8,667 1,303
------ ------
$9,316 $9,670
====== ======
</TABLE>
In September 1996, the Company completed a sale-leaseback transaction
which included a refinancing of an existing capital lease, for net proceeds of
$5.3 million. The capital leases have an effective interest rate of 8%, and are
payable over a five-year period. The assets in this transaction were sold at
cost; therefore, no gain or loss was recognized.
In December 1994, the Company entered into a sale-leaseback agreement
for three applications processing units that were installed into the Company's
new applications laboratory. The lease is a capital lease and the units were
transferred from inventory to property and equipment at their cost of
approximately $1.9 million.
11. COMMITMENTS AND CONTINGENCIES:
In 1993, the Company entered into five-year employment agreements with
two key executives, subject to automatic extensions for an additional year. The
Company is obligated to continue to pay the executives' salaries for a period of
three years or five years, depending on which of the following occurs: the sale
of the Company, upon termination of employment by the Company without cause (as
defined), or termination of the employee with valid reason (as defined).
The Company leases its office and production facilities and several
vehicles under long-term non-cancelable operating leases which expire at various
dates through 2003. Rent expense was approximately $1.4 million, $1.1 million
and $654,000 in 1996, 1995 and 1994, respectively. Minimum annual payments for
the operating leases for each of the next five years are as follows:
<TABLE>
(IN THOUSANDS)
<S> <C>
1997 $1,599
1998 1,586
1999 1,550
2000 1,546
2001 1,560
Thereafter 559
------
$8,400
======
</TABLE>
On July 14, 1992, an action was commenced against the Company for
patent infringement. The complaint alleged that SSI infringed on three of the
plaintiff's patents embodying their megasonic cleaning apparatus and method. On
March 31, 1995, the Company and the plaintiff reached a settlement whereby the
Company obtained a license to use the patented technology. The Company can
utilize this technology for sale of replacement parts only for units that are
already in the market. The Company agreed to a paid-up licensing fee of $2
million. The licensing fee is being charged to expense based on the number of
parts shipped as a percentage of total estimated parts to be shipped. Charges of
approximately $142,000, $107,000 and $1.0 million were recorded in the 1996,
1995 and 1994 statements of operations, respectively, based on the units shipped
through December 31, 1996, 1995 and 1994, respectively. Management will continue
to evaluate the total estimated units to be shipped and adjust the prepaid
licensing fee accordingly.
F-16
<PAGE> 90
The Company is subject to claims, from time to time, arising in the
ordinary course of business. Other claims, although presently unasserted, may
also be raised in the future based on decisions made and certain actions taken
and the reporting thereof. Management believes the ultimate resolution of all
such claims will not have a material adverse effect on its financial position
and results of operations.
12. CUSTOMER AND GEOGRAPHIC INFORMATION:
The Company's operations are conducted in one business segment and
sales are primarily made to customers in the business of manufacturing
semiconductors. Sales are made on an international basis and foreign sales
(Europe and Far East) were 30%, 45% and 32% of net sales in 1996, 1995 and 1994,
respectively. Sales to foreign customers are transacted in U.S. dollars.
The following table summarizes significant customers with sales in
excess of 10% of total net sales for the years ended December 31, 1996, 1995 and
1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Customer A 14%
Customer B 12
Customer C 11%
Customer D 13%
--- ---- ----
13% 11% 26%
== == ==
</TABLE>
At December 31, 1996, approximately 34% of the Company's accounts
receivable were due from three customers.
13. OTHER INCOME:
Other income in 1995 consists of a settlement of litigation related to
unfair trade practices of approximately $2.7 million, which is net of legal fees
incurred.
14. INCOME TAXES:
The Company's income tax (benefit) expense for 1996, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current $(2,344) $650 $1,629
Deferred (3,012) 464 (690)
------- ------ -------
Total (5,356) 1,114 939
------- ------ -------
State
Current -- 182 631
Deferred (1,210) 202 (116)
------- ------ -------
Total (1,210) 384 515
------- ------ -------
$(6,566) $1,498 $1,454
======= ====== =======
</TABLE>
F-17
<PAGE> 91
The following is a reconciliation of the statutory federal income tax
(benefit) expense to the effective tax (benefit) expense for 1996, 1995 and 1994
(dollars in thousands):
<TABLE>
<CAPTION>
% OF % OF % OF
PRETAX PRETAX PRETAX
1996 LOSS 1995 INCOME 1994 INCOME
---- ---- ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Statutory income tax $(9,336) (35.0)% $1,764 34.0% $1,186 34.0%
State income taxes, net of
federal benefit (577) (2.2) 386 7.4 281 8.1
Effect of foreign sales corp -- -- (402) (7.7) --
Other nondeductible costs 222 0.8 172 3.3 103 2.9
Research and development credit -- -- (100) (1.9) (95) (2.7)
Valuation allowance 2,600 9.7 -- -- -- --
Other 525 2.1 (322) (6.2) (21) (0.6)
------- ------ ------- ----- ------ -----
$(6,566) (24.6)% $1,498 28.9% $1,454 41.7%
======= ====== ======= ===== ====== =====
</TABLE>
The net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Warranty and installation reserve $2,730 $933
Allowance for doubtful accounts 531 190
Allowance for excess and obsolete inventories 1,114 287
Accrued licensing fees 102 100
Deferred compensation 412 314
Uniform inventory capitalization 484 314
Salary and benefit accruals 225 68
Net operating loss carryforwards 3,625 --
Federal credit carryforward 320 --
Amortization 48 48
Commissions 260 78
Other 165 155
------ -----
Total deferred tax assets 10,016 2,487
Valuation allowance for deferred tax assets (2,600) --
------- -------
7,416 2,487
Deferred tax liabilities
Depreciation (238) (149)
Gain on litigation settlement (1,080) (1,080)
Other (618) --
-------- ------
Total deferred tax liabilities (1,936) (1,229)
------- -------
Net deferred tax assets $5,480 $1,258
======= =======
</TABLE>
At December 31, 1996, the Company had approximately $10 million of
federal and $1 million of state net operating loss carryforwards available.
