<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SubMicron Systems Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
- - --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
SUBMICRON SYSTEMS CORPORATION
6620 GRANT WAY
ALLENTOWN, PA 18106
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, JULY 24, 1997
The Annual Meeting of Stockholders of SubMicron Systems Corporation (the
"Company") will be held on Thursday, July 24, 1997, at 10:00 a.m., at the
Holiday Inn Conference Center, Rt. 100 & I-78, Fogelsville, Pennsylvania, for
the following purposes:
1. To elect one director to hold office until the Annual Meeting of
Stockholders in 2000.
2. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares issuable thereunder.
3. To approve amendments to the Company's 1991 Amended and Restated Stock
Option Plan, including an increase in the number of shares issuable thereunder.
4. To approve a proposal to amend the Company's Certificate of
Incorporation to increase the authorized number of shares of Preferred Stock.
5. To approve the convertibility feature of the Company's 8% Convertible
Subordinated Notes.
6. To ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for 1997.
7. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on May 28, 1997 as
the record date for the meeting. Only stockholders of record at that time are
entitled to notice of and to vote at the meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the attached Proxy Statement for further information with
respect to the business to be transacted at the meeting.
You are cordially invited to attend the meeting in person. The Board of
Directors urges you to sign, date and return the enclosed proxy card promptly.
The return of the enclosed proxy card will not affect your right to vote in
person if you choose to attend the meeting.
R.G. Holmes
Secretary
June 24, 1997
<PAGE> 3
SUBMICRON SYSTEMS CORPORATION
6620 GRANT WAY
ALLENTOWN, PA 18106
-------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
JULY 24, 1997
-------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of SubMicron Systems Corporation (the
"Company") for use at the Company's Annual Meeting of Stockholders which will be
held on the date, at the time and place, and for the purposes set forth in the
foregoing notice. This Proxy Statement, the foregoing notice and the enclosed
proxy card are first being sent to stockholders on or about June 24, 1997.
The Board of Directors does not intend to bring any matter before the
meeting except those as specifically indicated in the notice and does not know
of anyone else who intends to do so. If any other matters properly come before
the meeting, however, the persons named in the enclosed proxy card, or their
duly constituted substitutes acting at the meeting, will be authorized to vote
or otherwise act thereon in accordance with their judgment on such matters.
When your proxy card is returned properly signed prior to voting at the
meeting, the shares represented thereby will be voted in accordance with the
instructions marked thereon. If your proxy card is signed and returned without
specifying choices, the shares will be voted as recommended by the directors.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary in writing, by delivering a duly executed proxy bearing a later date,
or by attending the meeting and voting in person.
VOTING SECURITIES AND SECURITY OWNERSHIP
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on May 28, 1997, the record date fixed for the
determination of stockholders entitled to notice of and to vote at the meeting,
16,890,014 shares of the Company's Common Stock (the "Common Stock") and
1,302.85 shares of the Company's Series A Convertible Non-Redeemable Preferred
Stock (the "Series A Preferred Stock") were outstanding and entitled to vote.
Only the record holders of Common Stock and Series A Preferred Stock on the
record date will be entitled to vote. There are no other classes of voting
securities outstanding. The presence at the meeting, in person or by proxy, of
holders of shares entitled to cast at least a majority of the votes that may be
cast by all shares of Common Stock and Series A Preferred Stock outstanding as
of the record date, voting together, will constitute a quorum. Each share of
Series A Preferred Stock is convertible into 2,000 shares of Common Stock and is
entitled to one vote for each share of Common Stock into which such share or
fraction thereof may be converted. Each share of Common Stock is entitled to one
vote, and, accordingly, each share of Series A Preferred Stock is entitled to
2,000 votes. The Common Stock and Series A Preferred Stock will vote together on
all matters scheduled to be considered. The total number of votes entitled to be
cast at the meeting is 19,495,714. There are no cumulative voting rights with
respect to the election of directors.
Abstentions and broker non-voters are counted for purposes of determining
whether a quorum is present at the meeting. Abstentions will be counted in
tabulations of votes cast on the matters to be voted on, whereas broker
non-votes will not be counted for purposes of determining whether a proposal has
been approved. The election of directors requires a plurality of the votes cast,
the proposed amendment to the Company's Certificate of Incorporation requires
the affirmative vote of a majority of the number of votes that may be cast at
the meeting and each other matter to be submitted to the stockholders requires
the affirmative vote of a
<PAGE> 4
majority of the votes cast at the meeting. Accordingly, except with respect to
the election of directors, an abstention has the effect of a negative vote.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership as of May 28, 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>
PERCENT OF
NAME AND ADDRESS OF NUMBER OF PERCENT OF TOTAL VOTING
BENEFICIAL OWNER TITLE OF CLASS SHARES(1) CLASS POWER
- - -------------------------------------- -------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
David F. Levy......................... Common Stock 4,695,250(2) 26.6% 23.2%
6620 Grant Way
Allentown, PA 18106
James S. Molinaro..................... Common Stock 4,695,250(2) 26.6 23.2
6620 Grant Way
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 Preferred
Road NE, #1601 Stock
Atlanta, GA 30326
Lewis H. and Peggy S. Jordan.......... Series A 142.00 10.9 1.5
610 Wingspread Preferred
Peachtree City, GA 30269 Stock
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.
(2) Consists of shares over which the stockholder has power to direct the voting
on the election of directors pursuant to the Voting Agreement (as defined
below). Includes 1,980,500 shares owned by each of Messrs. Levy and Mr.
Molinaro. Also includes options to purchase 396,125 and 338,125 shares of
Common Stock held by Messrs. Levy and Molinaro, respectively.
Messrs. Levy and Molinaro (the "SubMicron Principals") have entered into a
voting agreement (the "Voting Agreement") that provides for all their shares
of Common Stock to be voted at their joint direction. In the event the
SubMicron Principals are unable to agree on how to vote their shares, they
will appoint a special voting trustee to break the deadlock. If they are
unable to agree on the designation of a special voting trustee, their shares
will be voted in accordance with the vote of the majority of shares of
Common Stock not subject to the Voting Agreement. The Voting Agreement will
terminate on the earliest to occur of August 31, 2003, the death or
incapacity of either of the SubMicron Principals, or the date on which
either of the SubMicron Principals no longer holds any Common Stock.
