<PAGE> 1
REGISTRATION NO. 333-38741
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
To
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
<PAGE> 2
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 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
November __, 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 November 11, 1997, as reported by Nasdaq, was $2.9375 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 November , 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.
1
<PAGE> 6
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
2
<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
4
<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."
5
<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 November 11, 1997, there were
17,174,663 shares of Common Stock
issued and outstanding.
Market Price for Common Stock............ On November 11, 1997, the last
reported sale price of the Common
Stock, as reported by Nasdaq, was
$2.9375 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 November 14, 1997 and, upon completion of certain currently pending
conditions, to December 8, 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
$150,000. 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 November 11, 1997, the closing
sale price of the Common Stock, as reported by Nasdaq, was $2.9375 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.
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<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 November 14, 1997, and, upon completion of certain
currently pending conditions, to December 8, 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.
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<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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<PAGE> 49
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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<PAGE> 50
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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<PAGE> 53
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 $23,894 for Messrs.
Levy and Holmes, respectively.
(3) Mr. Holmes joined the Company in June 1995.
STOCK OPTION GRANTS
The following table contains information concerning grants of stock
options under the Stock Option Plan to the Named Executives during 1996. The
Company does not have any plan pursuant to which stock appreciation rights
("SARs") may be granted.
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OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term (1)
Number of
Securities % of Total
Underlying Options Granted
Options to Employees in Exercise Price Expiration
Name Granted(#)(2) 1996 ($/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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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 November ,
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,
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<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 Form of Indenture between the Company and The United States Trust
Company of New York, as Trustee
4.6 Form of 8% Convertible Subordinated Note (Exchange Note) (included in
Exhibit 4.5)
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, LLP
25 Form T-1, Statement of Eligibility and Qualification of Trustee
- ----------------------------------------
* Previously filed.
(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 Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Allentown, Pennsylvania, on November 10, 1997.
SUBMICRON SYSTEMS CORPORATION
By: /s/ David J. Ferran
---------------------------------
David J. Ferran, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the 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 November 10, 1997
- ------------------------- Officer and Director
David J. Ferran (Principal Executive Officer)
* Chief Financial Officer November 10, 1997
- ------------------------- (Principal Financial and
John W. Kizer Accounting Officer)
* Director November 10, 1997
- --------------------------
Ronald B. Booth
* Director November 10, 1997
- -------------------------
Maurice J. Gallagher, Jr.
* Director November 10, 1997
- --------------------------
Barry W. Ridings
* Director November 10, 1997
- --------------------------
Leonard R. Weisberg
</TABLE>
- ------------------
*By David J. Ferran, as Attorney-In-Fact pursuant to the power of attorney
granted in the Registration Statement
/s/ David J. Ferran
- -------------------------
David J. Ferran, Attorney-In-Fact
II-
<PAGE> 115
EXHIBIT INDEX
-------------
The following exhibits are filed as a part of this Amendment No. 1 to
the Registration Statement.
Item Caption
- ---- -------
3.3 Certificate of Designations, Preferences and Rights of Series A
Convertible Non-Redeemable Preferred Stock
4.4 Form of 8% Convertible Subordinated Note (Original Note)
4.5 Form of Indenture between the Company and The United States Trust
Company of New York, as Trustee
4.6 Form of 8% Convertible Subordinated Note (Exchange Note) (included in
Exhibit 4.5)
5 Opinion of Cozen and O'Connor re: legality of Exchange Notes
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
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ireland San Filippo, LLP
25 Form T-1, Statement of Eligibility and Qualification of Trustee
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE NON-REDEEMABLE PREFERRED STOCK
OF
SUBMICRON SYSTEMS CORPORATION
SubMicron Systems Corporation, a corporation organized and
existing under the laws of the State of Delaware (the "Company"), by its
Secretary, does hereby certify that, pursuant to authority conferred upon the
Board of Directors by Article FOURTH of the Certificate of Incorporation of the
Company, which authorized the issuance of 5,000 shares of Preferred Stock of the
Company, $.01 par value per share, and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, as amended (the
"Delaware Code"), the Board of Directors of the Company has duly adopted
resolutions providing for the issuance out of such Preferred Stock of 1,349
shares of Series A Convertible Non-Redeemable Preferred Stock, and setting forth
the voting powers, designations, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Company pursuant to the provisions of the
Delaware Code and the Company's Certificate of Incorporation,
the Company is authorized to issue, out of the 5,000 shares of
Preferred Stock of the Company authorized in Article Fourth of
its Certificate of Incorporation, a series of Preferred Stock
of the Company to be designated as "Series A Convertible
Non-Redeemable Preferred Stock," $.01 par value per share,
with the voting powers, designations, preferences and
relative, participating, optional and other special rights,
qualifications, limitations and restrictions set forth below.
1. Designation and Number of Shares. The Preferred Stock of
the Company authorized by this resolution shall be designated and known as the
"Series A Convertible Non-Redeemable Preferred Stock." The number of shares of
the Series A Convertible Non-Redeemable Preferred Stock authorized hereby shall
be 1,349 shares, which shall be issuable in whole or fractional shares.
2. Voting Rights. Except as otherwise expressly provided by
law, the holders of Series A Convertible Non-Redeemable Preferred Stock shall
have full voting rights and powers; they shall be entitled to vote on all
matters as to which holders of the Company's Common Stock, $.0001 par value per
share ("Common Stock"), shall be entitled to vote, voting together with the
holders of Common Stock as one class; and each share or fraction thereof shall
be entitled to one vote for each share of Common Stock into which such share or
fraction thereof of Series A Convertible Non-Redeemable Preferred Stock may be
converted in accordance with Section 5 herein.
<PAGE> 2
3. Dividends. There is no dividend preference. In the event
that the Company declares a cash dividend, the holders of the Series A
Convertible Non-Redeemable Preferred Stock shall be entitled to participate with
the holders of the Common Stock in any such dividends paid, such that holders of
the Series A Convertible Non-Redeemable Preferred Stock shall receive, with
respect to each share of Series A Convertible Non-Redeemable Preferred Stock
held, an amount equal to (i) the dividend payable with respect to each share of
Common Stock, multiplied by (ii) the number of shares (or a fraction of a share,
if any) of Common Stock into which such share of Series A Convertible Non-
Redeemable Preferred Stock is convertible as of the record date for such
dividend.
4. Preemptive Rights: No Cumulative Voting. The holders of
Series A Convertible Non-Redeemable Preferred Stock shall not have preemptive
rights to purchase additional shares of capital stock and shall not have the
right to vote cumulatively in the election of directors.
5. Conversion Rights of Series A Convertible Non-Redeemable
Preferred Stock.
(a) Conversion at the Option of the Holder.
(i) Conversion Rate. The holder of record of
any shares or fractional shares of Series A Convertible Non-Redeemable Preferred
Stock shall have the right, at any time, at such holder's option, to convert
(the "Optional Conversion"), without the payment of any additional
consideration, each two-thousandth (1/2000th) of a share of Series A Convertible
Non-Redeemable Preferred Stock into one (1) fully paid and non-assessable share
of Common Stock (so that each whole share of Series A Convertible Non-Redeemable
Preferred Stock is convertible into two thousand (2,000) fully paid and
non-assessable shares of Common Stock), subject to adjustment as described
below. The number of shares of Common Stock into which the Series A Convertible
Non-Redeemable Preferred Stock may be converted shall be the "Conversion Rate."
(ii) Adjustment to Conversion Rate for
Certain Changes in the Company's Capitalization. If there shall be issued
additional shares of Common Stock solely by reason of stock dividends, stock
splits, combinations or exchanges of shares, or if the Company shall reduce the
number of outstanding shares of its Common Stock by any capital reorganization
or reclassification of the capital stock of the Company, the Board of Directors
of the Company shall adjust the Conversion Rate to reflect such transaction such
that immediately after any of the foregoing events, the Series A Convertible
Non-Redeemable Preferred Stock shall be convertible into the same proportion of
issued and outstanding shares of Common Stock into which the Series A
Convertible Non-Redeemable Preferred Stock would have been convertible prior to
such event; provided, however, that in
- 2 -
<PAGE> 3
no event shall fractional shares of Common Stock be issuable in respect of any
conversion.
(b) Automatic Conversion. Each share or fractional share of
Series A Convertible Non-Redeemable Preferred Stock shall automatically convert
(the "Automatic Conversion"), upon the transfer, sale, pledge, assignment or
other disposition of such share or fractional share, into shares of Common Stock
(other than fractional shares) at the Conversion Rate in effect at the time of
such transfer, sale, pledge, assignment or other disposition. After any such
transfer, sale, pledge, assignment or other disposition, the certificate
representing any share or fractional share of Series A Convertible
Non-Redeemable Preferred Stock shall represent the number of shares of Common
Stock into which such share or fractional share was converted and the holder
thereof shall have no further rights as a holder of Series A Convertible
Non-Redeemable Preferred Stock.
(c) Mergers, Consolidations, Etc. In the event the Company
shall merge, consolidate or take any other similar action in which the Common
Stock shall be exchanged for securities or assets, whether of the Company or of
another entity, the Series A Convertible Non-Redeemable Preferred Stock shall be
automatically converted into such other securities or assets as if the Series A
Convertible Non-Redeemable Preferred Stock had been converted into Common Stock
immediately prior to such merger, consolidation or such other similar action.
(d) Mechanics of Conversion.
(i) Automatic Conversion. The original holder shall
provide the Company prompt notice of any transfer, sale, pledge, assignment or
other disposition of any share or fractional share of Series A Convertible
Non-Redeemable Preferred Stock. Thereafter, any share or fractional share of
Series A Convertible Non-Redeemable Preferred Stock so transferred, sold,
pledged, assigned or otherwise disposed of shall represent the number of shares
of Common Stock into which such share or fractional share was converted and the
holder thereof shall have no further rights as a holder of Series A Convertible
Non-Redeemable Preferred Stock. Certificates for such converted shares or
fractional shares of Series A Convertible Non-Redeemable Preferred Stock may be
exchanged for certificates for the shares of Common Stock into which the shares
or fractional shares of Series A Convertible Non-Redeemable Preferred Stock were
converted, by returning such certificates to the Company or the Company's
transfer agent for the Common Stock.
(ii) Optional Conversion. If a holder of shares of
Series A Convertible Non-Redeemable Preferred Stock desires to exercise his
right of Optional Conversion pursuant to subsection 5(a), such holder shall give
written notice to the Company of his election to convert a stated number of
shares of Series A Convertible Non-Redeemable Preferred Stock into shares of
Common Stock, at the Conversion Rate then in effect, which notice shall
- 3 -
<PAGE> 4
be accompanied by the certificate or certificates representing such shares or
fractional shares of Series A Convertible Non-Redeemable Preferred Stock which
shall be converted into Common Stock. The notice also shall contain a statement
of the name or names in which the certificate or certificates for Common Stock
shall be issued. Promptly after the receipt of the aforesaid notice and
certificate or certificates representing the Series A Convertible Non-Redeemable
Preferred Stock surrendered for conversion, the Company shall cause to be issued
and delivered to the holder of the Series A Convertible Non-Redeemable Preferred
Stock surrendered for conversion or to his nominee or nominees, a certificate or
certificates for the number of shares of Common Stock issuable upon conversion
of such Series A Convertible Non-Redeemable Preferred Stock and the certificates
representing shares of Series A Convertible Non-Redeemable Preferred stock
surrendered for conversion shall be cancelled by the Company. If the number of
shares represented by the certificate or certificates surrendered for conversion
shall exceed the number of shares to be converted, the Company shall issue and
deliver to the person entitled thereto a certificate representing the balance of
any unconverted shares of the Series A Convertible Non-Redeemable Preferred
Stock.
(e) Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued Common
Stock, solely for issuance upon conversion of shares of Series A Convertible
Non-Redeemable Preferred Stock as herein provided, such number of shares of
Common Stock as shall be issuable from time to time upon the conversion of all
of the shares of Series A Convertible Non-Redeemable Preferred Stock at that
time issued and outstanding.
6. Liquidation Rights. In the event of any liquidation,
dissolution or winding up (either voluntary or involuntary) of the Company, the
holders of Series A Convertible Non-Redeemable Preferred Stock shall be entitled
to receive $3.70 for each two-thousandth (1/2000th) of a share before any
amounts are paid to holders of Common Stock. After such payments shall have been
made in full to the holders of Series A Convertible Non-Redeemable Preferred
Stock shall have no further rights upon any such event.