These carryforwards generally expire in 2011.
At December 31, 1996, the Company recorded a valuation allowance of
$2.6 million against the deferred tax assets of $10.0 million. Such allowance
will be available to offset future income tax expense when it becomes more
likely than not that such deferred tax assets will be realized.
15. RELATED-PARTY TRANSACTIONS:
Commencing in November 1996, the Company leased a building from 6620
Grant Way Limited Partnership whose principals are officers and shareholders of
the Company. Rent expense in 1996 on this lease was $43,000. The initial term
F-18
<PAGE> 92
of the lease expires on November 6, 2003 and requires monthly lease payments of
$21,600 for the first two years; $22,200 for the second two years; and $23,500
for the final three years. The lease is on a triple net basis. The building was
sold to a third party in March 1997.
In October 1995, the Company borrowed $4 million from two officers who
are also stockholders of the Company for working capital purposes. The entire
borrowing, plus interest of $136,000, was repaid by the Company in December
1995.
16. STOCK OPTIONS AND WARRANTS:
The Company has stock options outstanding to participants under three
stock option plans: its Stock Option Plan for Non-Employee Directors, its
Amended and Restated 1991 Stock Option Plan and its Executive Stock Option Plan.
The Company has granted nonqualified stock options to officers, directors and
key employees under these plans at prices not less than fair market value on the
date of grant. Generally, options become exercisable over a four-year period
after the date of grant and expire ten years after the date of grant.
In 1995, the Company adopted a Stock Option Plan for Non-Employee
Directors. Under the Plan, non-employee directors of the Company are granted
options to purchase 5,000 shares of the Company's common stock upon the
appointment to the Board and thereafter receive annual option grants for 3,000
shares per year on the day following the Company's annual meeting of
stockholders. The aggregate number of options that may be issued under the plan
is 200,000, subject to adjustment upon the occurrence of a stock dividend, stock
split, recapitalization or certain other capital adjustments. At December 31,
1996, 24,000 options have been granted under the Stock Option Plan for
Non-Employee Directors. Exercise prices range from $9.75 to $10.38.
The Company's Amended and Restated 1991 Stock Option Plan provides both
incentive and non-qualified stock options to be granted to officers, employees,
consultants and advisors. Under the plan, options may be granted for the
purchase of up to 1,500,000 shares of Common stock, subject to adjustments for
stock dividends, stock splits, recapitalization or certain other adjustments. In
September 1996, the Company's Board of Directors approved an amendment to the
plan, subject to approval by the Company's stockholders, to increase the
aggregate maximum number of the Company's Common stock issuable under the plan
to 3,500,000 shares. As of December 31, 1996, 95,157 options had been granted,
subject to stockholder approval, in excess of the 1.5 million shares currently
available under the 1991 plan. The number of options to be granted and the
option prices are determined by the Board of Directors or the stock option plan
committee in accordance with the terms of the plan. The exercise price of
incentive stock options granted under the plan must be at least equal to the
fair market value of such shares on the date of grant and the maximum exercise
period is ten years. The Company also has an Executive Stock Option Plan that
provides for the issuance of up to 588,495 shares of Common stock.
Summary information with respect to options under the plans, is as
follows:
<TABLE>
<CAPTION>
AMENDED AND RESTATED EXECUTIVE
1991 STOCK OPTION PLAN STOCK OPTION PLAN
---------------------- -----------------
OUTSTANDING OPTION OUTSTANDING OPTION
OUTSTANDING OPTIONS OPTIONS PRICES OPTIONS PRICES
<S> <C> <C> <C> <C>
Balance, January 1, 1994 167,546 $2.39- $7.75 588,495 $.57-$6.00
Granted 190,000 4.50- 6.00 -- --
Exercised (49,864) 2.39 (5,500) 0.57
Canceled (40,000) 4.50- 7.75 -- --
--------- ------------ -------- -----------
Balance, December 31, 1994 267,682 2.39- 6.00 582,995 .57- 6.00
Granted 646,000 4.06- 11.13 -- --
Exercised (65,305) 2.39- 6.00 (46,745) .57
Canceled (10,209) 2.39- 4.50 -- --
--------- ------------ -------- -----------
Balance, December 31, 1995 838,168 2.39- 11.13 536,250 6.00
Granted 1,046,066 5.00- 11.25 -- --
Exercised (118,628) 2.39- 6.00 -- --
Canceled (170,449) 2.39- 11.25 -- --
--------- ------------ -------- ----------
Balance, December 31, 1996 1,595,157 $2.39-$11.13 536,250 $6.00
========= ============ ======== ==========
</TABLE>
F-19
<PAGE> 93
At December 31, 1996, there were 511,099 exercisable options under the
Amended and Restated 1991 Stock Option Plan, 536,250 exercisable options under
the Executive Stock Option Plan and 15,000 exercisable options under the stock
option plan for non-employee directors.
For options granted below fair market value, the Company recognizes as
deferred compensation the difference between the aggregate fair market value of
the Common stock issuable upon exercise of the options over the aggregate price
of such options. Deferred compensation of $1,008,150 was recognized in 1993
relating to 536,250 stock options issued under the Executive Stock Option Plan
which is being amortized over the vesting period of the options, and in this
regard $224,334, $336,050 and $380,856 was charged to expense in 1996, 1995 and
1994, respectively.
In December 1995, the Company issued $19.0 million principal amount 9%
convertible subordinated notes (see Note 10) with warrants to purchase 1,140,000
shares of Common stock. The warrants are exercisable at $14 per share and expire
in December 2000. In March 1997, the Company issued shares of its Series A
Convertible Non-Redeemable Preferred Stock and approximately $9 million
principal amount of its 8% convertible subordinated notes due March 26,2002 in
consideration for substantially all of the 9% convertible subordinated notes due
December 1997 and associated warrants (see Note 10).