2
<PAGE> 5
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership as of May 28, 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 PERCENT OF TOTAL VOTING
BENEFICIAL OWNER TITLE OF CLASS SHARES(1) CLASS POWER
- - -------------------------------------- -------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
David F. Levy......................... Common Stock 4,695,250(2) 26.6% 23.2%
James S. Molinaro..................... Common Stock 4,695,250(2) 26.6 23.2
Ronald B. Booth....................... Common Stock -- --
Series A *
Preferred
Stock 7.1 *
David J. Ferran....................... Common Stock 33,332(3) * *
Maurice J. Gallagher, Jr.............. Common Stock -- --
Series A 1.8
Preferred
Stock 177.5 13.6
Barry W. Ridings...................... Common Stock 64,000(4) *
Series A *
Preferred
Stock 7.1 *
John P. Traub (5)..................... Common Stock 306,642(6) 1.8 1.6
Leonard R. Weisberg................... Common Stock 40,655(7) * *
Daniel G. Hajjar...................... Common Stock 81,139(8) * *
R. G. Holmes.......................... Common Stock 35,822(9) * *
All executive officers and directors
as a group (10 persons)............. Common Stock 5,256,840(10) 29.3
Series A 27.5
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 shares over which the stockholder has power to direct the
voting on the election of directors pursuant to the Voting Agreement.
Includes 1,980,500 shares owned by each of Messrs. Levy and Molinaro. Also
includes options to purchase 396,125 and 338,125 shares of Common Stock
held by Messrs. Levy and Molinaro, respectively.
(3) Consists of options to purchase 33,332 shares of Common Stock.
(4) Includes options to purchase 8,000 shares of Common Stock.
(5) Mr. Traub's term as a director expires at the 1997 annual meeting and he is
not standing for reelection.
(6) Includes options to purchase 150,000 shares of Common Stock.
(7) Includes options to purchase 18,000 shares of Common Stock.
(8) Includes options to purchase 74,000 shares of Common Stock.
(9) Includes options to purchase 25,000 shares of Common Stock.
(10) Includes options to purchase an aggregate of 1,042,582 shares of Common
Stock.
3
<PAGE> 6
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
At the meeting, the stockholders will elect one Class C director to hold
office until the Annual Meeting of Stockholders in 2000 and until his successor
has been duly elected and qualified. The Board of Directors is divided into
three classes serving staggered three-year terms, the term of one class of
directors to expire each year. The term of the present Class C Directors expires
at the 1997 Annual Meeting of Stockholders. The Board has nominated Ronald B.
Booth to serve as the Class C Director. Mr. Booth is currently serving as a
Class C Director and has indicated a willingness to continue serving as a
director. Unless contrary instructions are given, the shares represented by a
properly executed proxy will be voted "FOR" the election of Mr. Booth. Should
Mr. Booth become unavailable to accept election as a director, the persons named
in the enclosed proxy will vote the shares which they represent for the election
of such other person as the Board of Directors may recommend.
In connection with the issuance of the Series A Preferred Stock and the
Company's 8% Convertible Subordinated Notes (the "Notes") in March 1997, the
Company agreed to appoint two representatives of the holders of the 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 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. Messrs.
Levy and Molinaro have agreed to vote their shares in favor of the designees of
the Noteholders.
The current members of the Board of Directors continuing in office after
the meeting, including the nominee for Class C Director, together with certain
information about them, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR TERM POSITIONS WITH
NAME AGE SINCE EXPIRES THE COMPANY
- - ----------------------------------- ---- -------- ------- -------------------------------
<S> <C> <C> <C> <C>
Class C Directors
Ronald B. Booth.................... 48 1997 1997 Director
Class B Directors
Maurice J. Gallagher, Jr........... 47 1997 1998 Director
Barry W. Ridings................... 45 1991 1998 Director
Class A Directors
David J. Ferran.................... 40 1997 1999 President, Chief Executive
Officer and Director
Leonard R. Weisberg................ 67 1989 1999 Director
</TABLE>
Mr. 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.
Mr. Gallagher 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
4
<PAGE> 7
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.
Mr. 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.
Mr. 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.
Mr. 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.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During 1996, the Board of Directors held five formal meetings. The Board
has an Audit Committee and a Compensation Committee. The Audit Committee, which
held three formal meetings during 1996, reviews the Company's internal controls
and handles matters relating to the Company's independent auditors. The
Compensation Committee, which held one meeting during 1996, considers and
determines compensation issues involving the Company's executive officers and
oversees the compensation of other employees of the Company. The Compensation
Committee also administers the Company's Amended and Restated 1991 Stock Option
Plan, the 1993 Executive Stock Option Plan and the Employee Stock Purchase Plan.
Messrs. Weisberg and Ridings are currently the members of the Compensation
Committee, the Stock Option Committee and the Audit Committee. During 1996, the
Board established a Nominating Committee to assist the Board in finding
qualified individuals to serve as directors. The Nominating Committee will
review background information on candidates, make recommendations to the Board
regarding such candidates and review and make recommendations to the Board for
any candidates that may be proposed by stockholders. Messrs. Weisberg and
Ridings are members of the Nominating Committee.
All incumbent directors attended more than 75% of the aggregate of the
total number of meetings of the Board of Directors and meetings held by all
committees of the Board of Directors on which they served.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company or its
subsidiaries receives $1,500 for each meeting of the Board he attends. In
addition, under the Company's 1995 Stock Option Plan for Non-Employee Directors,
each non-employee director receives an option to purchase 5,000 shares of Common
Stock upon election to the Board and an annual grant of an option to purchase
3,000 shares of Common Stock on the day following the Company's Annual Meeting
of Stockholders (or on June 30 if the Annual Meeting has not been held by such
date). The exercise price for options granted under such Plan is the fair market
5
<PAGE> 8
value of a share of Common Stock on date of grant. Such options generally become
exercisable eleven months after the date of grant and terminate five years from
the date of grant.
APPROVAL OF AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
(ITEM 2 ON PROXY CARD)
At the 1995 annual meeting, the Company's stockholders approved the
Submicron Systems Corporation 1994 Employee Stock Purchase Plan (the "Stock
Purchase Plan"). The Stock Purchase Plan was adopted to provide employees of the
Company and its subsidiaries with a method of acquiring an equity interest in
the Company through the purchase of shares of Common Stock, at discounted
prices, using payroll deductions. As initially approved, the Stock Purchase Plan
provided for the issuance of up to 300,000 shares of Common Stock. As of the end
of 1996, 83,613 shares remained available for issuance for the Stock Purchase
Plan. Accordingly, the Board has approved and recommended that the Company's
shareholders approve an amendment to the Stock Purchase Plan to increase the
aggregate maximum number of shares subject to the Stock Purchase Plan from
300,000 to 500,000 shares. Although the Stock Purchase Plan is an "employee
stock purchase plan" within the meaning of Section 423 of the Internal Revenue
Code of 1986 (the "Code"), the Stock Purchase Plan is not a "qualified deferred
compensation plan" under Section 401(a) of the Code and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA").
The material features of the Stock Purchase Plan are as follows:
- NUMBER OF SHARES. The aggregate maximum number of shares reserved for
issuance under the Stock Purchase Plan will be increased to 500,000 shares if
the amendment is approved, subject to adjustment upon the occurrence of stock
dividends, stock splits, recapitalization or certain other capital adjustments
that change the number of outstanding shares of Common Stock.