IN WITNESS WHEREOF, the Company has caused this Certificate to
be signed by its Secretary on this 26th day of March, 1997.
SUBMICRON SYSTEMS CORPORATION
By: /s/
--------------------------
, Secretary
- 4 -
<PAGE> 1
Exhibit 4.4
NEITHER THIS NOTE NOR THE SECURITIES UNDERLYING THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NEITHER
THIS NOTE, NOR ANY PORTION THEREOF, NOR ANY INTEREST THEREIN, NOR THE SECURITIES
UNDERLYING THIS NOTE, MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (I) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR (II) AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE ACT, PROVIDED THE HOLDER HAS FURNISHED TO PAYOR AN
OPINION OF ITS COUNSEL SATISFACTORY TO PAYOR TO THE EFFECT THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
SUBMICRON SYSTEMS CORPORATION
8% CONVERTIBLE SUBORDINATED PROMISSORY NOTE DUE MARCH 26, 2002
$___________________ March 26, 1997
FOR VALUE RECEIVED, the undersigned, SubMicron Systems Corporation, a
Delaware corporation ("Payor" or the "Company"), having its executive office at
6620 Grant Way, Allentown, Pennsylvania 18106, hereby promises to pay to
__________________________ or registered assigns (the "Payee"), having an
address at ______________________________, at the Payee's address set forth
hereinabove or, at such other place as the holder of this Note (the "Holder")
shall hereafter specify in writing, on March 26, 2002 (the "Maturity Date"), the
principal sum of ___________________________ ($________) Dollars, in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debt.
This Note is one of a series of promissory notes of Payor (the "New
Notes") issued in connection with the Subordinated Note and Preferred Stock
Purchase Agreements, effective March 15, 1997, between the Company and certain
existing securityholders of the Company (the "Purchase Agreements"). This Note
shall rank pari passu with all other New Notes.
1. Interest and Payment.
Section 1.1. Payment of the full amount of
principal will be due and payable on the Maturity Date unless this Note is
redeemed or converted or otherwise becomes due on an earlier date in accordance
with the terms hereof.
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Section 1.2. The unpaid principal amount of this Note
outstanding from time to time shall bear simple interest from, but not
including, the date hereof until the Maturity Date at the rate of 8% per annum.
Section 1.3. Interest pursuant to Section 1.2 is
payable in arrears on the last day of each of the months of March, June,
September and December during the term of this Note (each, an "Interest Payment
Date"), commencing June 30, 1997, to holders of record of this Note on the March
15, June 15, September 15 and December 15, as the case may be, preceding the
applicable Interest Payment Date or the next business day preceding such record
date if such March 15, June 15, September 15 or December 15, as the case may be,
is not a business day (each an "Interest Payment Record Date"). Interest is
payable at the same address designated for payment of principal. In the event of
acceleration pursuant to Section 5 below, interest accrued through the date of
acceleration shall be payable upon such acceleration.
Section 1.4. If an Event of Default set forth in
Sections 5.4, 5.5, 5.6, 5.7, 5.8 or 5.9 hereof shall occur and continue for five
(5) days, whether or not the Holder shall (if permitted hereunder) declare the
unpaid principal amount of this Note, together with accrued and unpaid interest
thereon, to be immediately due and payable, and whether or not such Event of
Default occurs after the occurrence of any other Event of Default described in
Section 5 hereof, then interest shall begin to accrue on the outstanding
principal balance of this Note from the date of such Event of Default to the
earlier of (i) the date of payment in full of the outstanding principal of this
Note and all accrued and unpaid interest hereunder or (ii) the date the Event of
Default is cured, at the rate of 16% per annum as to Events of Default under
Sections 5.4, 5.5 or 5.9 and 10% per annum as to Events of Default under
Sections 5.6, 5.7 or 5.8 (in either event, the "Default Rate").
Section 1.5. In no event shall the Holder be
entitled to receive interest, however characterized, at an effective rate in
excess of the maximum rate permitted by law. In the event that a court of
competent jurisdiction shall finally determine that such amounts paid or agreed
to be paid by the Payor in connection with this Note causes the effective
interest rate on this Note to exceed the maximum rate permitted by law, such
interest or other consideration shall automatically be reduced to a rate which
results in an effective interest rate under this Note equal to the maximum rate
permitted by law over the term hereof, and, in such event, the Holder shall
apply to the reduction of the unpaid principal balance of this Note any amounts
received by it deemed to constitute excessive interest. For purposes of this
Note, where appropriate the term "Holder" shall include the Payee.
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Section 1.6. The Company may pay principal and
interest due under this Note by Company check. The Holder must surrender this
Note to the Company to receive payment of the principal amount of the Note.
2. Replacement of Note.
Section 2.1. In case this Note is mutilated,
destroyed, lost or stolen, the Payor shall, at its sole expense, after receipt
of notice from the Holder, execute, register and deliver a new Note, in exchange
and substitution for this Note, if mutilated, or in lieu of and substitution for
this Note, if destroyed, lost or stolen. In the case of destruction, loss or
theft, the Holder shall furnish to the Payor indemnity reasonably satisfactory
to the Payor, and in any such case, and in the case of mutilation, the Holder
shall also furnish to the Payor evidence to its reasonable satisfaction of the
mutilation, destruction, loss or theft of this Note and of the ownership
thereof. Any substitute Note so issued shall be in the same outstanding
principal amount as this Note and dated the date to which interest shall have
been paid on this Note, or if no interest shall have yet been paid, dated the
date of this Note.
Section 2.2. Every Note issued pursuant to the
provisions of Section 2.1 hereof in substitution for this Note shall constitute
an additional contractual obligation of the Payor, whether or not this Note
shall be found at any time, or be enforceable by anyone.
3. Conversion.
Section 3.1.
(a) Subject to the terms and provisions of this Note,
the Holder shall have the right, at its option ("Optional Conversion"), at any
time after the Approval Date (as defined below) and until the Conversion
Termination Date (as defined below), to convert the outstanding principal amount
of this Note as of the date this Note is surrendered for conversion into shares
of Common Stock in accordance with Section 3.1(f) (the "Conversion Shares") at
the Conversion Price hereinafter provided. For purposes of this Note: "Approval
Date" means the earlier of (i) the date the Company definitively determines that
stockholder approval of the issuance by the Company of the Conversion Shares
underlying all of the New Notes is not required by the principal national
securities exchange or market on which the Company's Common Stock is traded or
(ii) the day immediately following the date the stockholders of the Company
8approve the issuance of the Conversion Shares pursuant to Section 9(a) of the
Purchase Agreements; and "Conversion Termination Date" means 5:00 p.m. New York
City Time on the earlier of (x) the Maturity Date (or such later date as all
outstanding principal and accrued and unpaid interest under this Note is paid in
full) or (y) the business day immediately preceding the Redemption Date (as
hereinafter defined).
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In the event this Note is redeemed in part, the Conversion Termination Date with
respect to such partial redemption shall only apply to the principal amount of
this Note which is called for redemption.
(b) Subject to the terms and provisions of this Note,
if at any time the Closing Bid Price (as defined below) of the Company's Common
Stock is at least $5.10 per share (as such price shall be adjusted from time to
time pursuant to Sections 3.3, 3.4 or 3.5 to the same extent and in the same
relative proportion as the Conversion Price), for a period of twenty (20)
consecutive trading days (provided that the Approval Date and the Registration
Date (as defined in Section 5.8) each have occurred on or before such twentieth
day), then the Holder shall, if notice is given pursuant to Section 3.1(d)
below, be required to convert (the "Mandatory Conversion") the outstanding
principal amount of this Note as of the date this Note is surrendered for
conversion into Conversion Shares at the Conversion Price in effect on the last
trading day of the 20-day period referred to above (such day hereinafter
referred to as the "Trigger Date"). As of the Trigger Date, the Holder shall
have no further rights under this Note (including, without limitation, any
rights under Section 3 of this Note), except as provided in subsection 3.1(d) or
3.1(e) below. "Closing Bid Price" for the purpose of this Note shall mean (i)
the last reported bid price, on the primary exchange on which the Common Stock
is traded, if the Common Stock is traded on a national securities exchange,
including the Nasdaq National Market, or (ii) the closing bid price of the
Common Stock as reported by the Nasdaq Small Cap Market, or (iii) if the Common
Stock is not traded on a national securities exchange or Nasdaq, the closing bid
price of the Common Stock as reported by the National Quotation Bureau, Inc.
(c) To convert this Note, in whole or in part in
connection with an Optional Conversion after the Approval Date, the Holder shall
surrender this Note to the Payor during usual business hours at the Payor's
principal executive office, accompanied by written notice to the Payor in form
reasonably satisfactory to the Payor of the Holder's intention to convert,
stating the portion of the Note that is to be converted and the name and address
of each person in whose name a share or shares of Common Stock issuable upon
such conversion is to be registered. When surrendered for conversion in
connection with an Optional Conversion, this Note shall, unless the shares
issuable on conversion are to be issued in the same name as the name in which
this Note is then registered, be duly endorsed, or accompanied by instruments of
transfer in form reasonably satisfactory to the Payor duly executed, by the
Holder or his or its duly authorized attorney. As promptly as practical after
the surrender and giving of notice to convert as herein provided, the Payor
shall deliver or cause to be delivered at its office or agency maintained for
that purpose to or upon written order of the Holder of the Note, certificates
representing the number of fully paid and nonassessable Conversion Shares into
which said Note is converted and, in the event of partial conversion, a new Note
in an aggregate principal amount equal to the unconverted
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portion of said Note, dated as of the date to which interest has been paid, and
if no interest has been paid, dated as of the date of the Note converted in
part, and in all other respects identical to the Note converted.
(d) If there shall be a Mandatory Conversion, at the
election of the Company, the Holder shall be given ten (10) days prior written
notice of the date on which the Company shall effect such Mandatory Conversion
(the "Mandatory Conversion Date). On or before the Mandatory Conversion Date,
the Holder shall surrender this Note to the Payor at the Payor's principal
executive office, together with written notice to the Payor of the name and
address of each person in whose name a share or shares of Common Stock issued
upon such conversion is to be registered. When surrendered for conversion upon a
Mandatory Conversion, this Note shall, unless the shares issuable on conversion
are to be issued in the same name as the name in which this Note is then
registered, be duly endorsed, or accompanied by instruments of transfer in form
reasonably satisfactory to the Payor duly executed, by the Holder or his or its
duly authorized attorney. On the Mandatory Conversion Date, the Payor shall have
prepared and ready to deliver or cause to be delivered at its office or agency
maintained for that purpose to the Holder of the Note, certificates representing
the number of fully paid and nonassessable Conversion Shares into which said
Note is converted. Such Conversion Shares shall be delivered only upon receipt
by the Company of the certificates for the Notes being converted. From and after
the Mandatory Conversion Date, interest on this Note will cease to accrue and
the sole right of the Holder of this Note shall be to receive the Conversion
Shares and accrued and unpaid interest on the Note up to the Mandatory
Conversion Date.
(e) Upon either an Optional Conversion or a Mandatory
Conversion, the Payor shall pay to the Payee any unpaid interest accrued on the
converted portion of the Note through the date of conversion. If a Note is
surrendered for conversion during the period from the close of business on any
Interest Payment Record Date to the opening of business on the succeeding
Interest Payment Date, Holder must surrender this Note accompanied by payment by
check or other method reasonably acceptable to the Payor of an amount equal to
the interest payable from the date of conversion to such Interest Payment Date;
provided, however, that no such payment need be made if there shall exist at the
time of conversion a default in the payment of interest on the Notes.
(f) Upon conversion as provided herein, this Note (or
any Note(s) issued upon transfer or exchange) shall convert into such number of
shares of Common Stock equal to the outstanding principal amount of this Note or
portion thereof which is being converted, divided by $3.70 (the "Conversion
Price"); provided, however, that the Conversion Price shall be adjusted to an
amount equal to the greater of (i) $2.50 per share (as adjusted from time to
time pursuant to Section 3.5 to the same extent and in the same relative
proportion as the Conversion Price) and (ii) the average
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Closing Bid Price for the twenty (20) consecutive trading days beginning on
March 15, 1999; provided that in no event shall the adjusted Conversion Price as
aforesaid be greater than the Conversion Price in effect immediately prior to
such adjustment. In addition to the foregoing, the Conversion Price may be
adjusted from the time in accordance with Sections 3.3, 3.4 and 3.5 hereof;
provided, however, that in no event (other than pursuant to Section 3.5) shall
the Conversion Price be reduced, upon any adjustment, to less than $2.50.