In August 1993, the Company issued warrants to purchase 150,000 shares
of Common stock at $5 per share and 63,750 shares at $6 per share. Warrants to
purchase 63,750 shares at $6 were exercised during 1996. Warrants to purchase
35,000 and 5,000 shares at $5 per share were exercised in 1995 and 1994,
respectively, and the remaining warrants are exercisable through August 1998.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for the Company's stock option plans or stock purchase plan. Had compensation
cost for the Company's stock-based compensation plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of FASB Statement 123, the Company's pro forma net loss for loss per
share purposes for 1996 would have been increased by $2.9 million, or $0.17 per
share. 1995 pro forma net income for earnings per share purposes would have
decreased by $2.2 million or $0.14 per share.
F-20
<PAGE> 94
ACTIVITY IN THE STOCK OPTION PLANS IS SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
SHARES UNDER WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
<S> <C> <C>
Balance, January 1, 1995 850,677 $5.25
Options granted 646,000 6.12
Options exercised (112,050) 2.56
Options canceled (10,209) 5.82
--------- ------
Balance, December 31, 1995 1,374,418 5.81
Options granted 1,046,066 8.40
Options exercised (118,628) 5.04
Options canceled (170,449) 8.87
--------- ------
Balance, December 31, 1996 2,131,407 $6.91
========= ======
</TABLE>
<TABLE>
<CAPTION>
RANGE OF WEIGHTED AVERAGE WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE
PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
<S> <C> <C> <C> <C>
$2.39- 5.50 663,824 7.8 years $4.79
5.51-11.13 1,467,583 8.2 years 7.87
------------ --------- --------- ------
$2.39-11.13 2,131,407 8.1 years $6.91
============ ========= ========= ======
</TABLE>
The fair value of options granted during 1996 and 1995 was $3.40 and
$4.89 per share, respectively. Fair value is estimated based on the
Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1996 and 1995: dividend yield of 0%; expected
volatility of 48%; risk-free interest rates of 6.5% in 1996 and 5.4% in 1995;
and expected lives of four years.
17. PREFERRED STOCK:
The Company has authorized 5,000 shares of Preferred stock, $.01 par
value per share. The Board of Directors can designate and issue from time to
time one or more classes or series of Preferred stock and may fix and determine
the relative rights, preferences and limitations of each class or series so
authorized. In March 1997, the Company issued 1,299 shares of Series A
Convertible Preferred Stock (the "Series A Stock") convertible into
approximately 2.7 million shares of Common Stock (see Note 10). Holders of
Series A Stock receive a liquidation preference of $7,400 per share.
18. BENEFIT PLANS:
The Company maintains a defined contribution savings and investment
retirement plan under section 401(k) of the Internal Revenue Code whereby all
employees are eligible to participate after completing six months of service.
Participants may contribute from 1% to 15% of their compensation each year. The
Company does not make matching contributions and does not maintain any other
pension or post-retirement benefit plans.
In 1994, the Company established an employee stock purchase plan
whereby up to 300,000 shares of Common stock can be purchased by employees.
Purchases are made each June 30 and December 31 at a price equal to the lower of
85% of the fair market value of the stock on the first day or the last day of
the six-month period then ended. Purchases are limited as defined in the plan.
The plan is available to all eligible employees of the Company and its
subsidiaries who are not beneficial owners of 5% or more of the outstanding
Common stock. During 1996 and 1995, 145,730 and 70,657 shares, respectively,
were sold under the plan.
IMTEC maintains qualified retirement plans for eligible employees.
IMTEC maintains a Money Purchase Pension Plan, contributions to which are based
on a percentage of the employee's wages. Contributions to the plan for the years
ended December 31, 1996, 1995 and 1994 were $81,000, $69,000 and $59,000,
respectively.
IMTEC maintains a 401(k) Profit Sharing Plan for eligible employees.
The plan is designed to provide employees with an accumulation of funds at
retirement. IMTEC may make contributions to the plan at the discretion of the
Board of Directors. Contributions to the plan for the years ended December 31,
1996, 1995 and 1994 were $43,000, $41,000, and $15,000, respectively.
F-21
<PAGE> 95
IMTEC's money purchase pension plan and its 401(k) Profit Sharing Plan
will be discontinued during 1997. IMTEC employees will be eligible for
participation in the Company's 401(k) Plan and Employee Stock Purchase Plan.
19. SUPPLEMENTAL CASH FLOWS DISCLOSURES:
Cash paid for interest was $5.2 million, $2.0 million and $376,000 in
1996, 1995 and 1994, respectively. Cash paid for taxes was $364,000 in 1996,
$1.7 million in 1995 and $2.2 million in 1994.
During 1996, 1995 and 1994, capital lease obligations of approximately
$6.5 million, $2.1 million and $1.9 million were incurred when the Company
entered into a lease for equipment.
During 1994, 80,000 shares of Common stock totaling $430,000 were
issued upon the settlement of litigation.
F-22
<PAGE> 96
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at
Beginning Charged to Costs Other Balance at
of Period and Expenses Accounts Deductions End of Period
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1996:
Allowances for doubtful
accounts receivable $ 473,000 $ 824,000 $- $- $1,297,000
---------- ---------- -- -------- ----------
For the year ended December 31, 1995:
Allowances for doubtful
accounts receivable $ 446,000 $ 27,000 $- $- $ 473,000
---------- ---------- -- -------- ----------
For the year ended December 31, 1994:
Allowances for doubtful
accounts receivable $ 109,000 $ 502,000 $- $165,000 $ 446,000
---------- ---------- -- -------- ----------
</TABLE>
F-23
<PAGE> 97
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1997
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 2,792
Accounts receivable, net 27,176
Inventories, net 33,944
Prepaids and other 5,498
Deferred income taxes --
--------
Total current assets 69,410
Property and equipment, net 18,410
Goodwill, net 1,571
Intangibles and other, net 3,654
--------
$ 93,045
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 26,803
Current portion of long-term debt 2,619
Accounts payable 14,906
Accrued expenses and other 20,370
Deferred revenues 5,100
--------
Total current liabilities 69,798
--------
Long-term debt 15,943
Commitments and contingencies
Stockholders' equity:
Preferred stock, stated value, 5,000 shares
authorized, 1,211 issued
and outstanding 9,415
Common stock, $.0001 par value, 100,000,000
shares authorized, 17,066,587
issued and outstanding 2
Additional paid-in capital 41,418
Accumulated deficit (43,531)
--------
Total stockholders' equity 7,304
$ 93,045
========
</TABLE>
See accompanying notes.