- ADMINISTRATION AND OPERATION. The Stock Purchase Plan is administered by
the Compensation Committee. No member of the Board who is eligible to
participate in the Stock Purchase Plan may be a member of that Committee. All
questions of interpretation or application of the Stock Purchase Plan are
determined by the Board of Directors, whose decisions are final and binding upon
all participants.
The Stock Purchase Plan has overlapping two-year offering periods that
begin each January 1 and July 1. Each offering period includes four six-month
purchase periods. Purchases under the Stock Purchase Plan are made each June 30
and December 31 at a purchase price per share of Common Stock equal to 85% of
the fair market value of a share of Common Stock on either the first day of the
applicable offering period or on the day of purchase, whichever is lower. In the
event the fair market value is lower on the date of purchase, the applicable
offering period will terminate on such purchase date, and a new offering period
will commence on the next day (January 1 or July 1, as the case may be). The
fair market value of the Common Stock is determined in relation to market price
in accordance with certain procedures set forth in the Stock Purchase Plan. No
fractional shares will be purchased, and any remaining cash will automatically
stay in the employee's account until the next purchase date (unless the employee
withdraws from the Stock Purchase Plan, in which case the cash will be returned
to the employee).
An eligible employee may authorize payroll deductions from 1% to 10% of
such employee's compensation (subject to a lower limit as may be established by
the Stock Purchase Plan Committee). At the end of each six-month purchase
period, the deductions are applied to the purchase of Common Stock.
All funds received are held by the Company under the Stock Purchase Plan,
are general assets of the Company, free of any trust or other restriction, and
may be used for any corporate purpose. No interest on such funds will be
credited to or paid to any participant under the Stock Purchase Plan.
- ELIGIBILITY. Any regular employee of the Company and its participating
subsidiaries whose customary employment is at least 20 hours per week and more
than five months per year is eligible to participate in the Stock Purchase Plan,
beginning with the first offering period following the six-month anniversary of
such employee's date of hire. As of May 31, 1997, approximately 600 employees
would have been eligible to participate in the Stock Purchase Plan.
6
<PAGE> 9
- LIMITATIONS ON PARTICIPATION AND AMOUNT PURCHASED. No employee may
participate in the Stock Purchase Plan to the extent that such employee would be
entitled to purchase more than $25,000 in fair market value of Common Stock
under all employee stock purchase plans of the Company in any calendar year. The
maximum number of shares any participant may purchase during any six-month
purchase period is determined by dividing $12,500 by the fair market value of a
share of Common Stock on the first day of the purchase period. In addition, no
employee may participate in the Stock Purchase Plan to the extent that such
employee would own stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company, after giving effect to
such purchase.
- PAYMENT. An employee pays for the shares purchased under the Stock
Purchase Plan by making contributions through payroll deductions of up to 10%
(or such lower percentage as may be set by the Board of Directors or the Stock
Purchase Plan Committee), but not less than 1% of an employee's compensation,
subject to the limits described above. Employees may not make cash contributions
to the Stock Purchase Plan in addition to their payroll deductions. The employee
must be employed on the purchase date to purchase shares of Common Stock, and if
employment terminates for any reason, including retirement or death, the
employee will be withdrawn from the Stock Purchase Plan immediately and the
payroll deductions credited to the employee's account will be returned to the
employee, without interest.
- INCREASING AND DECREASING DEDUCTIONS; WITHDRAWAL; RESTRICTION ON
TRANSFERABILITY. An employee may decrease, but not increase, the rate of
payroll deductions at any time during an offering period by submitting a new
subscription agreement. The employee may increase the rate of payroll deductions
for upcoming offering periods only during the two-week period before the start
of a new purchase period. The number of times the employee may change such
deductions may be limited, however, by the Board of Directors or the Stock
Purchase Plan Committee. An employee may withdraw from the Stock Purchase Plan
at any time by completing a notice of withdrawal and submitting it to the
Company prior to the end of a purchase period. The employee's rights to purchase
shares under the Stock Purchase Plan are not transferable.
- TREATMENT OF SHARES PURCHASED. The shares purchased by an employee under
the Stock Purchase Plan will be held in an investment account, with the employee
having the right at any time to withdraw all or any portion of the shares
credited to the employee's account by giving written notice to the Company. If,
however, the shares remain in the employee's investment account, any cash
dividends paid with respect to the shares will be retained and used to purchase
additional shares under the Stock Purchase Plan, subject to the provisions and
limitations of the Stock Purchase Plan.
- AMENDMENTS TO AND TERMINATION OF THE PLAN. Subject to the provisions of
the Stock Purchase Plan, the Board of Directors may amend or terminate the Stock
Purchase Plan, except that certain amendments, such as increasing the number of
shares subject to the Stock Purchase Plan, require approval of the Company's
stockholders. Unless earlier terminated, the Stock Purchase Plan will continue
in effect until December 31, 2004.
- FEDERAL INCOME TAX ASPECTS. The ability of employees to purchase stock
under a stock purchase plan is treated as a type of stock option right, where
the option is viewed as granted at the beginning of an offering period, and
where the exercise of the option occurs on the date the stock is purchased under
the terms of the Stock Purchase Plan. The federal income tax consequences of the
grant and exercise of stock options under an employee stock purchase plan (as
defined in Section 423 of the Code) and the subsequent disposition of shares
acquired under such options are summarized below.
The employee is not taxed at the time of the grant of stock options or when
shares are purchased pursuant to the exercise of the options under the Stock
Purchase Plan.
Upon the sale of shares acquired under the Stock Purchase Plan, any gain up
to the 15% discount on the purchase price is taxable as ordinary compensation
income, and any further gain will be taxable as a long-term capital gain and any
loss will be treated as a long-term capital loss, provided that such shares are
not sold within two years of the beginning of the offering period during which
the shares were purchased nor within one year from the date such shares were
purchased.
7
<PAGE> 10
If the holding period requirements for such shares are not satisfied, the
difference between the price paid by the employee and the market value of the
shares on the date of purchase is taxable as ordinary income in the year of the
disposition and the difference between the amount received by the employee on
the disposition of the shares and the market value of the shares as the date of
purchase is treated as a capital gain or loss (long-term capital gain or loss if
the shares have been held more than one year).
In addition, if the holding period requirements are not met, the Company
will be entitled to a tax deduction equal to the difference between the price
paid by the employee and the market value of the shares at the date of purchase.
If the holding period requirements are met, the Company will not be entitled to
such a deduction.
- STOCK PURCHASE PLAN BENEFITS. The proposed amendment would not change
the benefits available under the Stock Purchase Plan as now in effect. The
number of shares of Common Stock which would be purchased during the Company's
1997 fiscal year is not determinable because purchase prices will not be set
until the end of each offering period and the level of participation may
fluctuate during the course of the year. Two of the Named Executives, Messrs.
Levy and Molinaro, are not eligible to participate in the Stock Purchase Plan
because they each own shares of Common Stock representing more than 5% of the
voting power of the Common Stock.