Section 3.2
(a) The Payor covenants and agrees that it has
reserved and shall at all times reserve and keep available out of its authorized
but unissued Common Stock, solely for the purpose of issuing such shares upon
the conversion of this Note, the full number of Conversion Shares then
deliverable upon the conversion hereof, free of preemptive rights. The Payor
covenants and agrees that the Conversion Shares shall, at the time of delivery
of the certificates for such shares of Common Stock, be duly authorized, validly
issued and fully paid and nonassessable shares of Common Stock.
(b) Each person in whose name any certificate for the
Conversion Shares is issuable upon the conversion of this Note shall for all
purposes be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated, with respect to an
Optional Conversion, the date upon which the Note was duly surrendered and
notice of conversion was given in accordance with the provisions of this Note,
and with respect to a Mandatory Conversion, the Mandatory Conversion Date;
provided, however, that if the date of such surrender and notice is a date upon
which the stock transfer books of the Payor are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next business day on which the stock transfer books of the
Payor are open.
Section 3.3. Except as hereinafter provided, in case
the Payor shall at any time after the date hereof issue or sell any shares of
Common Stock (other than the issuances or sales referred to in Section 3.5 or
3.7 hereof), including shares held in the Payor's treasury and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
for shares of Common Stock (other than the issuances or sales of Common Stock
pursuant to rights to subscribe for such Common Stock distributed to all the
stockholders of the Payor) and shares of Common Stock issued upon the direct or
indirect conversion or exchange of securities for shares of Common Stock, for a
consideration per share less than the Conversion Price in effect immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon such issuance or sale, the Conversion Price shall (until another
such issuance or sale or other adjustment) be reduced to the price (calculated
to the nearest full cent)
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determined by dividing (I) an amount equal to the sum of (A) the product of (X)
the total number of shares of Common Stock outstanding immediately prior to such
issuance or sale, multiplied by (Y) the Conversion Price in effect on the date
immediately prior to the issuance or sale of such shares, plus (B) the aggregate
amount of all consideration, if any, received by the Payor upon such issuance or
sale, by (II) the total number of shares of Common Stock outstanding immediately
after such issuance or sale; provided, however, that in no event shall the
Conversion Price be adjusted pursuant to this computation to an amount in excess
of the Conversion Price in effect immediately prior to such computation.
For the purposes of any computation to be made in accordance
with this Section 3.3, the following provisions shall be applicable:
(i) In case of the issuance or sale of
shares of Common Stock for a consideration part or all of which shall be cash,
the amount of the cash consideration therefor shall be deemed to be the amount
of cash received by the Payor for such shares (or, if shares of Common Stock are
offered by the Payor for subscription, the subscription price, or, if such
securities shall be sold to underwriters or dealers for public offering without
a subscription offering, the initial public offering price) before deducting
therefrom any compensation paid or discount allowed in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services, or any expenses incurred in connection therewith.
(ii) In case of the issuance or sale
(otherwise than as a dividend or other distribution on any stock of the Payor)
of shares of Common Stock for a consideration part or all of which shall be
other than cash, the amount of the consideration therefor other than cash shall
be deemed to be the value of such consideration as determined in good faith by
the Board of Directors of the Payor.
(iii) Shares of Common Stock issuable by way
of dividend or other distribution on any stock of the Payor shall be deemed to
have been issued immediately after the opening of business on the day following
the record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of
the Payor, other than shares of Common Stock, into securities including shares
of Common Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders entitled to
receive such shares, and the value of the consideration allocable to such shares
of Common Stock shall be determined as provided in subsection (ii) of this
Section 3.3.
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(v) The number of shares of Common Stock at
any one time outstanding shall include the aggregate number of shares issued or
issuable upon the exercise of options, rights or warrants and upon the
conversion or exchange of convertible or exchangeable securities.
Section 3.4. Except in the case of the Payor issuing
rights to subscribe for shares of Common Stock to all the stockholders of the
Payor or issuances or sales referred to in Section 3.7, if the Payor shall at
any time after the date hereof issue options, rights or warrants to subscribe
for shares of Common Stock, or issue any securities convertible into or
exchangeable for shares of Common Stock, (i) for a consideration per share less
than the Conversion Price in effect immediately prior to the issuance of such
options, rights, or warrants, or (ii) without consideration, the Conversion
Price in effect immediately prior to the issuance of such options, rights or
warrants, or such convertible or exchangeable securities, as the case may be,
shall be reduced to a price determined by making a computation in accordance
with the provisions of Section 3.3 hereof, provided that:
(a) The aggregate maximum number of shares of Common
Stock, as the case may be, issuable under all the options, rights or warrants so
issued shall be deemed to be issued and outstanding at the time all such
options, rights or warrants were issued (without giving effect to any additional
shares of Common Stock that may be issued after the date of issuance of such
options, rights or warrants pursuant to future adjustments resulting from the
anti-dilution provisions contained in such options, rights or warrants ("Future
Adjustments")), and for a consideration equal to the minimum purchase price per
share (without giving effect to any Future Adjustments) provided for in the
options, rights or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue or sale of
shares in accordance with the terms of such options, rights or warrants), if
any, received by the Payor for the options, rights or warrants, and if no
minimum price is provided in such options, rights or warrants, then the
consideration shall be equal to zero; provided, however, that upon the
expiration or other termination of the options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (a) (and for the
purposes of subsection (v) of Section 3.3 hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Conversion Price then in effect shall
forthwith be readjusted in such event (and also if the options, rights or
warrants are exercised for a price in excess of the minimum price provided in
such securities) and thereafter be the Conversion Price which it would have been
had adjustment been made on the basis of the issuance only of shares actually
issued or issuable upon the exercise of those options, rights or warrants as to
which the
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exercise rights shall not have expired or terminated unexercised; provided,
further, that no such readjustment to the Conversion Price, if any, shall affect
any portion of this Note that is converted or redeemed prior to the effective
date of such readjustment.
(b) The aggregate maximum number of shares of Common
Stock issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities(without giving effect to any Future Adjustments), and for a
consideration equal to the consideration received by the Payor for such
securities, plus the minimum consideration (without giving effect to any Future
Adjustments), if any, receivable by the Payor upon the conversion or exchange
thereof; provided, however, that upon the actual conversion or exchange or
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subsection (b) (and for the
purpose of subsection (v) of Section 3.3 hereof) shall be reduced by such number
of shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding and the Conversion Price then in effect shall
forthwith be readjusted in such event (and also if the options, rights or
warrants are exercised for a price in excess of the minimum price provided in
such securities) and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised; provided, further, that no such
readjustment to the Conversion Price, if any, shall affect any portion of this
Note that is converted or redeemed prior to the effective date of such
readjustment.
(c) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(a) of this Section 3.4, or in the price per share at which the securities
referred to in subsection (b) of this Section 3.4 are convertible or
exchangeable, the options, rights or warrants or conversion or exchange rights,
as the case may be, shall be deemed to have expired or terminated on the date
when such price change became effective in respect of shares not theretofore
issued pursuant to the exercise or conversion or exchange thereof, and the Payor
shall be deemed to have issued upon such date new options, rights or warrants or
convertible or exchangeable securities at the new price in respect of the number
of shares issuable upon the exercise of such options, rights or warrants or the
conversion or exchange of such convertible or exchangeable securities.
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Section 3.5.
(a) In case the Payor shall: (i) declare a dividend
of Common Stock on its Common Stock, (ii) subdivide outstanding Common Stock
into a larger number of shares of Common Stock by reclassification, stock split
or otherwise, or (iii) combine outstanding Common Stock into a smaller number of
shares of Common Stock by reclassification or otherwise, the Conversion Price
then in effect immediately prior to any such event shall be adjusted
proportionately so that thereafter the Holder shall be entitled to receive upon
conversion of this Note the number of Conversion Shares which such Holder would
have owned after the happening of any of the events described above had this
Note been converted immediately prior to the happening of such event, provided
that the Conversion Price shall in no event be reduced to less than the par
value of the shares issuable upon conversion. An adjustment made pursuant to
this Section 3.5 shall become effective immediately after the record date in the
case of a dividend or immediately after the payment date in the event no record
date is fixed to determine the stockholders entitled to receive such dividend
(and readjusted back to the Conversion Price in effect prior to such adjustment
if the dividend is not paid) and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(b) In case of any reclassification or change of
outstanding shares of Common Stock issuable upon conversion of this Note (other
than change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), or in case
of any consolidation or merger with or into another corporation (other than a
consolidation or merger in which the Payor is the continuing corporation and
which does not result in any reclassification or change of outstanding shares of
Common Stock, other than a change as a result of a subdivision or combination of
such shares or a change in par value, as aforesaid), or in case of any sale or
conveyance to another corporation of the property of the Payor as an entirety or
substantially as an entirety, the holder of this Note shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock of the Payor for which the Note might have been converted
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance.
The above provisions of this Section 3.5(a) and (b)
shall similarly apply to successive reclassifications and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
Section 3.6. In the event that the Payor shall at any
time prior to the conversion of all of the New Notes declare a dividend (other
than a dividend consisting solely of shares of
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Common Stock or a cash dividend or distribution payable out of current or
retained earnings) or otherwise distribute to its stockholders any monies,
assets, property, rights, evidences of indebtedness, securities (other than
shares of Common Stock), whether issued by the Payor or by another person or
entity, or any other thing of value, the Company shall promptly thereafter give
the Holder the notice set forth in Section 3.8 hereof. If the Payor fails to
give such notice, the Holder shall be entitled to receive, upon the conversion
of the Notes, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that such Holder would have
been entitled to receive at the time of such dividend or distribution. The Payor
shall make appropriate provisions to ensure the timely performance of the
provisions of this Subsection 3.6.
Section 3.7. Notwithstanding anything contained in
this Note to the contrary, no adjustment of the Conversion Price shall be made
(i) upon the issuance of options or stock pursuant to the Payor's stock plans in
effect on the date hereof or subsequently approved by the Payor's stockholders
and the issuance or sale by the Payor of any shares of Common Stock pursuant to
the exercise of any such option, or (ii) upon the issuance or sale by the Payor
of any shares of Common Stock pursuant to the exercise of any options or
warrants or upon conversion of any outstanding convertible security, in any such
case if previously issued and outstanding as of the date of this Note or (iii)
if the amount of such adjustment shall be less than 1% of the Conversion Price;
provided, however, that in such case any adjustment that would otherwise be
required to be made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least 1% of the Conversion
Price.
Section 3.8.
(a) In case the Payor proposes to take any action
referred to in Section 3.6 above, or to effect the liquidation, dissolution or
winding up of the Payor, then the Payor shall cause notice thereof to be mailed
to the Holder, at Holder's address appearing in the Payor's records, at least
thirty (30) days prior to the date on which the transfer books of the Payor
shall close or a record be taken for such stock dividend, sale or issuance or
the date when such reclassification, liquidation, dissolution or winding up
shall be effective, as the case may be. Neither the failure to give such notice
referred to in Section 3.8(a) or (b) nor any defect therein or in the mailing
thereof shall affect the validity of any action taken in connection with such
transaction.
(b) Whenever the Conversion Price shall be adjusted
as provided in Section 3.3, 3.4 or 3.5 above, the Payor shall forthwith file at
the office designated for the conversion of the Note, a statement, signed by the
Chairman of the Board, the President, any Vice President, the Treasurer or
Secretary of the Payor, showing in reasonable detail the facts requiring such
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adjustment and the Conversion Price that will be effective after such
adjustment. The Payor shall also cause a notice setting forth any such
adjustment to be sent by mail, first class, postage prepaid, to the Holder at
its address appearing on the Note register maintained by the Payor.
(c) No fractional shares of Common Stock shall be
issuable upon conversion of this Note, but a payment in cash will be made in
respect of any fraction of a share which would otherwise be issuable upon the
surrender of this Note, or portion hereof, for conversion. Such payment shall be
based on the Closing Bid Price of the Common Stock on the date of conversion.
Section 3.9. No Holder of this Note shall be entitled
to vote or receive dividends or be deemed the holder of Common Stock or any
other securities of the Payor which may at any time be issuable on the
conversion hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder of this Note, as such, any of the rights of
a stockholder of the Payor or any right to vote for the election of directors or
upon any matters submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise) or to
receive dividends or subscriptions rights or otherwise until the Note shall have
been converted and the Common Stock issuable upon the conversion hereof shall
have become deliverable as provided herein.