F-24
<PAGE> 98
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
System sales, net $ 42,702 $ 77,244
Service and other sales 13,763 14,676
-------- --------
Total net sales 56,465 91,920
Cost of system sales 37,985 54,096
Cost of service and other sales 14,787 11,470
-------- --------
Total cost of sales 52,772 65,566
-------- --------
Gross profit 3,693 26,354
Selling, general and administrative 18,587 18,420
Research and development 4,891 4,023
Restructuring charges 3,792 --
-------- --------
Operating (loss) income (23,577) 3,911
Other income (expense):
Interest income 93 254
Interest expense (2,842) (2,261)
Other, net (30) 62
-------- --------
Total other expense (2,779) (1,945)
-------- --------
Income (loss) before income taxes and extraordinary item (26,356) 1,966
Income tax provision 3,000 713
-------- --------
(Loss) income before extraordinary item (29,356) 1,253
Extraordinary charge (1,169) --
-------- --------
Net (loss) income $(30,525) $ 1,253
======== ========
Net (loss) income per Common share $ (1.80) $ 0.07
======== ========
Weighted average number of
shares of Common stock outstanding 16,918 17,134
======== ========
</TABLE>
See accompanying notes.
F-25
<PAGE> 99
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows used in operating activities:
Net (loss) income $(30,525) $ 1,253
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities
Depreciation and amortization 3,095 3,448
Extraordinary loss on debt extinguishment 1,169 --
Provision for valuation allowances and
loss contingencies 84 547
Deferred tax provision 3,000 --
Amortization of deferred compensation -- 168
Amortization of note discount 314 552
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 20,524 (1,100)
Decrease (increase) in inventories 807 (20,401)
Decrease (increase) in prepaid expenses
and other 1,809 (654)
Decrease (increase) in other assets 1,083 (153)
(Decrease) increase in accounts payable (6,835) 1,380
Increase in accrued expenses and other 3,547 952
Increase in deferred revenues 1,995 1,873
Increase in income taxes payable -- 491
-------- --------
Net cash provided by (used in) operating
activities 67 (11,644)
-------- --------
Cash flows used in investing activities:
Capital expenditures (423) (5,032)
Purchase of intangible assets -- (103)
-------- --------
Net cash used in investing activities (423) (5,135)
-------- --------
Cash flows provided by financing activities:
Net (payments) borrowings under line of
credit agreement (1,297) 8,350
Proceeds from exercise of stock options
and warrants -- 1,272
Collection on notes receivable -- 36
Principal payments under capital lease
obligations and long-term debt (981) (593)
-------- --------
Net cash (used in) provided by
financing activities (2,278) 9,065
-------- --------
Net decrease in cash and cash equivalents (2,634) (7,714)
Cash and cash equivalents at beginning of period 5,426 16,010
-------- --------
Cash and cash equivalents at end of period $ 2,792 $ 8,296
======== ========
</TABLE>
See accompanying notes.
F-26
<PAGE> 100
SUBMICRON SYSTEMS CORPORATION
NOTES TO UNAUDITED INTERIM CONDENSED 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, 1997 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, 1996.
2. RESTRUCTURING CHARGES:
In response to significant losses from operations in each of the three month
periods ended September 30, 1996, December 31, 1996, March 31, 1997 and June 30,
1997, the Company implemented a worldwide restructuring plan. The plan is to
refocus the Company on its core technology and will involve, among other things,
restructuring the Company's corporate organization and selling certain
non-strategic assets to generate liquidity. Results for the second quarter
include restructuring charges of approximately $3.8 million primarily related to
severance costs, and lease termination costs associated with the vacancy of the
Company's corporate office. The Company expects to incur additional charges
related to the continuation of the restructuring plan of approximately $1.5
million and $1.0 million in the third and fourth quarters of 1997, respectively.
3. INVENTORIES:
Inventories are stated at the lower of cost (first in, first out) or market and
consist of the following, (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1997
<S> <C>
Raw materials $ 21,413
Work-in-process 15,456
--------
36,869
Excess and obsolescence reserve (2,925)
--------
$ 33,944
========
</TABLE>
4. CUSTOMER INFORMATION:
Sales of the Company's products to three customers accounted for 43% of total
sales for the six months ended June 30, 1997, and sales to three different
customers accounted for 30% of total sales for the six months ended June 30,
1996. Accounts receivable for the three largest customers represents 14% of
consolidated receivables as of June 30, 1997.
F-27
<PAGE> 101
5. CREDIT FACILITY:
In February 1996, the Company entered into a $30.0 million credit facility with
a banking group. The Company used the proceeds from the credit facility to
refinance its previous lines of credit and to provide working capital.
Borrowings under the credit facility bore interest at prime, as defined, plus
3.0%, and are secured by substantially all of the assets of the Company. The
Company is not in compliance with certain requirements of the credit facility.
The banking group has separately agreed to extend the due date of the credit
facility from its maturity date of August 18, 1997 to September 15, 1997, and,
upon certain conditions currently pending to October 31, 1997. Subsequent to
June 30, 1997, the Company has applied the net proceeds generated from the sale
of certain net assets of its wholly owned subsidiary, Systems Chemistry
Incorporated (see Note 9) against its outstanding borrowings. Borrowings under
the extended agreement are permitted up to $9.6 million, with the interest rate
continued at prime, as defined, plus 4.0%, effective June 1, 1997. Borrowings
under the extended credit facility were $26.8 million at June 30, 1997. The
agreement also restricts the Company's ability to pay dividends.