During 1996, the other two Named Executives, Messrs. Holmes and Hajjar,
participated in the Stock Purchase Plan and purchased 822 and 3,949 shares of
Common Stock, respectively, with an aggregate dollar difference between the
purchase price and the Fair Market Value of the shares ("Aggregate Dollar
Difference") of $2.13 for each share purchased. The Company has no executive
officers other than the Named Executives. Nonexecutive officer employees
(approximately 250 persons) purchased 140,959 shares of Common Stock having an
Aggregate Dollar Difference of $1.64 for each share purchased. Nonemployee
directors are not entitled to participate in the Stock Purchase Plan.
The affirmative vote of a majority of the votes cast at the meeting in
person or by proxy is required to approve the amendment. THE BOARD OF DIRECTORS
RECOMMENDS VOTING "FOR" APPROVAL OF THE AMENDMENT TO THE STOCK PURCHASE PLAN.
APPROVAL OF AMENDMENTS TO THE COMPANY'S 1991 AMENDED
AND RESTATED STOCK OPTION PLAN
(ITEM 3 ON PROXY CARD)
The Company's 1991 Amended and Restated Stock Option Plan (the "Stock
Option Plan") was adopted to recognize the contributions made to the Company and
its affiliates by their respective employees, directors, consultants and
advisors, to provide those individuals with additional incentive to devote
themselves to the future success of the Company and to improve the ability of
the Company to attract, retain and motivate individuals upon whom the sustained
growth and financial success of the Company depends. The Stock Option Plan
provides for the grant of options ("Options") to purchase shares of Common
Stock. At the 1995 annual meeting, the stockholders approved certain amendments
to the Stock Option Plan including an increase in the aggregate maximum number
of shares of Common Stock for which Options may be granted to 1,500,000 shares.
As of May 30, 1997, there were no further shares available for grant pursuant to
the Stock Option Plan. Accordingly, the Board of Directors has approved and
recommends that the Company's stockholders approve an amendment to the Stock
Option Plan to increase the aggregate maximum number of shares of Common Stock
for which Options may be granted from 1,500,000 to 4,000,000 shares which, if
the amendments are approved, will include an option to purchase 1,000,000 shares
as described below. The closing sale price for a share of Common Stock on June
18, 1997 was $2 7/16 as reported by the Nasdaq National Market.
The proposed amendments to the Stock Option Plan also increase the
aggregate maximum number of shares of Common Stock for which Options may be
granted to any participant in any fiscal year (the "Individual Limit") from
500,000 shares to 1,000,000 shares. The Individual Limit is designed to address
8
<PAGE> 11
provisions in the Code which provide that publicly-held corporations may not
generally deduct compensation for the Chief Executive Officer and certain other
executive officers to the extent that such compensation exceeds $1,000,000 in a
fiscal year for any of such executives (the "Million Dollar Cap"). Compensation
which is "performance based," however, is not counted as part of the Million
Dollar Cap. In connection with the employment of David Ferran as the Company's
new President and Chief Executive Officer, the Board of Directors granted Mr.
Ferran an option to purchase 1,000,000 shares of Common Stock at the fair market
value of the Common Stock on the date of grant. The proposed increase in the
Individual Limit, if approved by the Stockholders, is intended to permit income
attributable to such Options to be treated as "performance-based" compensation
and, therefore, exempt from the Million Dollar Cap. In the event the amendments
are not approved by the stockholders, Mr. Ferran's option will be outside of the
Stock Option Plan and subject to the Million Dollar Cap.
Grants under the Plan currently may be transferred, other than by will or
the laws of descent and distribution, only pursuant to a "qualified domestic
relations order" within the meaning of the Code and the Employee Retirement
Income Security Act of 1974 ("ERISA"). If the amendments are approved, option
grants may also permit the transfer of Options to the optionee's spouse,
children or grandchildren or to a trust created solely for the benefit of the
optionee and the foregoing persons.
The key provisions of the Stock Option Plan, as proposed to be amended, are
as follows:
- NUMBER OF SHARES. The aggregate maximum number of shares that may be
issued under the Stock Option Plan will be increased to 4,000,000 if the
amendment is approved, subject to adjustment upon the occurrence of a stock
dividend, stock split, recapitalization or certain other capital adjustments. If
any shares subject to any Option are forfeited, or an Option is terminated
without issuance of shares, the shares subject to such Option will again be
available for grant pursuant to the Stock Option Plan.
- ADMINISTRATION. The Stock Option Plan is administered by a committee
(the "Committee") designated by the Board of Directors; provided, however, the
Board may designate two committees to administer the Stock Option Plan, one of
such committees to administer the Plan with respect to each person who is an
officer of the Company or an affiliate within the meaning of the rules
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") and
the other committee to be comprised of directors (which may include directors
who are also employees of the Company) to administer the Plan with respect to
all other persons.
- ELIGIBILITY. All employees and directors of the Company and its
subsidiaries and consultants and advisors to the Company and its subsidiaries
are eligible to receive Options. As of May 31, 1997, there were approximately
640 eligible employees. Consultants and advisors must have rendered bona fide
services, and such services must not be in connection with a capital raising
transaction.
- TERM OF STOCK OPTION PLAN. No Options may be granted under the Stock
Option Plan after June 9, 2001.
- OPTIONS. Options granted under the Stock Option Plan may be either
incentive stock options ("ISOs") or non-qualified stock options. ISOs are
intended to qualify as "incentive stock options" within the meaning of Section
422 of the Code. Unless an Option is specifically designated at the time of
grant as an ISO, the Option will be non-qualified. Options are not transferable
by the optionee except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order. If the amendments are
approved, Options to purchase more than 1,000,000 shares (rather than 500,000
shares) may not be issued to any participant in any fiscal year.
- EXERCISE PRICE. The exercise price of Options will be determined by the
Committee, provided that the exercise price of an ISO will be at least 100% of
the fair market value of a share of Common Stock on the date the Option is
granted, or at least 110% of the fair market value of a share of Common Stock on
the date an ISO is granted if the recipient owns, directly or by attribution
under Section 424(d) of the Code, shares possessing more than 10% of the total
combined voting of all classes of stock of the Company. The term of each Option
is fixed by the Committee. The aggregate fair market value, determined as of the
time of grant, of the shares of Common Stock with respect to which an ISO is
exercisable for the first time by the recipient
9
<PAGE> 12
during any calendar year (under all incentive stock option plans of the Company
or an affiliate) may not exceed $100,000.
- TERMINATION OF OPTIONS. All Options terminate on the earliest of: (a)
the expiration of the term specified in the Option, which may not exceed ten
years from the date of grant; (b) the expiration of three months from the date
an optionee's employment or service with the Company or its subsidiaries
terminates for any reason other than disability, death or as set forth in
clauses (d) and (e) below; (c) the expiration of one year from the date an
optionee's employment or service with the Company or its subsidiaries terminates
by reason of disability or death; (d) the date on which a determination is made
by the Committee that the optionee has breached his or her employment or service
contract with the Company or its subsidiaries, has been engaged in any sort of
disloyalty to the Company or its subsidiaries or has disclosed trade secrets or
confidential information of the Company or its subsidiaries; or (e) the date set
by the Committee to be an accelerated expiration date in the event of a Change
of Control (as defined below). The Committee, in its discretion, may provide for
additional limitations on the terms of any Option.