4. Redemption.
Section 4.1. On not less than fifteen (15) days
notice given at any time, if, and only if the Approval Date and the Registration
Date each have occurred on or prior to the Redemption Date, this Note may be
redeemed, in whole or in part, at the option of the Payor, at a redemption price
(the "Redemption Price") equal to (i) 100% of the principal amount of the Note
at the time outstanding and (ii) accrued interest on the Note unpaid as of the
Redemption Date. The date fixed for redemption of this Note, or a portion
thereof, is referred to herein as the "Redemption Date."
Section 4.2. In the event that not all of the New
Notes are to be redeemed, the Payor shall select the New Notes, or portions
thereof, to be redeemed on either a pro rata basis or by lot, or such other
method as is fair and appropriate. The Company may select for redemption
portions of New Notes that have denominations in integral multiples of $1,000.
Section 4.3. The notice of redemption shall specify
(i) the principal amount of the Note to be redeemed, (ii) the Redemption Price,
(iii) the Redemption Date, (iv) the place where the Note shall be delivered and
the redemption price paid, and (v) that the right to convert the Note shall have
terminated as of the business day immediately preceding the Redemption Date. No
failure
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to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption, except as to a
Holder (a) to whom notice was not mailed or (b) whose notice was materially
defective. An affidavit of the Secretary or an Assistant Secretary of the Payor
that notice of redemption has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
Section 4.4. On and after the Redemption Date,
Holders of the Notes shall have no further rights with respect to the portion of
the Note redeemed except to receive, upon surrender of the Note, the Redemption
Price.
Section 4.5. From and after the Redemption Date, the
Payor shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Payor by or on behalf of the Holder thereof of
one or more Notes to be redeemed, deliver or cause to be delivered to or upon
the written order of such Holder a sum in cash equal to the Redemption Price of
each such Note. From and after the Redemption Date such Notes shall expire and
become void and all rights hereunder shall cease, except the right to receive
payment of the Redemption Price and, if the Note is redeemed only in part, to
receive a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
5. Events of Default. The following shall be Events of
Default:
Section 5.1. The liquidation, dissolution or winding
up of the Payor or any vote in favor thereof by the Board of Directors and
stockholders of the Payor without making provision for the payment in full of
the New Notes in accordance with their terms; or
Section 5.2. Payor shall make an assignment for the
benefit of creditors, or shall file with a court of competent jurisdiction an
application for the appointment of a receiver for itself or a material part of
its assets, or shall commence a voluntary case or proceeding under any provision
of the Federal Bankruptcy Code or any other federal or state statute affording
relief to debtors or shall in any manner consent to the filing against it of an
involuntary case or proceeding under any such law; or there shall be commenced
against the Payor an involuntary case or proceeding under any such federal or
state statute or there shall be filed against the Payor, without the consent of
Payor, any application under any such federal or state statute for the
appointment of a receiver for itself or a material part of its assets which
case, proceeding or application is not dismissed or withdrawn within sixty (60)
days of commencement or filing thereof as the case may be; or
Section 5.3. The sale by the Payor of all or
substantially all of its assets (other than the sale of inventory in the
ordinary course of business), or the merger or consolidation
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<PAGE> 14
by the Payor with or into another corporation, except for such mergers where the
Payor is the surviving entity or in which the surviving entity in such merger or
consolidation expressly assumes and agrees to pay all of the obligations of the
Payor under all of the New Notes; or
Section 5.4. The failure by the Payor to pay when due
(other than in connection with an acceleration of principal and interest due
under this Note) the principal of, or accrued interest under, this Note, or any
of the other New Notes, as and when the same shall become due and payable; or
Section 5.5. Payor or any of its subsidiaries shall
default in the payment when due (after any grace period provided therefor) of
the principal of, or interest on, any institutional indebtedness of Payor or any
such subsidiary with an aggregate principal amount in excess of $250,000
(whether such principal or interest shall become due at scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise); or
Section 5.6. If the Approval Date has not occurred by
January 31, 1998; or
Section 5.7. The failure by Payor to consummate, on
or prior to September 30, 1997, the Exchange Offer (as defined in Section 9(b)
of the Purchase Agreements) due to the failure by Payor to have an effective
Registration Statement covering the Exchange Notes (as defined in Section 9(b)
of the Purchase Agreements) pursuant to the Act; provided, however, that the
foregoing default shall be deemed cured upon the date a Registration Statement
covering the Exchange Notes is declared effective pursuant to the Act; or
Section 5.8. Assuming the Approval Date has occurred,
if on or prior to January 31, 1998 the Company has failed to deliver an opinion
of its counsel to the Holder (or if the Holder is not the original Holder of
this Note, has not delivered to a prior holder of this Note) that the
Registration Date as to such person has occurred. "Registration Date" for the
purpose of this Note shall be the date upon which the Conversion Shares first
become saleable under the Act, whether pursuant to Rule 144(k) of the Act or any
successor provision, an effective Registration Statement which covers the
Exchange Notes of the Holder or would have covered such Exchange Notes had the
Holder participated in the Exchange Offer (if such Registration Statement also
permits the sale of the Conversion Shares), or an effective Registration
Statement covering the resale of the Conversion Shares; or
Section 5.9. The failure by Company to comply in any
material respect with Sections 6, 9(a), 9(b), 9(c) or 9(d) of the Purchase
Agreement signed by the Holder; provided, however, that an Event of Default
under this Section 5.9 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
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<PAGE> 15
cause to occur shall actually occur (by way of illustration, if the Company
failed to use its best efforts pursuant to Section 9(b) of the Purchase
Agreement to cause to be effective a Registration Statement permitting the sale
of the Conversion shares by a specified date, such default shall be deemed cured
upon the date such shares first become freely saleable under the Act, whether
pursuant to Rule 144(k) of the Act or any successor provision or an effective
Registration Statement).
If an Event of Default pursuant to Sections 5.1,
5.2, 5.3, 5.4, 5.5, 5.6 or 5.8 hereof shall occur and, other than with respect
to Sections 5.1, 5.2, 5.5, 5.6 or 5.8 shall continue uncured for five (5) days,
and at any time thereafter, while such event is continuing, the Holder shall
have the right to declare the unpaid principal amount of this Note, together
with accrued interest thereon, to be immediately due and payable, whereupon the
same shall be forthwith due and payable.
Payor shall promptly provide the Holder with written
notice after the occurrence of any Event of Default known by the Payor setting
forth the facts constituting such Event of Default.
6. Subordination.
Section 6.1. The payment of the principal of, and
accrued interest on this Note is hereby expressly subordinated in right of
payment, in the manner and to the extent hereinafter expressly set forth, to the
prior payment in full of all Senior Indebtedness (as hereinafter defined),
whether outstanding on the date hereof or hereafter created, incurred or
assumed. The Holder and the Payee, by his or its acceptance hereof, agrees to
and shall be bound by the provisions hereof.
As used in this Section 6, "Senior Indebtedness"
means (i) indebtedness consisting of the principal of, premium, if any, interest
on and any fees, charges and expenses relating to, (A) Money Borrowed, or (B)
the deferred purchase price of any business, properties or assets acquired by
the Payor or any of its subsidiaries from any third party, or (C) secured by any
mortgage, security interest, lien, pledge or encumbrance upon property of the
Payor or any of its subsidiaries; (ii) guarantees, direct or indirect, of any
indebtedness referred to in clause (i) above; and (iii) all renewals,
replacements, extensions, refundings, amendments, modifications, or increases of
any indebtedness referred to in clause (i) above.
The term, "Money Borrowed," as used in the definition
of "Senior Indebtedness," means indebtedness evidenced by bonds, debentures
notes or similar instruments, provided that such obligations have been secured
by a substantial amount of the assets of the Payor or any material subsidiary of
the Payor.
Section 6.2. In the event of any distribution,
division or application, partial or complete, voluntary or
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<PAGE> 16
involuntary, by operation of law or otherwise, of all or any part of the assets
of the Payor, whether in cash or kind, upon any dissolution, winding up,
liquidation, readjustment or reorganization of the Payor or its property,
whether in bankruptcy, insolvency or receivership proceedings or at execution
sale or upon an assignment for the benefit of creditors or any other marshalling
of the assets and liabilities of the Payor or otherwise, the Payor and the
Holder, by his or its acceptance of this Note, agree that:
(a) The holders of all Senior Indebtedness shall
first be entitled to receive payment in full, in accordance with the terms of
such Senior Indebtedness, of the principal thereof and interest thereon, before
the Holder shall be entitled to receive any payment on account of the principal
of, or interest on, this Note.
(b) The Holder, by his or its acceptance of this
Note, assigns to the holders of Senior Indebtedness for the purposes and to the
extent set forth in this Section 6, all his right, title and interest to and in
any payment or distribution of assets of the Payor of any kind or character,
whether in cash, property or securities, other than securities of the Payor as
reorganized or readjusted or securities of the Payor or any other corporation
provided for by a plan of reorganization or readjustment the payment or
distribution of which is subordinate, at least to the extent provided in this
Section 6 with respect to this Note, to the payment in full of the principal of,
and interest on all Senior Indebtedness to which the Holder would be entitled
except for the provisions of this Section 6(b) ("Subordinated Securities"). The
Holder authorizes and directs the Payor (or any receiver, trustee in bankruptcy,
liquidating trustee or agent or other Person acting for the Payor) to take such
steps as may be reasonably necessary or appropriate to entitle the holders of
Senior Indebtedness to receive such payment or distribution from the liquidating
trustee or agent or other person making such payment or distribution, whether a
trustee in bankruptcy, a receiver or liquidating trustee or otherwise, ratably
according to the aggregate amounts remaining unpaid on the Senior Indebtedness
held by each such holders, all to the extent necessary to provide for payment in
full of the principal of, and interest on, all Senior Indebtedness, in
accordance with the terms of such Senior Indebtedness, but prior to any payment
of principal of, or interest on, this Note, and in connection therewith and for
such purpose, the holders of the Senior Indebtedness are hereby authorized and
permitted to assert, file, prosecute and vote any claim or other interest on
account of this Note which may be required in order to seek and obtain payment
on account of this Note under the circumstances described in this Section 6.2;
and
(c) In the event that, notwithstanding the provisions
of Section 6.2(b) hereof, any payment or distribution of assets of the Payor of
any kind or character, whether in cash, property or securities (other than
Subordinated Securities), shall be received by the Holder before the payment in
full of the
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<PAGE> 17
principal of and interest on Senior Indebtedness in accordance with the terms of
such Senior Indebtedness, such payment of distribution shall be held in trust
for the benefit of, and shall be paid over to, the holders of Senior
Indebtedness, ratably according to the aggregate amount remaining unpaid on such
Senior Indebtedness held by each such holder, to the extent necessary to pay in
full the principal of and interest on such Senior Indebtedness, in accordance
with the terms of such Senior Indebtedness.
Section 6.3. The Payor shall not make any payment of
the principal of, or interest on, this Note (a) at any time when it is in
default in the payment of principal of, or interest on, any Senior Indebtedness,
or (b) if at the time of such payment or immediately after giving effect
thereto, there shall exist any default (other than a default specified in clause
(a) above) specified in any Senior Indebtedness which shall have continued
uncured for the period of grace (or the period after notice), if any, specified
in such Senior Indebtedness if such default shall give the holders of Senior
Indebtedness the right to accelerate the maturity thereof, provided that Payor
shall have given the Holder written notice of the occurrence of any such
default, unless and until such default shall have been cured or waived or shall
have ceased to exist. Any payment of principal of, or interest on, this Note
under circumstances described in clause (a) and (b) above shall be held by the
Holder in trust for the holders of Senior Indebtedness, provided Payor shall
give the Holder written notice of the occurrence of any default referred to in
the preceding sentence.
Section 6.4. Prior to the date on which the Senior
Indebtedness shall have been paid in full, the Holder shall not:
(a) Sue for, take or receive from Payor, in cash or
other property or by set off or in any other manner, payment of all or any of
the amounts due under this Note; provided, however, that absent the occurrence
and continuance of any default under the terms of the Senior Indebtedness, the
Holder may receive payments of the principal when due at maturity without
prepayment or acceleration (and without creating a default under the Senior
Indebtedness held or agented by Corestates Bank, N.A. 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 this Note,
pursuant to this Note.
(b) Foreclose or attempt to foreclose upon any of the
property of Payor, seek or obtain the appointment of a receiver for the Payor,
exercise any right or power of sale or repossession, or attempt to realize upon
any portion of the property of the Payor, any interest therein, seek relief from
any stay imposed by the Bankruptcy Code or exercise any other right or remedy
granted in connection with this Note against the Payor and/or the property of
the Payor.