6. LONG TERM DEBT:
In December 1995, the Company issued $19.0 million principal amount of 9%
convertible subordinated notes with warrants to purchase 1,140,000 shares of
Common stock. The notes were recorded at $16.5 million, net of the estimated
fair value ascribed to the warrants of $2.5 million.
In March 1997, the Company issued shares of its Series A Convertible
Non-Redeemable Preferred Stock (Preferred Stock) convertible into approximately
2.6 million shares of Common stock and approximately $8.7 million principal
amount of its 8% Convertible Subordinated Notes (New Notes) due March 26, 2002
to previous holders of $18,350,000 of its 9% convertible subordinated notes due
December 1997 and associated warrants. The New Notes are convertible into shares
of Common stock at $3.70 per share, subject to adjustment. Under the agreement
pursuant to which the Preferred Stock and the New Notes were issued, the Company
is required to undertake certain registration obligations of the New Notes. If
such obligations are not fulfilled by January 31, 1998, the New Notes will
become due as of such date.
7. INCOME TAXES:
The income tax provision for the six month period ended June 30, 1997 included a
non-cash charge of $3.0 million to increase the Company's valuation allowance
against its net deferred tax asset.
8. EARNINGS PER SHARE:
Earnings per share is based on the weighted average number of shares of Common
stock and Common stock equivalents (dilutive stock options and warrants using
the treasury stock method) outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share," which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is not expected to have an effect on
primary earnings per share for the six month periods ended June 30, 1997 or June
30, 1996. The Company has not yet determined what the impact of Statement 128
will be on the calculation of fully diluted earnings per share.
F-28
<PAGE> 102
9. SUBSEQUENT EVENTS:
On August 7, 1997, the Company completed the sale of certain assets, net of
liabilities assumed, of its wholly owned subsidiary, Systems Chemistry
Incorporated, for $17.3 million. The Company received $15.8 million in cash
after a holdback allowance of $1.5 million to cover potential post closing
working capital adjustments. In addition, the Company received the proceeds from
a $5.0 million subordinated, non-interest bearing note due in August 2000. The
Company applied $18.5 million, after transaction costs and bank fees, to reduce
the outstanding balance on its line of credit. The Company estimates a gain on
the sale of approximately $2.0 million to be recorded in the third quarter of
1997.
Pro forma results presented below reflect the results of operations of the
Company as if the disposition had occurred on January 1, 1997. The pro forma
financial information presented is not necessarily indicative of the results of
operations that the Company would have obtained had such events occurred at the
beginning of the period. Pro forma information is as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
FOR THE SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1997
----------------------------- ---------------------
<S> <C> <C>
Net sales $56,465 $34,186
Loss before extraordinary
item ($29,356) ($24,596)
Loss before extraordinary
item per share ($1.74) ($1.45)
</TABLE>
F-29
<PAGE> 103
SUBMICRON SYSTEMS CORPORATION
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Information gives
effect to the Company's sale of Systems Chemistry Incorporated described below.
On August 7, 1997, the Company completed the sale of certain assets, net of
liabilities assumed, of its wholly owned subsidiary, Systems Chemistry
Incorporated to British Oxygen Company ("BOC"), for a negotiated sales price of
$17.3 million before closing adjustments. The Company received $15.8 million in
cash after a holdback allowance of $1.5 million to cover potential post closing
working capital adjustments. In addition, the Company received the proceeds from
a $5.0 million subordinated, non-interest bearing note due in August 2000. The
Company applied $18.5 million, after transaction costs and bank fees, to reduce
the outstanding balance on its line of credit.
The pro forma consolidated statements of operations for the year ended December
31, 1996 and the six months ended June 30, 1997 reflect the operations of the
Company as if the above disposition had occurred at the beginning of the periods
presented. The pro forma consolidated balance sheet as of June 30, 1997 reflects
the financial position of the Company as if the disposition had occurred as of
June 30, 1997. The pro forma Consolidated Statements of Operations for each
period presented do not reflect the estimated gain on this sale of approximately
$2.0 million.
The unaudited pro forma consolidated financial information is based upon
preliminary estimates, available information, and certain assumptions that
management deems appropriate. Management does not expect material changes to the
final transaction adjustments. The unaudited pro forma consolidated financial
information presented herein is not necessarily indicative of the results of
operations or financial position that the Company would have obtained had such
events occurred at the beginning of the period, as assumed, or the future
results of the Company. The pro forma consolidated financial information should
be read in connection with the consolidated financial statements and notes
thereto, and the unaudited consolidated financial statements and notes thereto,
included in this Prospectus.
F-30
<PAGE> 104
SUBMICRON SYSTEMS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 2,792 $ (1,345)(a) $ 1,447
Accounts receivable, net 27,176 (14,592)(c) 12,584
Inventories, net 33,944 (6,096)(c) 27,848
Prepaids and other 5,498 (438)(c) 5,060
-------- -------- --------
Total current assets 69,410 (22,471) 46,939
Property and equipment, net 18,410 (1,031)(c) 17,379
Intangibles and other, net 5,225 (1,730)(c) 3,495
-------- -------- --------
Total assets $ 93,045 $(25,232) $ 67,813
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Line of Credit $ 26,803 $(18,500)(b) $ 8,303
Current portion of long-term debt 2,619 -- 2,619
Accounts payable 14,906 (2,782)(c) 12,124
Deferred revenues 5,100 (4,256)(c) 844
Accrued expenses and other 20,370 (5,694)(c) 14,676
-------- -------- --------
Total current liabilities 69,798 (31,232) 38,566
Long-term debt 15,943 3,700(e) 19,643
-------- -------- --------
Total liabilities 85,741 (27,532) 58,209
-------- -------- --------
Stockholders' equity:
Common stock 2 -- 2
Preferred stock 9,415 -- 9,415
Additional paid-in capital 41,418 -- 41,418
Accumulated deficit (43,531) 2,300(d) (41,231)
-------- -------- --------
Total stockholders' equity 7,304 2,300(d) 9,604
-------- -------- --------
Total liabilities and
stockholders' equity $ 93,045 $(25,232) $ 67,813
======== ======== ========
</TABLE>
See accompanying notes to the Pro Forma Consolidated Financial Information.