- TRANSFERS. No Option granted under the Stock Option Plan may be
transferred, except by will or the laws of descent and distribution, other than
pursuant to a "qualified domestic relations order," within the meaning of the
Code and ERISA. In addition, if the amendments are approved, option grants may
permit the transfer of an Option to the optionee's spouse, children or
grandchildren or a trust created solely for the benefit of the optionee and the
foregoing persons.
- PAYMENT. An optionee may pay for shares covered by an Option in cash,
certified check, payment through a broker in accordance with Regulation T of the
Federal Reserve Board or by such other mode of payment as the Committee may
approve, including payment in whole or in part in shares of Common Stock held by
the optionee for at least six months.
- PROVISIONS RELATING TO A CHANGE OF CONTROL. Upon the occurrence of a
Change of Control, all Options become immediately exercisable, and the Committee
may take whatever action with respect to Options outstanding as it deems
necessary or desirable, including acceleration of the expiration or termination
date of the date of the Options.
A Change of Control will occur upon requisite approval by stockholders (or,
if such approval is not required, by the Company's Board of Directors) of a plan
of liquidation or dissolution or the sale of substantially all of the assets of
the Company. Subject to certain exceptions, a Change of Control will also occur
upon requisite approval by the Company's and the other constituent corporation's
stockholders (or, if such approval is not required, by the Company's Board of
Directors) of the merger or consolidation of the Company with or into such other
constituent corporation. In addition, a Change of Control will occur if certain
entities, persons or groups specified in the Stock Option Plan have become
beneficial owners of or have obtained voting control over more than 30% of the
outstanding shares of Common Stock or the first date upon which a majority of
the Company's Board of Directors consists of persons who have been members of
the Board of Directors for less than two years, unless the nomination for
election of each new director who was not a director at the beginning of such
period was approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of such period.
- AMENDMENTS. The Board of Directors may amend the Stock Option Plan from
time to time in such manner as it may deem advisable. Nevertheless, the Board of
Directors may not, without obtaining stockholder approval within 12 months
before or after such action, change the class of individuals eligible to receive
an ISO or increase the maximum number of shares for which Options may be granted
or make any other change or amendment as to which stockholder approval is
required in order to satisfy the conditions set forth in the rules promulgated
under the Exchange Act.
- FEDERAL INCOME TAX CONSEQUENCES. The following discussion is a summary
of certain federal income tax consequences of the issuance of Options and the
acquisition of shares of Common Stock by exercising Options under the Stock
Option Plan and does not present a complete analysis of all federal tax
consequences which may be relevant to any particular recipient. It also does not
purport to discuss state or local income tax laws.
10
<PAGE> 13
A recipient of an ISO will not recognize taxable income upon either the
grant or exercise of an ISO. The optionee will recognize long-term capital gain
or loss on a disposition of the shares acquired upon exercise of an ISO,
provided the optionee does not dispose of those shares within two years from the
date the ISO was granted or within one year after the shares were transferred to
such optionee. Currently, for regular federal income tax purposes, long-term
capital gain is taxed at a maximum rate of 28%, while ordinary income may be
subject to a maximum rate of 39.6%. If the optionee satisfies both of the
foregoing holding periods, the Company will not be allowed a deduction by reason
of the grant or exercise of an ISO.
As a general rule, if the optionee disposes of the shares before satisfying
both holding period requirements (a "disqualifying disposition"), the gain
recognized by the optionee on the disqualifying disposition will be taxed as
ordinary income to the extent of the difference between (a) the lesser of the
fair market value of the shares on the date of exercise or the amount received
for the shares in the disqualifying disposition, and (b) the adjusted basis of
the shares, and the Company will be entitled to a deduction in that amount. The
gain (if any) in excess of the amount recognized as ordinary income on a
disqualifying disposition will be long-term or short-term capital gain,
depending on the length of time the optionee held the shares prior to the
disposition.
The amount by which the fair market value of a share at the time of
exercise exceeds the option price will be included in the computation of such
optionee's "alternative minimum taxable income" in the year the optionee
exercises the ISO. Currently, the alternative minimum tax is imposed at the rate
of 26% or 28%. If an optionee pays alternative minimum tax with respect to the
exercise of an ISO, the amount of such tax paid will be allowed as a credit
against regular tax liability in subsequent years.
A recipient of a non-qualified stock option will not recognize taxable
income at the time of grant, and the Company will not be allowed a deduction by
reason of the grant. Such an optionee will recognize ordinary income in the year
in which the non-qualified stock option is exercised, in an amount equal to the
excess of the fair market value of the shares at the time of exercise over the
exercise price of the Option, and the Company will be allowed a deduction in
that amount. Upon disposition of the shares, an optionee will recognize long-
term or short-term capital gain or loss, depending upon the length of time the
shares were held prior to disposition, equal to the difference between the
amount realized on disposition and the optionee's basis in the shares (which
basis ordinarily is the fair market value of the shares on the date the Option
was exercised).
- STOCK OPTION PLAN BENEFITS. The Stock Option Plan as proposed to be
amended would not change the benefits available under the Stock Option Plan as
now in effect. The number of Options which may be granted for 1997 under the
Stock Option Plan is at the discretion of the Committee and not determinable.
For 1996, information regarding the grants of Options to the Named Executives is
set forth under the caption "Executive Compensation -- Stock Option Grants." The
Named Executives are the only executive officers of the Company. Nonemployee
directors received no Options under the Stock Option Plan during 1996, and 133
nonexecutive officer employees of the Company received Options to purchase an
aggregate of approximately 890,000 shares of Common Stock at prices ranging from
$5.00 to $11.25.
The affirmative vote of a majority of the votes cast at the meeting in
person or by proxy is required to approve the amendment. THE BOARD OF DIRECTORS
RECOMMENDS VOTING "FOR" APPROVAL OF THE AMENDMENT TO THE STOCK OPTION PLAN.
AMENDMENT OF CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF PREFERRED STOCK
(ITEM 4 ON PROXY CARD)
Article FOURTH of the Company's Certificate of Incorporation, as amended,
currently fixes the authorized capital of the Company at 100,000,000 shares of
Common Stock and 5,000 shares of Preferred Stock. The authorized Preferred Stock
is "blank check" Preferred Stock which, subject to applicable law and any stock
exchange or Nasdaq requirements, may be issued with such designations, rights
and preferences as may be determined from time to time by the Company's Board of
Directors, without further stockholder
11
<PAGE> 14
approval. The Board of Directors believes that such blank check Preferred Stock
is a common feature of many public companies and provides flexibility in efforts
to raise additional capital and other corporate purposes. Of the currently
authorized 5,000 shares of Preferred Stock, as of April 30, there were issued
and outstanding 1,302.85 shares of Series A Preferred Stock, and there remained
available for issuance 3,697.15 shares of Preferred Stock, with such
designations, preferences and rights as the Board of Directors may determine
from time to time.