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<PAGE> 18
(c) Pursue any other remedies at law, in equity or
otherwise available to the Payee in connection with this Note against the Payor
and/or the property of the Payor.
(d) Accept any casualty insurance or other insurance
proceeds or condemnation aware proceeds from the Payor or otherwise on account
of this Note.
(e) Assert any demand, objection, defense and/or
counterclaim (including any rights of marshalling or equitable subordination)
relating to this Note and the Senior Indebtedness, against the holders of the
Senior Indebtedness.
Notwithstanding any provision to the contrary set
forth in this Section 6, (a) interest at the Default Rate shall commence, and
shall continue to, accrue as provided as in Section 1.4, upon the occurrence of
any of the Events of Default referred in such Sections; (b) the Holder of this
Note shall not be prevented from, to the extent permitted under this Note,
accelerating the maturity of the principal of, and accrued interest on, this
Note upon or following the occurrence of an Event of Default (other than an
Event of Default specified in Section 5.2) during any period of one hundred
eighty (180) days after written notice of the occurrence of a default specified
in any Senior Indebtedness shall have been given to Holder by Payor or any
holder of Senior Indebtedness, provided that only one such notice may be given
to the Holder pursuant to this clause in any one hundred twenty (120) day period
and no notice may be given in respect of any such Senior Indebtedness default,
the existence of which any holder of Senior Indebtedness had knowledge at the
time any other notice was delivered pursuant to this clause.
Section 6.5. Subject to the payment in full of the
principal of, and interest on, any Senior Indebtedness in accordance with the
terms of such Senior Indebtedness, the Holder shall be subrogated to the rights
of the holder or holders of such Senior Indebtedness to receive payments or
distributions of assets of the Payor applicable to such Senior Indebtedness, to
the extent of the application thereto of moneys or other assets which would have
been received by the Holder but for the provisions of this Section 6, until the
principal of, and interest on, this Note shall be paid in full; it being
understood that the provisions of this Section 6 are, and are intended, solely
for the purpose of defining the relative rights of the Holder, on the one hand,
and the holders of Senior Indebtedness, on the other hand. Except as set forth
in Sections 6.2, 6.3 and 6.4, nothing in this Section 6 or this Note is intended
to or shall impair the obligations of Payor hereunder, subject to the rights of
the Holder and creditors of the Payor other than the holders of Senior
Indebtedness, nor shall anything in this Note prevent the Holder from exercising
all remedies otherwise permitted by this Note or by applicable law upon default
under this Note, subject, in any event, to the rights, if any, under this
Section 6 of the holders of Senior Indebtedness in respect of any payment or
distribution of cash, property or
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<PAGE> 19
securities of the Payor (other than Subordinated Securities) received upon the
exercise of any such remedy.
7. Restriction on Transfer. By its acceptance of this Note,
the Holder and the Payee, as the case may be, acknowledge that neither this Note
nor the securities underlying this Note has been registered under the securities
laws of the United States of America or any state thereof and represents that
this Note has been acquired for investment and, neither this Note, nor any
portion thereof, no interest in this Note nor the Conversion Shares may be
offered for sale, sold, delivered after sale, transferred, pledged, or
hypothecated in the absence of registration of this Note and such Conversion
Shares, as the case may be, under applicable federal and state securities laws
or the receipt by the Payor of an opinion of counsel of the Holder or Payee, as
the case may be, reasonably satisfactory to the Payor that such registration is
not required by reason of an available exemption from registration under such
securities laws.
8. Amendments. No amendment, modification or waiver of any
provision of this Note, and no consent to departure from performance or
compliance with any such provision, shall in any event be effective unless the
same is in writing and signed by the Holders of 51% or more in the aggregate
principal amount of the New Notes at the time outstanding, except that no such
amendment may (i) extend the Maturity Date of any New 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 New Notes so
affected; (ii) modify the provisions of the Note with respect to the
subordination of the Notes in a manner adverse to the holders thereof or alter
the provisions in respect of the right to convert the Notes, without the consent
of the holders of 100% in aggregate principal amount of the New Notes at the
time outstanding; or (iii) reduce the aforesaid percentage of the New 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 New Notes at
the time outstanding.
9. Miscellaneous.
Section 9.1. The headings of the various paragraphs
of this Note are for convenience of reference only and shall in no way modify
any of the terms or provisions of this Note.
Section 9.2. All notices required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by registered or certified mail, return
receipt requested, postage prepaid, to the address of the intended recipient set
forth in the preamble to this Note or at such other address as the intended
recipient shall have hereafter given to the other party hereto pursuant to the
provisions hereof.
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<PAGE> 20
Section 9.3. If any date that may at any time be
specified in this Note as a date for the making of any payment of principal or
interest under this Note shall fall on Saturday, Sunday or on a day which in
Philadelphia, Pennsylvania shall be a legal holiday, then the date for the
making of that payment shall be the next subsequent day which is not a Saturday,
Sunday or legal holiday.
Section 9.4. This Note and the obligations of Payor
and the rights of the Holder hereunder shall be governed by, and construed in
accordance with the applicable laws of the Commonwealth of Pennsylvania without
giving effect to the choice of law principles thereof.
Section 9.5. (a) AS A SPECIFICALLY BARGAINED
INDUCEMENT FOR HOLDER TO ACCEPT THIS NOTE, AND AFTER HAVING THE OPPORTUNITY TO
CONSULT COUNSEL, PAYOR AND THE HOLDER OF THIS NOTE, BY ITS OR HIS ACCEPTANCE
HEREOF EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT IT
MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY ACTION OR PROCEEDING ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS NOTE, AND IN CONNECTION WITH ANY CLAIM,
COUNTERCLAIM, OFFSET OR DEFENSE ARISING IN CONNECTION WITH SUCH ACTION OR
PROCEEDING, WHETHER ARISING UNDER ANY STATUTE (INCLUDING ANY FEDERAL OR STATE
CONSTITUTION) OR UNDER THE LAW OF CONTRACT, TORT OR OTHERWISE AND, INCLUDING,
WITHOUT LIMITATION, ANY CHALLENGE TO THE LEGALITY, VALIDITY, BINDING EFFECT OR
ENFORCEABILITY OF THIS PROVISION OR THIS NOTE. FURTHER, PAYOR HEREBY CERTIFIES
THAT NO REPRESENTATIVE OR AGENT OF THE HOLDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE HOLDER WOULD NOT, IN THE EVENT OF ANY SUCH ACTION OR
PROCEEDING, SEEK TO ENFORCE THIS WAIVER OF JURY TRIAL PROVISION. PAYOR HEREBY
ACKNOWLEDGES THAT THE HOLDER HAS BEEN INDUCED TO ACCEPT THIS NOTE BY, INTER
ALIA, THE PROVISIONS OF THIS SECTION.
(b) PAYOR AGREES TO THE PERSONAL JURISDICTION OF ANY
STATE OR FEDERAL COURT WITHIN THE COMMONWEALTH OF PENNSYLVANIA (PHILADELPHIA
COUNTY) IN ANY LITIGATION COMMENCED BY THE HOLDER OF THIS NOTE IN RESPECT OF ANY
MATTER ARISING UNDER OR IN CONNECTION WITH THIS NOTE, AND WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SERVICE OF PROCESS
MAY BE MADE BY CERTIFIED MAIL DIRECTED TO PAYOR AT THE ADDRESS INDICATED ABOVE
AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME
SHALL HAVE BEEN DEPOSITED IN THE UNITED STATES MAIL, POSTAGE PREPAID. PAYOR
WAIVES, AT THE OPTION OF THE HOLDER, ANY OBJECTION BASED ON FORUM NON CONVENIENS
AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS TO
THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE
COURT. NOTHING CONTAINED IN THIS PROVISION SHALL AFFECT THE RIGHT OF THE HOLDER
TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT
TO BRING ANY ACTION OR PROCEEDING AGAINST PAYOR OR ANY OF ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTION.
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(c) PAYOR AGREES THAT ANY ACTION COMMENCED BY IT
ASSERTING ANY CLAIM OR COUNTERCLAIM ARISING UNDER OR IN CONNECTION WITH THIS
NOTE SHALL BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF PENNSYLVANIA
(PHILADELPHIA COUNTY), OR IN THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
EASTERN DISTRICT OF PENNSYLVANIA AND THAT SUCH COURTS SHALL HAVE EXCLUSIVE
JURISDICTION WITH RESPECT TO ANY SUCH ACTION.
(d) Payor agrees that in the event of any litigation
in respect of any matter arising under or in connection with this Note, Payor
will not interpose any counterclaim, setoff, recoupment, defense, rescission or
adjustment of any nature.
(e) Payor agrees that if the Holder shall institute
any action to enforce the collection of any amount of principal of, and/or
interest on or any other amount due hereunder this Note, there shall be
immediately due and payable from the Payor, in addition to the then unpaid sum
of this Note, all reasonable costs and expenses incurred by the Holder in
connection therewith, including, without limitation, reasonable attorneys' fees
and disbursements.
(f) No forbearance, indulgence, delay or failure to
exercise any right or remedy with respect to this Note shall operate as a
waiver, nor as an acquiescence in any default, nor shall any single or partial
exercise of any right or remedy preclude any other or further exercise thereof
or the exercise of any other right or remedy.
(g) The Payor hereby expressly waives demand and
presentment for payment, notice of nonpayment, notice of dishonor, protest,
notice of protest and diligence in taking any action to collect amounts called
for hereunder, and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission with respect to the collection of any amount called
for hereunder or in connection with any right, lien, interest or property at any
and all times which the Payee had or is existing as security for any amount
called for hereunder.
10. Transfers. The transfer of this Note is registrable by the Payor,
and the registered Holder hereof, in person or by his attorney duly authorized
in writing, on the books of the Payor to be kept for that purpose at the office
of the Payor, upon surrender and cancellation of this Note and upon presentation
of a duly executed written instrument of transfer in form satisfactory to Payor,
and thereupon a new Note or Notes, of authorized denominations for the same
aggregate principal amount will be issued to the transferee or transferees in
exchange herefor with payment by the Holder of any stamp or other tax or
governmental charge in connection therewith. Prior to due presentment of this
Note for registration of transfer, the Payor may deem and treat the person in
whose name this Note is registered as the absolute owner hereof for the purpose
of receiving payment hereof or on account
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hereof or of interest hereon (subject to the provisions of the first paragraph
on the face hereof) and for all other purposes.
IN WITNESS WHEREOF, this Note has been executed and delivered
as a sealed instrument on the date first above written by the duly authorized
representative of the Payor.