F-31
<PAGE> 105
SUBMICRON SYSTEMS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
System sales, net $42,702 $(15,007)(a) $27,695
Service and other sales 13,763 (7,272)(a) 6,491
-------- -------- --------
Total net sales 56,465 (22,279) 34,186
Cost of system sales 37,985 (11,121)(a) 26,864
Cost of service and other sales 14,787 (10,617)(a) 4,170
-------- -------- --------
Total cost of sales 52,772 (21,738) 31,034
-------- -------- ------
Gross profit 3,693 (541) 3,152
Selling, general and administrative 18,587 (4,119)(a) 14,468
Research and development 4,891 (406)(a) 4,485
Restructuring charges 3,792 - 3,792
-------- -------- --------
Operating loss (23,577) 3,984 (19,593)
Other income (expense):
Interest income 93 (14)(a) 79
Interest expense (2,842) 733 (b) (2,109)
Other, net (30) 57 (a) 27
-------- -------- --------
(2,779) 776 (2,003)
------- -------- --------
Loss before provision for
income taxes and
extraordinary items (26,356) 4,760 (21,596)
Provision for income taxes 3,000 - 3,000
-------- -------- --------
Loss before extraordinary item $(29,356) $4,760 $(24,596)
======== ======== ========
Net loss before extraordinary item
per common share $(1.74) $(1.45)
======== ========
Weighted average number of
shares outstanding 16,918 16,918
======== ========
</TABLE>
See accompanying notes to the Pro Forma Consolidated Financial Information.
F-32
<PAGE> 106
SUBMICRON SYSTEMS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
System sales, net $140,823 $(42,460)(a) $98,363
Service and other sales 30,661 (15,297)(a) 15,364
--------- --------- --------
Total net sales 171,484 (57,757) 113,727
Cost of system sales 118,800 (32,070)(a) 86,730
Cost of service and other sales 23,948 (14,709)(a) 9,239
--------- --------- --------
Total cost of sales 142,748 (46,779) 95,969
--------- --------- --------
Gross profit 28,736 (10,978) 17,758
Selling, general and administrative 41,337 (11,143)(a) 30,194
Research and development 9,373 (885)(a) 8,488
--------- --------- --------
Operating loss (21,974) 1,050 (20,924)
Other income (expense):
Interest income 383 (35)(a) 348
Interest expense (5,244) 1,635 (b) (3,609)
Other, net 160 (90)(a) 70
-------- --------- --------
(4,701) 1,510 (3,191)
-------- --------- --------
Loss before income tax benefit (26,675) 2,560 (24,115)
Income tax benefit (6,566) - (6,566)
-------- --------- --------
Net loss $(20,109) $2,560 $(17,549)
======== ========= ========
Net loss per common share $(1.20) $(1.05)
======== ========
Weighted average number of
shares outstanding 16,713 16,713
======== ========
</TABLE>
See accompanying notes to the Pro Forma Consolidated Financial Information.
F-33
<PAGE> 107
SUBMICRON SYSTEMS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
1. HISTORICAL.
The historical balances represent the financial position and consolidated
results of operations of SubMicron Systems Corporation and were derived from the
respective financial statements for the indicated periods.
2. DISPOSITION OF ASSETS OF SYSTEMS CHEMISTRY INCORPORATED.
On August 7, 1997, the Company completed the sale of certain assets, net of
liabilities assumed, of its wholly owned subsidiary, Systems Chemistry
Incorporated, for $17.3 million. The Company received $15.8 million in cash
after a holdback allowance of $1.5 million to cover potential post closing
working capital adjustments. In addition, the Company received the proceeds from
a $5.0 million subordinated, non-interest bearing note, due in August 2000. The
Company applied $18.5 million, after transaction costs and bank fees, to reduce
the outstanding balance on its line of credit. The Company estimates a gain on
the sale of approximately $2.0 million to be recorded in the third quarter of
1997.
The pro forma consolidated statements of operations for the year ended December
31, 1996 and the six months ended June 30, 1997 reflect the operations of the
Company as if the above disposition had occurred at the beginning of the periods
presented. The pro forma consolidated balance sheet as of June 30, 1997 reflects
the financial position of the Company as if the disposition had occurred as of
June 30, 1997. The pro forma financial information presented is not necessarily
indicative of the financial position and results of operations that the Company
would have obtained had such events occurred at the beginning of the periods.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The Unaudited Pro Forma Consolidated Balance Sheet at June 30, 1997 has been
adjusted to reflect the following:
(a) All closing costs and associated liabilities paid, resulting from the
transaction, were assumed to reduce the net proceeds received from the
sale.
(b) To reflect the net cash proceeds received from the sale applied to the
outstanding line of credit.
(c) To eliminate the assets sold by the Company and liabilities assumed by
British Oxygen Company ("BOC").
(d) To reflect the gain on the sale.
(e) To reflect the present value of the $5 million non-interest bearing
note, due in August 2000.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS
The Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1996 has been adjusted to reflect the following:
(a) To eliminate the operating results of Systems Chemistry Incorporated
for the entire period presented.
F-34
<PAGE> 108
(b) To reduce interest expense attributable to decreased average
outstanding line of credit borrowings from the application of the sale
proceeds utilizing the weighted average interest rates in effect during
the period, offset by imputed interest expense on the $5.0 million loan
from BOC.
The Unaudited Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1997 has been adjusted to reflect the following:
(a) To eliminate the operating results of Systems Chemistry Incorporated
for the entire period presented.