If the amendment is approved by the stockholders, the first paragraph of
Article FOURTH would be amended to read as follows:
FOURTH (a) The Corporation shall be authorized to issue the following
shares:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES PAR VALUE
-------------------------------------------------- ---------------- ---------
<S> <C> <C>
COMMON............................................ 100,000,000 .0001
PREFERRED......................................... 1,000,000 .01
</TABLE>
While the Company does not have any commitments or understanding at this
time for the issuance of any additional shares of Preferred Stock, the Board
believes that it is desirable to have the additional shares available for
possible future use for financing, acquisitions or other purposes not now
foreseeable. The authorization of additional shares of Preferred Stock would
not, by itself, have any effect on the rights of the holders of the outstanding
Common Stock or Series A Preferred Stock. The issuance of additional shares
authorized by the amendment may, among other things, have a dilutive effect on
earnings per share and on the equity and voting power of those holding shares of
the Company's stock at the time of issuance. In addition, the increase in
authorized shares could, under certain circumstances, have an anti-takeover
effect by, for example, allowing issuance of shares that would dilute the stock
ownership of a person seeking to effect a change in the composition of the Board
or contemplating a tender offer or other transaction for the combination of the
Company with another company. However, this proposal is not being made in
response to any effort of which the Company is aware to accumulate the Common
Stock or obtain control of the Company.
The affirmative vote of a majority of all votes eligible to be cast at the
meeting is required for approval of the amendment. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION.
PROPOSAL TO APPROVE THE CONVERTIBILITY FEATURE
OF THE COMPANY'S 8% SUBORDINATED CONVERTIBLE NOTES
DUE MARCH 26, 2002
(ITEM 5 ON PROXY CARD)
Effective March 26, 1997, in a negotiated transaction, the Company issued
and sold $8,692,028 principal amount of its 8% Convertible Subordinated Notes
due March 26, 2002 (the "Notes") and 1,302.85 shares of its Series A Convertible
Non-Redeemable Preferred Stock (the "Preferred Stock"), in retirement of
$18,350,000 principal amount of the Company's 9% Convertible Subordinated Notes
due December 1997 (the "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 Notes); reduced the non-cash
amortization charges related to the discount on the 9% Notes and deferred debt
issuance costs; and substantially reduced the short-term indebtedness of the
Company.
The Preferred Stock is convertible on a 2,000-for-1 basis into 2,605,700
shares of Common Stock (an equivalent of $3.70 per share of Common Stock at the
time of issuance, a premium to the fair market value of the Common Stock at such
time). Until converted, the Preferred Stock is entitled to vote with the Common
Stock and is entitled to one vote for each share of Common Stock into which such
share or fraction of a share of Preferred Stock is convertible.
12
<PAGE> 15
The Notes are not currently convertible. By their terms, the Notes will
become convertible into Common Stock only at such time as the Company's
stockholders approve their convertibility. If approved, the Notes will be
convertible at $3.70 per share into approximately 2,349,000 shares of Common
Stock (which conversion price also represented a premium to the fair market
value of the Common Stock at the time of the issuance of the Notes). The
conversion price of the Notes is subject to certain standard adjustments, such
as upon changes in capitalization and, on a weighted average basis, certain
issuances below the then applicable conversion price. In addition, the
conversion price of the Notes will be adjusted in March 1999, if the fair market
value of the Common Stock at such time is below the then applicable conversion
price, to the greater of the then fair market value of a share of Common Stock
and $2.50.
The Common Stock is listed on the NASDAQ National Market, and as such is
subject to the rules and regulations of the National Association of Securities
Dealers, Inc. (the "NASD") applicable to the Nasdaq National Market. The NASD
has a rule for Nasdaq National Market companies requiring stockholder approval
for the sale by the Company of shares of Common Stock (or securities convertible
into or exercisable for Common Stock) equal to 20% or more of the voting power
of all shares of the Company if the sale price is less than the greater of the
book value or market value of the stock. Since the aggregate number of shares
underlying the Notes together with the Common Stock underlying the Preferred
Stock exceeds 20% of the approximately 17 million shares of Common Stock
outstanding at the time of issuance of the securities, and the conversion price
of the Notes, when adjusted in 1999, could be less then the fair market value of
the Common Stock on the date of issuance (but not less than the fair market
value at the time of such adjustment), the Board of Directors believes it is
necessary and desirable for the Company at this meeting to obtain stockholder
approval to the convertibility feature of the Notes.
If the stockholders approve this proposal, the Notes will be become
convertible at any time thereafter into Common Stock at the then applicable
conversion price, and the Company has agreed to cause such Common Stock to be
saleable in the open market, subject to certain limitations. Therefore, if the
convertibility feature of the Notes is approved, the issuance of the Common
Stock underlying the Notes upon any conversion could under certain circumstances
have adverse effects on existing stockholders, including the following: (i)
substantial dilution to the equity and voting power of current stockholders; and
(ii) an adverse effect on the market price of the Common Stock if large blocks
of Common Stock underlying the Notes and Preferred Stock are sold in the open
market.
If the stockholders of the Company do not approve the convertibility
feature of the Notes on or before January 31, 1998, there will be an Event of
Default under the terms of the Notes, and the holders of the Notes shall have
the right to cause the then outstanding principal balance plus accrued interest
to become immediately due and payable, subject to the subordination rights in
favor of the Company's principal lending institutions, and the interest rate
will increase from 8% to 10%. The Board of Directors believes that such
consequence could have a material adverse effect on the Company and therefore
believes it is in the best interests of the Company and its stockholders for the
stockholders to approve the convertibility feature of the Notes. In addition, if
the convertibility feature of the Notes is approved, any Notes so converted will
reduce the Company's indebtedness and interest expense.
The affirmative vote of the majority of the votes cast in the meeting in
person or by proxy is required to approve the above proposal. THE BOARD OF
DIRECTORS RECOMMENDS VOTING "FOR" APPROVAL OF THE CONVERTIBILITY FEATURE OF THE
NOTES.
RATIFICATION OF THE APPOINTMENT
OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 6 ON PROXY CARD)
As previously reported, on December 18, 1996, the Company and Arthur
Andersen LLP ("Andersen"), its previous independent public accountant, mutually
agreed to terminate their relationship. Andersen audited the Company's financial
statements for fiscal 1994 and 1995. The report of Andersen on the Company's
consolidated financial statements for fiscal 1994 and 1995 did not contain an
adverse opinion or a disclaimer of
13
<PAGE> 16
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting. The mutual decision of the Company and Andersen to terminate the
relationship with Andersen as the Company's independent public accountants was
approved by the Audit Committee of the Company's Board of Directors and
unanimously approved by the Board of Directors.