SUBMICRON SYSTEMS CORPORATION
By:____________________________
Name:
Title:
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EXHIBIT 4.5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBMICRON SYSTEMS CORPORATION, as Issuer,
and
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee
--------------------
INDENTURE
Dated as of , 1997
--------------------
$8,692,028
8% Convertible Subordinated Notes Due 2002
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TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
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Section 1.01. Definitions............................................................................ 1
Section 1.02. Other Definitions...................................................................... 5
Section 1.03. Incorporation by Reference of Trust Indenture Act...................................... 5
Section 1.04. Rules of Construction.................................................................. 5
ARTICLE 2
THE NOTES
Section 2.01. Dating; Incorporation of Form in Indenture............................................. 6
Section 2.02. Execution and Authentication........................................................... 6
Section 2.03. Registrar and Paying Agent............................................................. 7
Section 2.04. Paying Agent to Hold Money in Trust.................................................... 7
Section 2.05. Noteholder Lists....................................................................... 8
Section 2.06. Transfer and Exchange.................................................................. 8
Section 2.07. Replacement Notes...................................................................... 8
Section 2.08. Outstanding Notes...................................................................... 9
Section 2.09. Temporary Notes........................................................................ 9
Section 2.10. Cancellation........................................................................... 9
Section 2.11. Deposit of Moneys...................................................................... 9
Section 2.12. CUSIP Number.......................................................................... 10
Section 2.13. Maintenance of Office or Agency....................................................... 10
ARTICLE 3
REDEMPTION
Section 3.01. Optional Redemption................................................................... 10
Section 3.02. Selection by Trustee of Notes to Be Redeemed.......................................... 11
Section 3.03. Notice of Redemption.................................................................. 11
Section 3.04. Effect of Notice of Redemption........................................................ 11
Section 3.05. Deposit of Redemption Price........................................................... 12
Section 3.06. Notes Redeemed in Part................................................................ 12
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes...................................................................... 12
Section 4.02. Bond Representation................................................................... 12
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ARTICLE 5
SUCCESSOR CORPORATION............................................................. 13
Section 5.01. Successor Person Substituted.......................................................... 13
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default..................................................................... 14
Section 6.02. Acceleration.......................................................................... 15
Section 6.03. Other Remedies........................................................................ 15
Section 6.04. Waiver of Past Defaults and Events of Default......................................... 16
Section 6.05. Control by Majority................................................................... 16
Section 6.06. Limitation on Suits................................................................... 16
Section 6.07. Rights of Holders to Receive Payment.................................................. 17
Section 6.08. Collection Suit by Trustee............................................................ 17
Section 6.09. Trustee May File Proofs of Claim...................................................... 17
Section 6.10. Priorities............................................................................ 17
Section 6.11. Undertaking for Costs................................................................. 18
Section 6.12. Restoration of Rights and Remedies.................................................... 18
ARTICLE 7
CONVERSION
Section 7.01. Conversion of Notes into Common Stock................................................. 18
Section 7.02. Reservation of Commission Shares...................................................... 20
Section 7.03. Adjustment to Conversion Price........................................................ 20
Section 7.04. Notices to Holders Prior to Taking Certain Types of Action............................ 24
Section 7.05. Holders Not Entitled to Rights as Stockholders........................................ 25
Section 7.06. Compliance with Governmental Requirements............................................. 25
Section 7.07. Payment of Taxes Upon Certificates for Shares Issued Upon Conversion.................. 25
Section 7.08. Trustee's Duties with Respect to Conversion Provisions................................ 25
ARTICLE 8
TRUSTEE
Section 8.01. Duties of Trustee..................................................................... 26
Section 8.02. Rights of Trustee..................................................................... 27
Section 8.03. Individual Rights of Trustee.......................................................... 27
Section 8.04. Trustee's Disclaimer.................................................................. 28
Section 8.05. Notice of Event of Defaults........................................................... 28
Section 8.06. Reports by Trustee to Holders......................................................... 28
Section 8.07. Compensation and Indemnity............................................................ 28
Section 8.08. Replacement of Trustee................................................................ 29
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Section 8.09. Successor Trustee by Consolidation, Merger or Conversion.............................. 30
Section 8.10. Eligibility; Disqualification......................................................... 30
Section 8.11. Preferential Collection of Claims Against Company..................................... 30
Section 8.12. Paying Agents......................................................................... 30
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01. Amendments............................................................................ 31
Section 9.02. Compliance with Trust Indenture Act................................................... 31
Section 9.03. Revocation and Effect of Consents..................................................... 31
Section 9.04. Notation on or Exchange of Notes...................................................... 32
Section 9.05. Trustee to Sign Amendments, etc....................................................... 32
ARTICLE 10
DISCHARGE OF INDENTURE; DEFEASANCE
Section 10.01. Discharge of Indenture................................................................ 33
Section 10.02. Legal Defeasance...................................................................... 33
Section 10.03. Conditions to Defeasance.............................................................. 33
Section 10.04. Deposited Money and U.S. Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions........................................................ 34
Section 10.05. Reinstatement......................................................................... 35
Section 10.06. Moneys Held by Paying Agent........................................................... 35
Section 10.07. Moneys Held by Trustee................................................................ 35
ARTICLE 11
SUBORDINATION OF NOTES
Section 11.01. Notes Subordinated to Senior Indebtedness............................................. 36
Section 11.02. Payment Over of Proceeds upon Dissolution, Etc........................................ 36
Section 11.03. Suspension of Payment when Senior Indebtedness in Default............................. 37
Section 11.04. Refrain From Taking Action............................................................ 37
Section 11.05. Subrogation to Rights of Holders of Senior Indebtedness............................... 38
Section 11.06. Trustee's Relation to Senior Indebtedness............................................. 39
Section 11.07. Provisions Solely to Define Relative Rights........................................... 39
Section 11.08. Trustee to Effectuate Subordination................................................... 39
Section 11.09. Notice to Trustee..................................................................... 40
Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent........................ 40
Section 11.11. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights...................................................... 41
Section 11.12. Article Applicable to Paying Agents................................................... 41
Section 11.13. No Suspension of Remedies............................................................. 41
</TABLE>
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<PAGE> 5
<TABLE>
<CAPTION>
Page
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ARTICLE 12
MISCELLANEOUS
<S> <C>
Section 12.01. Trust Indenture Act Controls.......................................................... 41
Section 12.02. Notices............................................................................... 41
Section 12.03. Communications by Holders with Other Holders.......................................... 42
Section 12.04. Certificate and Opinion as to Conditions
Precedent............................................................................. 43
Section 12.05. Statements Required in Certificate and Opinion........................................ 43
Section 12.06. When Treasury Notes Disregarded....................................................... 43
Section 12.07. Rules by Trustee and Agents........................................................... 44
Section 12.08. Business Days; Legal Holidays......................................................... 44
Section 12.09. Governing Law......................................................................... 44
Section 12.10. No Adverse Interpretation of Other Agreements......................................... 44
Section 12.11. No Recourse Against Others............................................................ 44
Section 12.12. Successors............................................................................ 45
Section 12.13. Multiple Counterparts................................................................. 45
Section 12.14. Table of Contents, Headings, etc...................................................... 45
Section 12.15. Separability.......................................................................... 45
EXHIBITS
Exhibit A. Form of Note.................................................................................. A-1
</TABLE>
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<PAGE> 6
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- ------- -------
310(a)(1)...................................................................8.10
(a)(2)................................................................8.10
(a)(3)................................................................N.A.
(a)(4)................................................................N.A.
(b)............................................................8.08; 12.02
(b)(1)................................................................8.10
(b)(9)................................................................8.10
(c)...................................................................N.A.
311(a)..................................................................... 8.11
(b)...................................................................8.11
(c)...................................................................N.A.
312(a)..................................................................... 2.05
(b)..................................................................12.03
(c)..................................................................12.03
313(a)..................................................................... 8.06
(b)(1)................................................................8.06
(b)(2)................................................................8.06
(c)..................................................................12.02
(d).................................................................. 8.06
314(a).................................................................... 12.02
(b)..................................................................12.02
(c)(1)........................................................12.04; 12.05
(c)(2)........................................................12.04; 12.05
(c)(3)................................................................N.A.
(d)...................................................................N.A.
(e)..................................................................12.05
(f)...................................................................N.A.
315(a)................................................................8.01; 8.02
(b)............................................................8.05; 12.02
(c).................................................................. 8.01
(d).......................................................6.05; 8.01; 8.02
(e).................................................................. 6.11
316(a) (last sentence).....................................................12.06
(a)(1)(A).............................................................6.05
(a)(1)(B).............................................................6.04
(a)(2)................................................................9.01
(b) 6.07..............................................................6.07
(c)...................................................................9.03
317(a)(1)...................................................................6.08
(a)(2)................................................................6.09
(b)...................................................................8.12
318(a).....................................................................12.01
N.A. means Not Applicable
- --------------------
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 7
INDENTURE, dated as of __________, 1997, between SUBMICRON
SYSTEMS CORPORATION, a Delaware corporation, as Issuer (the "Company"), and
UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation, as Trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Company's 8%
Convertible Subordinated Notes due March 26, 2002 (the "Notes").
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Act" means the Securities Act of 1933, as amended.
"Affiliate" of any specified Person means any other Person
which, directly or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, such specified Person. For
the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by," and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise.
"Agent" means any Registrar, Paying Agent, co-registrar or
agent for service of notices and demands.
"Aggregate 8% Notes" means, at any date, the aggregate
principal amount outstanding on such date of the Notes and the Original Notes.
"Approval Date" means the earlier of (i) the date the Company
definitively determines that stockholder approval of the issuance by the Company
of the Conversion Shares underlying all of the Notes is not required by the
principal national securities exchange or market on which the Company's Common
Stock is traded or (ii) the day immediately following the date the stockholders
of the Company approve the issuance of the Conversion Shares pursuant to Section
9(a) of the Purchase Agreement.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
"Board of Directors" means the board of directors of the
Company or any committee authorized to act therefor.
"Board Resolution" means a copy of a resolution certified
pursuant to an Officers' Certificate to have been duly adopted by the Board of
Directors of the Company and to be in full force and effect, and delivered to
the Trustee.
<PAGE> 8
"Capital Stock" means, with respect to any Person, any and all
shares or other equivalents (however designated) of capital stock, partnership
interests or any other participation, right or other interest in the nature of
an equity interest in such Person or any option, warrant or other security
convertible into any of the foregoing.
"Closing Bid Price" means (i) the last reported sale price, on
the primary exchange on which the Common Stock is traded, if the Common Stock is
traded on a national securities exchange, including the Nasdaq National Market,
or (ii) the closing bid price of the Common Stock as reported by the Nasdaq
Small Cap Market, or (iii) if the Common Stock is not traded on a national
securities exchange or Nasdaq, the closing bid price of the Common Stock as
reported by the National Quotation Bureau, Inc.
"Common Stock" of the Company means the Company's Common
Stock, par value $.0001 per share.
"Company" means the party named as such in the first paragraph
of this Indenture until a successor replaces such party pursuant to Article 5 of
this Indenture and thereafter means the successor.
"Company Request" means any written request signed in the name
of the Company by any two of the following: the Chief Executive Officer; the
President; any Vice President; the Chief Financial Officer; the Treasurer; or
the Secretary or any Assistant Secretary (but not both the Secretary and any
Assistant Secretary) of the Company.
"Conversion Termination Date" means 5:00 p.m., New York City
Time, on the earlier of (i) the Maturity Date (or such later date as all
outstanding principal and accrued and unpaid interest under this Note is paid in
full) or (ii) the business day immediately preceding the Redemption Date.
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is located
at 114 West 47th Street, New York, New York 10036.
"Default Rate" means 16% per annum as to Events of Default
under Sections 6.01(d), (e) or (g), and 10% per annum as to an Event of Default
under Section 6.01(f).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" or "Noteholder" means the Person in whose name a Note
is registered on the Registrar's books.
"Indenture" means this Indenture, as amended, restated or
supplemented from time to time.
"Interest Payment Date" means the last day of each of the
months of March, June, September and December, commencing ___________________.
"Issue Date" means the date the Notes are first issued by the
Company and authenticated by the Trustee.
- 2 -
<PAGE> 9
"Maturity Date" means March 26, 2002.
"Money Borrowed" means indebtedness evidenced by bonds,
debentures notes or similar instruments, provided that such obligations have
been secured by a substantial amount of the assets of the Company or any
material subsidiary of the Company.
"Notes" means the securities that are issued under this
Indenture, as amended or supplemented from time to time pursuant to this
Indenture.
"Officer" means the Chief Executive Officer, the President,
any Vice President, the Chief Financial Officer, the Treasurer, the Controller
or the Secretary of the Company or a Guarantor, or any other officer designated
by the Board of Directors, as the case may be.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer, the Controller or any Treasurer of
such Person that shall comply with applicable provisions of this Indenture.
"Opinion of Counsel" means a written opinion from legal
counsel which counsel is reasonably acceptable to the Trustee.
"Original Notes" means the Company's 8% Convertible
Subordinated Notes due March 26, 2002 issued pursuant to the Purchase Agreement.
"Payment Default" means any default, whether or not any
requirement for the giving of notice, the lapse of time or both, or any other
condition to such default becoming an Event of Default has occurred, in the
payment of principal of (or premium, if any) or interest on or any other amount
payable in connection with Senior Indebtedness.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however
designated, which entitles the holder thereof to a preference with respect to
dividends, distributions or liquidation proceeds of such Person over the holders
of other Capital Stock issued by such Person.
"Purchase Agreement" means the Subordinated Note and Preferred
Stock Purchase Agreement effective March 26, 1997 among the Company and the
persons named on Schedule 1 thereto.
"Redemption Date" when used with respect to any Note to be
redeemed means the date fixed for such redemption pursuant to this Indenture.
"Redemption Price" means (i) 100% of the principal amount of
the Note then outstanding and called for redemption and (ii) accrued interest on
such Note unpaid as of the Redemption Date.
"Registration Date" means the date upon which the Conversion
Shares first become saleable under the Act, whether pursuant to Rule 144(k) of
the Act or any successor provision, an effective Registration Statement which
covers the Exchange Notes of the Holder or would have covered
- 3 -
<PAGE> 10
such Exchange Notes had the Holder participated in the Exchange Offer (if such
Registration Statement also permits the sale of the Conversion Shares), or an
effective Registration Statement covering the resale of the Conversion Shares.