(b) To reduce interest expense attributable to decreased average
outstanding line of credit borrowings from the application of the sale
proceeds utilizing the weighted average interest rates in effect during
the period, offset by imputed interest expense on the $5.0 million loan
from BOC.
F-35
<PAGE> 109
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
Page
Available Information........................................................1
Prospectus Summary...........................................................2
Risk Factors ...............................................................12
The Exchange Offer..........................................................18
The Company.................................................................27
Use of Proceeds.............................................................27
Capitalization .............................................................27
Selected Consolidated Financial Data........................................28
Market for Registration's Common Equity
and Related Stockholder Matters............................................28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................................................31
Business ...................................................................38
Management .................................................................48
Executive Compensation........................................................
Certain Transactions .......................................................53
Beneficial Ownership of Equity Securities
by Principal Stockholders and Management ..................................54
Description of the Exchange Notes...........................................57
Description of Capital Stock ...............................................63
Certain Federal Income Tax Considerations...................................65
Plan of Distribution .......................................................65
Legal Matters...............................................................66
Experts ....................................................................66
Index to Financial Statements..............................................F-1
UNTIL , 1998, (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
SELLING EXCHANGE NOTES RECEIVED IN EXCHANGE FOR ORIGINAL NOTES HELD FOR THEIR
OWN ACCOUNT. SEE "PLAN OF DISTRIBUTION."
[LOGO]
SubMicron Systems
Corporation
Offer to Exchange its 8% Convertible
Subordinated Notes due 2002 which
have been registered under the Securities
Act for any and all outstanding 8%
Convertible Subordinated Notes due 2002
----------
PROSPECTUS
----------
, 1997
<PAGE> 110
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporation Law of the State of
Delaware, as amended (the "Delaware Corporation Law"), the Registrant has the
power to indemnify directors and officers under certain prescribed circumstances
and, subject to certain limitations, against certain costs and expenses,
including attorneys' fees actually and reasonably incurred in connection with
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, to which any of them is a party by reason of his being a director
or officer of the Registrant if it is determined that he acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
Article Seventh of the Certificate of Incorporation of the Registrant
provides, with respect to the indemnification to directors and officers, that
the Registrant shall indemnify to the fullest extent permitted by Sections
102(b)(7) and 145 of the Delaware Corporation Law each person that such Sections
grant the Registrant the power to indemnify. Article Seventh of the Certificate
of Incorporation of the Registrant also provides that no director shall be
liable to the Registrant or any of its stockholders for monetary damages for a
breach of fiduciary duty as a director, except with respect to (1) a breach of
the director's duty of loyalty to the Registrant or its stockholders, (2) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) liability under Section 174 of the Delaware
Corporation Law or (4) a transaction from which the director derived an improper
personal benefit, it being the intention of the foregoing provision to eliminate
the liability of the Registrant's directors to the Registrant or its
stockholders to the fullest extent permitted by Section 102(b)(7) of Delaware
Corporation Law, as amended from time to time.
Article XIII of the Registrant's By-Laws generally permits
indemnification of directors and officers to the fullest extent authorized by
the Delaware Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
EXHIBIT
NO. EXHIBIT
2.1 Agreement and Plan of Merger dated April 27, 1993, among SubMicron
Systems Corporation (formerly Trinity) (the "Company"), SubMicron
Systems, Inc. ("SubMicron"), and David Levy and James Molinaro(1)
2.2 Agreement and Plan of Merger dated January 13, 1995, among the Company,
SysChem Acquisition Corp. and Systems Chemistry Incorporated(2)
2.3 Agreement and Plan of Merger dated March 21, 1996, among the Company,
SubImtec Acquisition Corp., IMTEC Acculine, Inc. and the sole
shareholder of IMTEC(5)
3.1 The Company's Certificate of Incorporation(1)
3.2 The Company's By-Laws(1)
3.3 Certificate of Designations, Preferences and Rights of Series A
Convertible Non-Redeemable Preferred Stock *
II-1
<PAGE> 111
4.1 Warrant Agreement dated September 19, 1991 between the Company and GKN
Securities Corp.(1)
4.2 Form of 9% Convertible Subordinated Promissory Note due December 15,
1997(6)
4.3 Form of Warrant to Purchase Common Stock(6)
4.4 Form of 8% Convertible Subordinated Note (Original Note) *
4.5 Indenture, dated __________, 1997 between the Company and The United
States Trust Company of New York, as Trustee*
4.6 Form of 8% Convertible Subordinated Note (Exchange Note)*
5 Opinion of Cozen and O'Connor re: legality of Exchange Notes*
9.1 Voting Agreement between David F. Levy and James S. Molinaro(1)
10.1 Amended and Restated 1991 Stock Option Plan(3)(4)
10.2 Executive Stock Option Plan(1)(3)
10.3 1994 Employee Stock Purchase Plan(3)(4)
10.4 1995 Stock Option Plan for Non-Employee Directors(3)(6)
10.5 Employment Agreement between the Company and David F. Levy(1)(3)
10.6 Employment Agreement between the Company and James S. Molinaro(1)(3)
10.7 Lease Agreement, as amended, dated as of January 16, 1992, between
Rouse and Associates ("Rouse") and SSL, as amended by Letter Agreement
dated February 13, 1992, between Realprop Management, Inc., (an
affiliate of Rouse) and SubMicron(1)
10.8 Credit Agreement, dated February 27, 1996, among the Company, certain
subsidiaries of the Company and CoreStates Bank, N.A., as Agent, and
the several Lenders parties thereto, including form of Revolving Credit
Note and Security Agreement(6)
10.9 Tax Indemnification Agreement dated May 22, 1992, among SubMicron,
David F. Levy and James S. Molinaro(1)
10.10 Agreement dated April 27, 1993, among SubMicron, David Levy, James
Molinaro and Edison Venture Fund II, L.P. and Edison Venture Fund
II-PA, L.P.(1)
10.11 Indemnity Agreement, dated April 1992, by and among SubMicron, David
Levy and James Molinaro(1)
10.12 Agreements of Sale and Purchase, dated February 23, 1996, between D&M
Properties and the Company(6)
10.13 Subordinated Note and Preferred Stock Purchase Agreement dated March
26, 1997*
10.14 Asset Purchase Agreement among the Company, Systems Chemistry,
Incorporated, and the BOC Group, Inc. dated June 27, 1997*
II-2
<PAGE> 112
12 Statements re: Computation of Ratios
21 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ireland San Filippo & Company
- ----------------------------------------
* To be filed by amendment.