During the audit of the 1995 consolidated financial statements of the
Company, there was a matter of discussion and disagreement which, if not
resolved to the satisfaction of Andersen, would have caused it to make reference
to the subject matter in its report. Such matter concerned the recognition of
revenue on certain "bill and hold" transactions with customers, including the
original reporting of certain revenues in the 1995 third quarter. This matter
was resolved to the satisfaction of Andersen and the 1995 third quarter
financial statements were restated for this matter. Management of the Company,
including the Chairman and Chief Executive Officer and the Chief Financial
Officer, discussed this matter with Andersen. The Audit Committee of the Board
of Directors also discussed this matter with Andersen. The Company has
authorized Andersen to respond fully to the inquiries of any successor
accountant concerning the subject matter of its disagreement with Andersen.
On December 18, 1996, the Company determined to engage Ernst & Young LLP
("Ernst & Young") as its new independent accountant to audit its consolidated
financial statements for fiscal 1996. Prior to determining to engage Ernst &
Young, the Company had not consulted Ernst & Young on any accounting matters
during the two most recent fiscal years or any subsequent interim period.
Subject to stockholder ratification, the Board of Directors, upon
recommendation of the Audit Committee, has reappointed Ernst & Young LLP to
serve as the Company's independent public accountants for the current fiscal
year. If the stockholders do not ratify this appointment by the affirmative vote
of a majority of the votes cast at the meeting, other independent public
accountants will be considered by the Board upon recommendation of the Audit
Committee.
A representative of Ernst & Young LLP is expected to be present at the
meeting. Such representative will have the opportunity to make a statement if he
desires to do so and will be available to respond to appropriate questions.
The affirmative vote of a majority of votes cast at the meeting in person
or by proxy is required to ratify the appointment of Ernest & Young LLP. THE
BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG.
14
<PAGE> 17
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 1994, 1995 and
1996 to David F. Levy, the Company's Chief Executive Officer during 1996, and to
each of the Company's three other executive officers during 1996 (collectively,
the "Named Executives"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION
------------------------------------ AWARDS
OTHER ANNUAL ------------ ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION DURING 1996 YEAR ($) ($) ($)(1) (#) ($)
- - ------------------------------- ------ ------- ------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David F. Levy,................. 1996 360,000 34,000 47,617(2) 73,000 --
Chairman of the Board, 1995 340,000 46,320 -- 55,000 --
President and Chief Executive 1994 300,000 -- -- -- --
Officer
R. G. Holmes,.................. 1996 150,000 -- 23,894(2) 20,000 --
Chief Financial Officer and 1995 75,000(3) -- -- 20,000 --
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 $23,894 for Messrs. Levy
and Holmes, respectively.
(3) Mr. Holmes joined the Company in June 1995.
15
<PAGE> 18
STOCK OPTION GRANTS
The following table contains information concerning grants of stock options
under the Stock Option Plan to the Chief Executive Officer and to each of the
other Named Executives during 1996. The Company does not have any plan pursuant
to which stock appreciation rights ("SARs") may be granted.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#)(2) 1996 ($/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 8.500 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 8.500 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.
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
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 VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES VALUE DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996 ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($) 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 has entered into an employment agreement with the Company
which initially provided for a base salary of $265,200, which base salary may be
increased or decreased from time to time in the sole discretion of the Company's
Board. In no event, however, may such base salary be less than $240,000 per
annum. For fiscal 1996, the 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
16
<PAGE> 19
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 stepped down as President and Chief Executive
Officer of the Company. In connection therewith, in lieu of his previous
employment agreement (which was substantially similar to Mr. Molinaro's
agreement), Mr. Levy is entering into a new agreement which will generally
provide for Mr. Levy to be paid specified amounts until June 2000.
David J. Ferran has entered into an Employment Agreement with the Company
which provides for him to earn a base salary of $333,333, which base salary may
be increased or decreased from time to time, but not to less than $333,333. The
Employment Agreement has no specific termination; provided, 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 shall 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 shall be entitled to the amount set forth
above plus certain additional amounts.
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Common Stock during the five-year period ended
December 31, 1996, the cumulative total return on the CRSP Total Return Index
for The Nasdaq National Market (US Companies) and the H&Q Technology Index
during such period. The comparison assumes $100 was invested at the beginning of
such period in Common Stock and in each of the foregoing indices and assumes the
reinvestment of any dividends. Prior to the Merger on August 31, 1993, the
Common Stock was traded in the over-the-counter market on the Nasdaq Small-Cap
System under the symbol TICO. Since September 1, 1993, the Common Stock has been
traded under the symbol SUBM. From September 1, 1993 to December 20, 1993, the
Common Stock was traded on the Nasdaq Small-Cap System, and since December 21,
1993, the Common Stock has been included in the Nasdaq National Market.
17
<PAGE> 20
<TABLE>
<CAPTION>
Measurement Period Nasdaq Stock
(Fiscal Year Covered) Market-U.S. H&Q Technology SubMicron Systems
<S> <C> <C> <C>
Dec-91 100.00 100.00 100.00
105.85 105.85 157.33
108.25 110.31 212.20
Mar-92 103.14 103.33 193.91
98.71 100.92 176.84
100.00 100.84 136.59
Jun-92 96.09 94.77 108.55
99.49 99.18 97.56
96.45 95.31 104.88
Sep-92 100.03 98.81 112.20
103.97 103.92 117.07
112.25 110.71 95.12
Dec-92 116.38 115.02 90.24
119.69 119.89 142.69
115.23 112.12 121.95
Mar-93 118.56 113.35 121.95
113.50 106.93 123.18
120.28 116.59 119.51
Jun-93 120.84 115.78 131.71
120.98 109.90 152.45
127.23 115.75 156.10
Sep-93 131.02 117.84 180.49
133.97 121.08 153.66
129.97 122.63 114.63
Dec-93 133.59 125.52 110.99
137.65 132.92 137.81
136.36 134.47 131.71
Mar-94 127.98 126.66 134.15
126.32 124.13 87.80
126.62 124.88 87.80
Jun-94 121.99 117.47 82.93
124.49 121.92 90.24
132.43 134.13 101.23
Sep-94 132.09 134.02 113.42
134.69 143.50 118.30
130.22 142.48 102.44
Dec-94 130.59 145.70 96.35
131.32 145.03 82.93
138.26 155.91 107.32
Mar-95 142.36 162.16 134.15
146.84 172.46 163.41
150.63 177.57 204.88
Jun-95 162.83 196.72 214.63
174.80 213.77 170.73
178.35 217.82 229.27
Sep-95 182.45 224.02 234.15
181.40 226.90 214.63
185.66 225.62 195.12
Dec-95 184.67 218.76 182.93
185.59 223.62 187.80
192.66 232.15 200.00
Mar-96 193.30 223.13 168.29
209.33 247.47 192.68
218.95 250.91 202.44
Jun-96 209.08 233.37 170.73
190.46 211.18 112.20
201.13 223.70 124.39
Sep-96 216.52 248.50 102.44
214.15 244.27 80.49
227.42 268.36 91.47
Dec-96 227.16 262.49 80.49
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee"),
consisting entirely of nonemployee directors, approves all general policies
under which compensation is paid. The Committee determines the compensation of
the Company's Chief Executive Officer, as well as the Company's other executive
officers. During 1996, the Committee delegated to David F. Levy, the Company's
Chief Executive Officer in 1996, responsibility for making recommendations to
the Committee with respect to compensation for the Company's nonexecutive
officers. The Committee has final approval, however, for compensation of all of
the Company's officers. The Committee also administers the Stock Option Plan,
the Stock Purchase Plan and the Executive Stock Option Plan.