"SEC" means the United States Securities and Exchange
Commission as constituted from time to time or any successor performing
substantially the same functions.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" (i) indebtedness consisting of the
principal of, premium, if any, interest on and any fees, charges and expenses
relating to, (A) Money Borrowed, or (B) the deferred purchase price of any
business, properties or assets acquired by the Company or any of its
subsidiaries from any third party, or (C) secured by any mortgage, security
interest, lien, pledge or encumbrance upon property of the Payor or any of its
subsidiaries; (ii) guarantees, direct or indirect, of any indebtedness referred
to in clause (i) above; and (iii) all renewals, replacements, extensions,
refundings, amendments, modifications, or increases of any indebtedness referred
to in clause (i) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of this Indenture (except
as provided in Section 8.03 hereof).
"Trust Officer" when used with respect to the Trustee, means
any officer or assistant officer of the Trustee assigned to the Corporate Trust
Administration department or similar department performing corporate trust work
of the Trustee or any successor to such department or, in the case of a
successor Trustee, any officer of such successor Trustee performing corporate
trust functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Trustee" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter means
the successor.
"U.S. Government Obligations" means (i) securities that are
direct obligations of the United States of America for the payment of which its
full faith and credit are pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or a specific payment of principal or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt.
- 4 -
<PAGE> 11
Section 1.02. Other Definitions.
The definitions of the following terms may be found in the
sections indicated as follows:
<TABLE>
<CAPTION>
Term Defined in Section
- ---- ------------------
<S> <C>
"Business Day".................................................... 13.08
"Conversion Price"................................................ 7.01
"Event of Default"................................................ 6.01
"Future Adjustments".............................................. 7.03
"Legal Defeasance"................................................ 10.02
"Legal Holiday"................................................... 13.08
"Nominees"........................................................ 4.02
"Paying Agent".................................................... 2.03
"Purchase Date"................................................... 4.10
"Registrar"....................................................... 2.03
"Representative".................................................. 4.02
"Subordinated Securities"......................................... 11.02
</TABLE>
Section 1.03. Incorporation by Reference of Trust
Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
portion of such provision required to be incorporated herein in order for this
Indenture to be qualified under the TIA is incorporated by reference in and made
a part of this Indenture. The following TIA terms used in this Indenture have
the following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture securityholder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor on the indenture securities" means the Company or any
other obligor on the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined in the TIA by reference to another statute or defined by SEC rule
have the meanings therein assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
- 5 -
<PAGE> 12
(a) a term has the meaning assigned to it herein, whether
defined expressly or by reference;
(b) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the
plural include the singular;
(e) words used herein implying any gender shall apply to
every gender; and
(f) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular
Article, Section or Subdivision, unless expressly stated
otherwise.
ARTICLE 2.
THE NOTES
Section 2.01. Dating; Incorporation of Form in Indenture.
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A which is incorporated in and
made part of this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company may use
"CUSIP" numbers in issuing the Notes. The Company shall approve the form of the
Notes. Each Note shall be dated the date of its authentication.
Section 2.02. Execution and Authentication.
The Notes shall be executed on behalf of the Company by two
Officers of the Company or an Officer and an Assistant Secretary of the Company.
Such signatures may be either manual or facsimile. The Company's seal shall be
impressed, affixed, imprinted or reproduced on the Notes and may be in facsimile
form.
If an Officer whose signature is on a Note no longer holds
that office at the time the Trustee authenticates the Note or at anytime
thereafter, the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee manually signs the
certificate of authentication on the Note. Such signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee or an authenticating agent shall authenticate
Notes for original issue in the aggregate principal amount of up to $8,692,028
upon a Company Request. The aggregate principal amount of Notes outstanding at
any time may not exceed such amount except as provided in Section 2.07 hereof.
The Notes shall be issuable only in registered form without coupons and only in
denominations
- 6 -
<PAGE> 13
of $1,000 and integral multiples thereof unless otherwise permitted by the
Company as set forth in a Company Request.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Notes. Unless limited by the terms of such
appointment, an authenticating agent may authenticate Notes whenever the Trustee
may do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. Such authenticating agent shall have the
same right as the Trustee in dealing with the Company or an Affiliate.
Section 2.03. Registrar and Paying Agent.
The Company shall appoint a registrar, which shall maintain an
office or agency where Notes may be presented for registration of transfer or
for exchange ("Registrar"), and a paying agent, which shall maintain an office
or agency located in the Borough of Manhattan, City of New York, State of New
York where Notes may be presented for payment ("Paying Agent"),and shall
maintain an office or agency where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Registrar shall keep
a register of the Notes and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional paying agents.
Neither the Company nor any Affiliate may act as Paying Agent. The Company may
change any Paying Agent, Registrar or co-registrar without notice to any
Noteholder.
The Company shall enter into an appropriate agency agreement
with any Registrar or Paying Agent not a party to this Indenture. The agreement
shall implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any such Agent. If
the Company fails to maintain a Registrar or Paying Agent, or agent for service
of notices and demands, or fails to give the foregoing notice, the Trustee shall
act as such and shall be entitled to appropriate compensation pursuant to
Section 8.07. The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of notices and demands in connection with the Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
On or before each due date of the principal of and interest on
any Notes, the Company shall deposit with the Paying Agent a sum sufficient to
pay such principal and interest so becoming due. Each Paying Agent shall hold in
trust for the benefit of the Noteholders or the Trustee all money held by the
Paying Agent for the payment of principal of or interest on the Notes (whether
such money has been paid to it by the Company or any other obligor on the
Notes), and the Company and the Paying Agent shall notify the Trustee of any
default by the Company (or any other obligor on the Notes) in making any such
payment. Money held in trust by the Paying Agent need not be segregated except
as required by law and in no event shall the Paying Agent be liable for any
interest on any money received by it hereunder. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and the
Trustee may, at any time during the continuance of any Event of Default
constituting the nonpayment of principal of or interest on the Notes, upon
written request to a Paying Agent, require such Paying Agent to forthwith pay to
the Trustee all sums so held in trust by such Paying Agent together with a
complete accounting of such sums. Upon doing so, the Paying Agent shall have no
further liability for the money delivered to the Trustee.
- 7 -
<PAGE> 14
Section 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Noteholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee on or before each January 1 and July 1 in each year, and
at such other times as the Trustee may request in writing, a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Noteholders, including the aggregate principal amount of Notes held
by each such Noteholder.
Section 2.06. Transfer and Exchange.
When a Note is presented to the Registrar with a request to
register the transfer thereof, the Registrar shall register the transfer as
requested if the requirements of applicable law are met and, when Notes are
presented to the Registrar with a request to exchange them for an equal
principal amount of Notes of other authorized denominations, the Registrar shall
make the exchange as requested provided that every Note presented or surrendered
for registration of transfer or exchange shall be duly endorsed or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar duly executed by the Holder thereof or his attorney,
duly authorized in writing. To permit registration of transfers and exchanges,
upon surrender of any Note for registration of transfer at the office or agency
maintained pursuant to Section 2.03 hereof, the Company shall issue and execute
and the Trustee shall authenticate Notes at the Registrar's request. Any
exchange or transfer shall be without any service charge to the Noteholder,
except that the Company may require payment by the Holder of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation to a
transfer or exchange, but this provision shall not apply to any exchange
pursuant to Section 2.09 or 3.06 hereof to the extent such new Note is
registered in the name of the Holder in which the Note tendered for redemption
in part was registered. The Trustee shall not be required to register transfers
of Notes or to exchange Notes for a period of 15 days before selection of any
Notes to be redeemed. The Trustee shall not be required to exchange or register
transfers of any Notes called or being called for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
Each Holder of a Note agrees to indemnify the Company and the
Trustee against any liability that may result from the transfer, exchange or
assignment of such Holder's Note in violation of any provision of this Indenture
and/or applicable U.S. Federal or state securities law.
Except as expressly provided herein, neither the Trustee nor
the Registrar shall have any duty to monitor the Company's compliance with or
have any responsibility with respect to the Company's compliance with any
Federal or state securities laws.
Section 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Registrar or
Trustee, or if the Holder of a Note presents evidence to the satisfaction of the
Company and the Trustee that the Note has been lost, destroyed or wrongfully
taken and of the ownership thereof, the Company, at its sole expense, shall
issue and the Trustee shall authenticate a replacement Note. Any substitute Note
so issued shall be in the same outstanding principal amount as the Original Note
and dated the date to which interest shall have been paid on the Original Note,
or if no interest shall have yet been paid, dated the date of the Original Note.
In the case of destruction, loss or theft, an indemnity bond may be required by
the Company or the Trustee that is sufficient in the judgment of the Company and
the Trustee to protect the Company, the
- 8 -
<PAGE> 15
Trustee or any Agent from any loss which any of them may suffer if a Note is
replaced. The Trustee may charge the Company for its expenses (including
reasonable attorneys' fees and expenses) in replacing a Note. Every substitute
Note issued pursuant to the provisions of this Section 2.07 shall constitute an
additional contractual obligation of the Company, whether or not the Original
Note shall be found at any time, or be enforceable by anyone.
Section 2.08. Outstanding Notes.
Notes outstanding at any time are all Notes authenticated by
the Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section 2.08 as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to
be outstanding until the Company and the Trustee receive proof satisfactory to
each of them that the replaced Note is held by a bona fide purchaser.
If a Paying Agent holds on a Redemption Date or Maturity Date
money sufficient to pay the principal of and all accrued interest on Notes
payable on that date and is not prohibited from paying such money to the Holders
thereof pursuant to the terms of this Indenture, then on and after that date
such Notes cease to be outstanding and interest on them ceases to accrue.
Subject to Section 12.06, a Note does not cease to be
outstanding solely because the Company or an Affiliate holds the Note.
Section 2.09. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes. Temporary Notes
shall be substantially in the form, and shall carry all rights, benefits and
privileges, of definitive Notes but may have variations that the Company
considers appropriate for temporary Notes. Without unreasonable delay, the
Company shall prepare and the Trustee shall authenticate definitive Notes in
exchange for temporary Notes presented to it.
Section 2.10. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee
shall cancel and retain or, upon written request of the Company, may destroy
(subject to the record-retention requirements of the Exchange Act) or return to
the Company in accordance with its normal practice, all Notes surrendered for
transfer, exchange, payment or cancellation and if such Notes are destroyed,
deliver a certificate of destruction to the Company unless the Company instructs
the Trustee in writing to deliver the Notes to the Company. Subject to Section
2.07 hereof, the Company may not issue new Notes to replace Notes in respect of
which it has previously paid all principal and interest accrued thereon, or
delivered to the Trustee for cancellation.
Section 2.11. Deposit of Moneys.
Prior to 10:00 a.m., New York City time, on each Interest
Payment Date and Maturity Date, the Company shall have deposited with the Paying
Agent money sufficient to make cash payments,
- 9 -
<PAGE> 16
if any, due on such Interest Payment Date or Maturity Date, as the case may be,
in a timely manner which permits the Trustee to remit payment to the Holders on
such Interest Payment Date or Maturity Date, as the case may be. The Company may
pay principal and interest due under the Notes by Company check. A Holder must
surrender the Note to the Company to receive payment of the principal amount of
the Note.
Section 2.12. CUSIP Number.
The Company in issuing the Notes may use a "CUSIP" number(s),
and if so, the Trustee shall use the CUSIP number(s) in notices of redemption or
exchange as a convenience to Holders, provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number(s) printed in the notice or on the Notes, and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company will
promptly notify in writing the Trustee of any such CUSIP number used by the
Company in connection with the Notes and any change in such CUSIP number.
Section 2.13. Maintenance of Office or Agency.
The Company shall maintain an office or agency where Notes may be
surrendered for registration of transfer or exchange or for presentation for
payment and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices, and demands may be made or
served at the address of the Trustee as set forth in Section 13.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations. The
Company shall give prompt written notice to the Trustee of such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee set forth in Section 12.02 as such office of the Company.
ARTICLE 3.
REDEMPTION
Section 3.01. Optional Redemption.
On not less than fifteen (15) days prior notice, given in
accordance with Section 3.03, at any time if, and only if, the Approval Date
shall have accrued on or prior to the Redemption Date, the Company may call for
redemption all or any portion of the Notes then outstanding for the Redemption
Price.
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Section 3.02. Selection by Trustee of Notes to Be Redeemed.