(1) Incorporated by reference to an Exhibit filed as part of the Company's
Registration Statement on Form S-4, File No. 33,64500.
(2) Incorporated by reference to an Exhibit filed as part of the Company's
Registration Statement on Form 8-K and dated February 28, 1995.
(3) Constitutes a compensatory plan or arrangement required to be filed as
an exhibit to this Form.
(4) Incorporated by reference to an Exhibit filed as part of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
(5) Incorporated by reference to an Exhibit filed as part of the Company's
Current Report on Form 8-K dated March 26, 1996.
(6) Incorporated by reference to an Exhibit filed as part of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule of Valuation and Qualifying Accounts
All other financial statement schedules are omitted because
they either are not applicable or the required information is included in the
financial statements or notes thereto appearing elsewhere in this Registration
Statement.
(c) NOT APPLICABLE.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b)(1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
II-3
<PAGE> 113
(2) The Registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned Registrant hereby undertakes; (1) to file, during
any period in which offers or sales are being made, a post-effective amendment
to this Registration Statement; (i) to include any Prospectus required by
Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the
Prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of Prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the "calculation of registration fee" table in the effective
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; (2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and (3) to remove from registration by means of a
post-effective amendment any of the securities being offered which remain unsold
at the termination of the offering.
II-4
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Allentown,
Pennsylvania, on October 21, 1997.
SUBMICRON SYSTEMS CORPORATION
By: /s/ David J. Ferran
---------------------------------
David J. Ferran, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David J. Ferran, R.G. Holmes and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documentation in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ David J. Ferran President, Chief Executive October 21, 1997
- ------------------------- Officer and Director
David J. Ferran (Principal Executive Officer)
/s/ John W. Kizer Chief Financial Officer October 21, 1997
- ------------------------- (Principal Financial and
John W. Kizer Accounting Officer)
/s/ Ronald B. Booth Director October 21, 1997
- -------------------------
Ronald B. Booth
/s/ Maurice J. Gallagher, Jr. Director October 21, 1997
- -----------------------------
Maurice J. Gallagher, Jr.
/s/ Barry W. Ridings Director October 21, 1997
- --------------------------
Barry W. Ridings
/s/ Leonard R. Weisberg Director October 21, 1997
- --------------------------
Leonard R. Weisberg
</TABLE>
II-
<PAGE> 1
EXHIBIT 12
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31 Pro Forma June 30, 1997
---------------------------------------------------- --------- -----------------------
1992(2) 1993(2) 1994(2) 1995(2) 1996(1) 1996(1) Actual(1) Pro Forma(1)
------- ------- ------- ------- ------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Loss) income before income taxes,
extraordinary charge and
cumulative effect of
accounting change $ 303 $3,803 $3,487 $5,187 $(26,675) $(24,115) $(26,356) $(21,596)
====== ====== ====== ====== ======== ======== ======== ========
Net accretion of debt discount
and issuance expense -- 34 -- 127 1,179 1,179 314 314
Interest portion of rental expense 24 35 32 136 382 382 323 323
Interest expense 237 334 332 1,704 4,862 3,227 2,519 1,786
------ ------ ------ ------ -------- -------- -------- --------
Fixed charges 261 403 364 1,967 6,423 4,788 3,156 2,423
====== ====== ====== ====== ======== ======== ======== ========
(Loss) income before income taxes,
extraordinary charge and
cumulative effect of
accounting change and
fixed charges $1,064 $4,206 $3,851 $7,154 $(20,252) $(19,327) $(23,200) $(19,173)
====== ====== ====== ====== ======== ======== ======== ========
Ratio of earnings to fixed charges 4.08 10.44 10.58 3.64
====== ====== ====== ======
</TABLE>
- -----------
(1) In 1996 and 1997, earnings are inadequate to cover fixed charges. The
coverage deficiency for the year ended December 31, 1996 and for the six
months ended June 30, 1997 was $26.7 million and $26.4 million,
respectively. The pro forma coverage deficiency for the year ended December
31, 1996 and for the six months ended June 30, 1997 was $24.1 million and
$21.6 million, respectively.
(2) In February 1995, the Company acquired all of the outstanding stock of
Systems Chemistry in exchange for 3,400,000 shares of Common Stock. In March
1996, the Company acquired all of the outstanding Common Stock of IMTEC in
exchange for 575,000 shares of Common stock. Each transaction was accounted
for as a pooling of interests and, accordingly, historical financial data
has been restated to include Systems Chemistry and IMTEC.
<PAGE> 1
EXHIBIT 21
List of Subsidiaries
SubMicron Systems, Inc.
SubMicron Wet Process Stations Inc. (dba Universal Plastics)
Imtec Acculine, Inc.
PRIMAXX Corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated April 8, 1997 (except Notes 2 and 8, as to which
the date is April 15, 1997), in this Registration Statement on Form S-4 and
related Prospectus of SubMicron Systems Corporation for the registration of
$8,692,028 in aggregate principal amount of 8% Convertible Subordinated Notes.
/S/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
October 23, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all reference to our Firm included in or made a part of this S-4
Registration Statement.
/s/ Arthur Andersen LLP
Philadelphia, PA
October 21, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report, dated February 23, 1996, on the financial statements of
Imtec Acculine, Inc. as of December 31, 1995, and for the two years then ended,
into this Registration Statement on Form S-4 No. 333- .
Draft
IRELAND SAN FILIPPO, LLP
October 13, 1997