During 1995, the Committee retained Watson Wyatt, an executive compensation
consulting firm, to review the Company's executive compensation practices. Wyatt
reviewed the compensation practices of a group of companies whose products and
revenues are generally comparable to those of the Company. In addition, the
Committee reviewed a comprehensive study of executive compensation in
high-technology companies. Based on input from these two sources, the Company
concluded that the base salary of the Company's Chief Executive Officer was on
the high side and should increase at a lower rate than the averages for
comparable positions in similar companies. The Committee also concluded that the
annual incentives and stock option awards were lower than average and should be
increased, with the incentives based on the Company's performance.
For 1996, the Company increased the base salary of Mr. Levy by
approximately 6% to $360,000, substantially lower than previous percentage
increases. As in 1995, the Committee established cash bonus incentives related
to revenue growth, gross profit and earnings per share. Total incentives that
could have been earned for 1996 were 100% of Mr. Levy's base salary, with up to
20% based on revenue, and up to 40% based on each of gross profits and earnings
per share. The purpose of the latter two components, totalling a possible 80% of
base salary, was to focus attention on the profitable performance of the
Company. Based on the Company's performance for 1996, Mr. Levy did not receive
any cash bonus with respect to 1996. The Committee also provided Mr. Levy an
incentive for acquisitions during 1996, pursuant to which Mr. Levy received a
grant of options to purchase 23,000 shares of Common Stock as a result of the
Company's acquisition of Imtec Acculine, Inc.
18
<PAGE> 21
As stated above, the Committee also believes that the Company's grant of
stock options had been below average and, consistent with the Committee's
philosophy of providing incentive-based compensation, the Company granted
options to purchase an aggregate of 120,000 shares of Common Stock to the Named
Executives (excluding acquisition-related option grants), including options to
purchase 50,000 shares of Common Stock to Mr. Levy (in addition to the
acquisition related options.) One other Named Executive also received an option
related to the acquisition of Imtec.
The base salaries for the other Named Executives did not increase during
1996 and, similar to Mr. Levy, each of the other Named Executives had the
ability to receive a cash bonus compensation based on a combination of the
Company's revenues, gross profit and earnings per share. Based on the Company's
performance for 1996, none of the other Named Executives received any cash bonus
with respect to 1996.
The Committee believes that the executive incentives were in accordance
with the consultant's recommendations and industry practice and were crafted in
a way to couple total possible compensation to the performance of the Company
and thus to increase stockholder value.
COMPENSATION COMMITTEE:
Barry W. Ridings
Leonard R. Weisberg
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. During a portion of 1996, a partnership owned by Messrs. Levy and
Molinaro 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.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of the Board of
Directors' proxies for the meeting, including the cost of preparing, assembling
and mailing proxy materials, the handling and tabulation of proxies received,
and charges of brokerage houses and other institutions, nominees and fiduciaries
in forwarding such materials to beneficial owners. In addition to the mailing of
the proxy materials, such solicitation may be made in person or by telephone,
telegraph or telecopy by directors, officers or regular employees of the
Company, or by a professional proxy solicitation organization engaged by the
Company.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998 Annual Meeting
of Stockholders must be received by the Secretary of the Company at the address
appearing on the first page of this Proxy Statement not later than February 24,
1998 in order to be considered for inclusion in the Company's proxy statement
and form of proxy relating to that meeting.
19
<PAGE> 22
INCORPORATION BY REFERENCE
Accompanying this Proxy Statement are the Company's 1996 Annual Report to
Stockholders and the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997. The financial statements and section titled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
each of such documents are hereby incorporated by reference in this Proxy
Statement.
20
<PAGE> 23
SUBMICRON SYSTEMS CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of SUBMICRON SYSTEMS CORPORATION (the
"Company") hereby constitutes and appoints DAVID J. FERRAN and JOHN KIZER, and
each of them acting individually, as the attorney and proxy of the undersigned,
with full power of substitution, for and in the name and stead of the
undersigned, to attend the Annual Meeting of Stockholders of the Company to be
held on July 24, 1997 at 10:00 a.m., at the Holiday Inn Conference Center, Rt.
100 & I-78, Fogelsville, Pennsylvania, and any adjournment or postponement
thereof, and thereat to vote all shares of Common Stock which the undersigned
would be entitled to vote if personally present; provided that such proxies are
authorized and directed to vote as indicated on the reverse side with respect
to such matters as are specified thereon.
If no direction is made, the shares will be voted "FOR" the election of
the nominee for director and "FOR" the other proposals set forth on the
reverse side. This Proxy also delegates discretionary authority to vote with
respect to any other business which may properly come before the meeting or any
adjournment or postponement thereof.
(Continued and to be signed and dated on reverse side)
[SEE REVERSE SIDE]
<PAGE> 24
/ X / Please mark your
votes as in this
example
1. FOR the nominee WITHOLD AUTHORITY
for director to vote for the nominee
listed at right for director listed at right
/ / / / Nominee: Ronald B. Booth
FOR AGAINST ABSTAIN
2. Proposal to approve an amendment to the
Company's Employee Stock Purchase Plan. / / / / / /
3. Proposal to approve amendments to the
Company's 1991 Amended and Restated
Stock Option Plan. / / / / / /
4. Proposal to approve an amendment to the
Company's Certificate of Incorporation to
increase the authorized number of shares
of Preferred Stock. / / / / / /
5. Proposal to approve the convertibility
feature of the Company's 8% Convertible
Subordinated Notes. / / / / / /
6. Proposal to ratify the appointment of
Ernst & Young LLP. / / / / / /
7. To vote on such other business which may
properly come before the meeting.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING
PROXY STATEMENT AND ANNUAL REPORT OF SUBMICRON SYSTEMS CORPORATION.
NOTE: Please sign this Proxy exactly as name(s) appear(s) in address. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your title as such, and if signer is a corporation, please sign
with full corporate name by duly authorized officer or officers and after
the corporate seal. When stock is issued in the name of two or more
persons, all such persons should sign.
Signature of Stockholder: _____________________________
Signature of Stockholder: _____________________________ Date __________, 1997
PLEASE SIGN, DATE AND RETURN IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