In the event that fewer than all of the Notes are to be
redeemed, the Trustee shall select the Notes to be redeemed, if the Notes are
listed on a national securities exchange, in accordance with the rules of such
exchange or, if the Notes are not so listed, on either a pro rata basis or by
lot, or such other method as it shall deem fair and appropriate. The Trustee
shall promptly notify the Company of the Notes selected for redemption and, in
the case of any Notes selected for partial redemption, the principal amount
thereof to be redeemed. The Trustee may select for redemption portions of the
principal of the Notes that have denominations in integral multiples of $1,000.
For all purposes of this Indenture unless the context otherwise requires,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
At least 15 days before the Redemption Date, the Company shall
mail, or cause to be mailed, a notice of redemption by registered or certified
mail to a Holder's last address as it shall appear on the register maintained by
the Registrar of the Notes. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed.
The notice shall identify the Notes to be redeemed (including
the CUSIP numbers thereof) and shall state: (i) the principal amount of the
Notes to be redeemed, (ii) the Redemption Price, (iii) the Redemption Date, (iv)
the place where the Notes shall be delivered and the Redemption Price paid, (v)
that the right to convert the Note shall have terminated as of the business day
immediately preceding the Redemption Date, (vi) the name and address of the
Paying Agent and (vii) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's sole expense.
No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity of the proceedings for such
redemption, except as to a Holder (a) to whom notice was not mailed or (b) whose
notice was materially defective. An affidavit by an Officer at the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
Section 3.04. Effect of Notice of Redemption.
Once the notice of redemption described in Section 3.03 is
mailed, Notes or portions thereof called for redemption become due and payable
on the Redemption Date and at the Redemption Price. Upon surrender to the Paying
Agent, such Notes or portions thereof shall be paid at the Redemption Price,
provided that if the Redemption Date is after an interest payment record date
and on or prior to the Interest Payment Date, the accrued interest shall be
payable to the Holder of the redeemed Notes registered on the relevant record
date, and provided, further, that if a Redemption Date is a Legal Holiday,
payment shall be made on the next succeeding Business Day and no interest shall
accrue for the period from such Redemption Date to such succeeding Business Day.
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Section 3.05. Deposit of Redemption Price.
On or prior to 10:00 A.M., New York City time, on each
Redemption Date, the Company shall deposit with the Paying Agent in immediately
available funds money sufficient to pay the Redemption Price on all Notes to be
redeemed on that date other than Notes or portions thereof called for redemption
on that date which have been delivered by the Company to the Trustee for
cancellation.
On and after any Redemption Date, if money sufficient to pay
the Redemption Price of the Notes called for redemption shall have been made
available in accordance with the preceding paragraph and payment thereof is not
prohibited pursuant to the terms of this Indenture, the Notes called for
redemption will cease to accrue interest and the only right of the Holders of
such Notes will be to receive, upon surrender of such Notes, payment of the
Redemption Price. If any Note called for redemption shall not be so paid,
interest will be paid, from the Redemption Date until such redemption payment is
made, on the unpaid principal of the Note and any interest not paid on such
unpaid principal, in each case, at the rate and in the manner provided in the
Notes.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Trustee
shall authenticate for a Holder a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay the principal of and interest on the
Notes on the dates and in the manner provided in the Notes and this Indenture.
An installment of principal or interest shall be considered paid on the date it
is due if the Trustee or Paying Agent holds on that date money designated for
and sufficient to pay such installment.
The Company shall pay interest on overdue principal (including
post-petition interest in a proceeding under any Bankruptcy Law) and overdue
interest, to the extent lawful, at the applicable Default Rate.
Section 4.02. Bond Representation.
Upon the expiration of the term of either director of the
Company who was elected as a director of the Company upon the agreement of the
Company and the Representative (as defined below) (each, a "Nominee" and
together, "Nominees"), (i) if more than 50% of the principal amount of the
Aggregate 8% Notes remains outstanding at the expiration of such term, or was
outstanding at any time within the six-month period prior to the end of such
term, the Company will, at the request of the Representative and such Nominee,
nominate such Nominee, or another Nominee mutually agreeable to the Company and
the Representative, for reelection as a director of the Company, and (ii) if
more than
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25% but not more than 50% of the principal amount of the Aggregate 8% Notes
remains outstanding at the expiration of such term or was outstanding at any
time within the six-month period prior to the end of such term, the Company
will, if at such time the Nominee is the sole Nominee serving on the Board of
Directors, at the request of the Representative and such Nominee, nominate such
Nominee or another Nominee mutually agreeable to the Company and the
Representatives for reelection as a director of the Company. Notwithstanding
anything in this Section 4.02 to the contrary, the foregoing obligations of the
Company are subject to the Nominees agreeing, in writing, prior to service on
the Board, that such Nominee will resign as a director of the Company effective
on the later to occur of (i) the first anniversary of the date of election or
(ii) the date that is six months following the date more than 50% of the
original aggregate principal amount of the Aggregate 8% Notes is no longer
outstanding for any reason, and that the other nominee will so resign effective
on the later to occur of (x) the first anniversary of the date of election or
(y) the date that more than 25% of the original aggregate principal amount of
the Aggregate 8% Notes is no longer outstanding for any reason. For purposes of
this Section 4.02, the term "Representative" shall mean that person designated
by the holders of more than 50% of the outstanding principal amount of the
Aggregate 8% Notes as the Representative of the holders for purposes of this
Section 4.02. If the Representative is a Holder or a holder of an Original Note
or an affiliate of a Holder or a holder of an Original Note, and at any time
after his designation, the Representative (if he is a Holder or a holder of an
Original Note) or such Holder or holder of an Original Note (if the
Representative is an affiliate of a Holder or a holder of an Original Note)
shall no longer hold a Note, or an Original Note, the holders of the aggregate
8% Note shall designate a new Representative. If a Representative is not
designated as aforesaid, the Representative shall be the holder of the largest
of principal outstanding amount of the Aggregate 8% Notes at the time the
Nominees are required to be so designated.
ARTICLE 5.
SUCCESSOR CORPORATION
Section 5.01. Successor Person Substituted.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company, the successor corporation formed
by such consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Indenture with the same effect
as if such successor corporation had been named as the Company, and thereafter
the predecessor corporation shall be relieved of all obligations and covenants
under this Indenture and the Notes.
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ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default. The following shall be 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 Notes in
accordance with their terms; or
(b) The Company shall make an assignment for the benefit of
creditors, or shall file with a court of competent jurisdiction an application
for the appointment of a receiver for itself or a material part of its assets,
or shall commence a voluntary case or proceeding under any provision of the
Bankruptcy Law or any other federal or state statute affording relief to debtors
or shall in any manner consent to the filing against it of an involuntary case
or proceeding under any such law; or there shall be commenced against the
Company an involuntary case or proceeding under any such federal or state
statute or there shall be filed against the Company, without the consent of
Company, any application under any such federal or state statute for the
appointment of a receiver for itself or a material part of its assets which
case, proceeding or application is not dismissed or withdrawn within sixty (60)
days of commencement or filing thereof as the case may be; or
(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 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 Notes)
the principal of, or accrued interest under all 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 Company or any such
subsidiary with an aggregate principal amount in excess of $250,000 (whether
such principal or interest shall become due at scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise); or
(f) If the Approval Date has not occurred by January 31, 1998;
or
(g) The failure by the Company to comply in any material
respect with Sections 9(a), 9(b), 9(c) or 9(d) of the Purchase Agreement;
provided, however, that an Event of Default under this Section 6.01(7) 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 Company shall promptly provide each Holder with written
notice after the occurrence of any Event of Default known by the Company setting
forth the facts constituting such Event of Default.
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At the Company's request, the Trustee shall give such written notice to the
Holders in the Company's name and at the Company's expense.
Subject to the provisions of Sections 8.01 and 8.02, the
Trustee shall not be charged with knowledge of any Event of Default, or any
event with the giving of notice or passage of time or both would constitute an
Event of Default, unless written notice thereof shall have been given to a Trust
Officer at the Corporate Trust Office by the Company or any other Person.
Section 6.02. Acceleration.
If an Event of Default set forth in Sections 6.01(d), (e), (f)
or (g) hereof shall occur and continue for five (5) days, whether or not the
holders shall (if permitted hereunder) declare the unpaid principal amount of
the Notes, together with accrued and unpaid interest thereon, to be immediately
due and payable, and whether or not such Event of Default occurs after the
occurrence of any other Event of Default described in Section 6.01 hereof, then
interest shall begin to accrue, at the applicable Default Rate, on the
outstanding principal balance of the Notes from the date of such Event of
Default to the earlier of (i) the date of payment in full of the outstanding
principal of the Notes and all accrued and unpaid interest hereunder or (ii) the
date the Event of Default is cured.
If an Event of Default pursuant to clauses (a), (b), (c), (d),
(e) or (f) hereof shall occur and, other than with respect to clauses (a), (b),
(e) or (f) shall continue uncured for five (5) days, and at any time thereafter,
while such event is continuing, then subject to Section 6.03, 6.04 and 6.05, the
Trustee, by notice to the Company, or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding by written notice to
the Company and the Trustee, may declare the unpaid principal amount of the
Notes, together with accrued interest (including interest at the applicable
Default Rate calculated as provided aforesaid in this Section 6.01) thereon, to
be immediately due and payable, whereupon the same shall be forthwith due and
payable.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of and interest on the Notes or to enforce the performance
of any provision of the Notes or this Indenture and may take any necessary
action requested of it as Trustee to settle, compromise, adjust or otherwise
conclude any proceedings to which it is a party.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
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Section 6.04. Waiver of Past Defaults and Events of Default.
Subject to Sections 6.03 and 10.03 hereof, the Holders of a
majority in principal amount of the Notes then outstanding have the right to
waive any Event of Default (including, after receipt by the Company of a notice
of acceleration but before a judgment based on such acceleration is obtained by
the Trustee, the right to rescind or annul such acceleration and its
consequences if all existing Events of Default, other than the nonpayment of
principal or interest that have become due by reason solely of the acceleration,
have been cured or waived and if the rescission would not conflict with any
judgment or decree) or compliance with any provision of this Indenture or the
Notes. Upon any such waiver, such Event of Default shall be deemed to have been
cured for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Event of Default or impair any right consequent thereto.
Section 6.05. Control by Majority.
The Holders of a majority in principal amount of the Notes
then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee by this Indenture. The Trustee, however, may
refuse to follow any direction that conflicts with law or this Indenture or that
the Trustee determines may be unduly prejudicial to the rights of another
Noteholder not taking part in such direction, and the Trustee shall have the
right to decline to follow any such direction if the Trustee, being advised by
counsel, determines that the action so directed may not lawfully be taken or if
the Trustee in good faith shall, by a Trust Officer, determine that the
proceedings so directed may involve it in personal liability; provided that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Section 6.06. Limitation on Suits.
Subject to Section 6.07 below, a Noteholder may not institute any
proceeding or pursue any remedy with respect to this Indenture or the Notes
unless:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer, and if requested, provide to the
Trustee indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60 day period by the Holders of a majority in
aggregate principal amount of the Notes then outstanding.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
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Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal of and interest of the Note on
or after the respective due dates expressed in the Note, or to bring suit for
the enforcement of any such payment on or after such respective dates, is
absolute and unconditional and shall not be impaired or affected without the
consent of the Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest
specified in Section 6.01(d) hereof occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company (or any other obligor on the Notes) for the whole amount of unpaid
principal and accrued interest remaining unpaid, together with interest
calculated at the applicable Default Rate to the extent that payment of such
interest is lawful, and such further amounts as shall be sufficient to cover the
costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
including all sums due and owing to the Trustee pursuant to Section 8.07.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Noteholders allowed in any judicial proceedings relative to the Company (or any
other obligor upon the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same after
deduction of its reasonable charges and expenses to the extent that any such
charges and expenses are not paid out of the estate in any such proceedings and
any custodian in any such judicial proceeding is hereby authorized by each
Noteholder to make such payments to the Trustee, and in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 8.07 hereof.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan or reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such
proceedings.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
FIRST: to the Trustee for amounts due under Section 8.07 hereof;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal and interest as to each, ratably, without preference or priority of
any kind, according to the amounts due and payable on the Notes; and
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THIRD: to the Company.
The Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 6.10. The Trustee shall give the
Company prior notice of any such record date and payment date; provided,
however, that the failure to give any such notice shall not affect the
establishment of such record date or payment date or any payment to Noteholders
pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in
principal amount of the Notes then outstanding.
Section 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
ARTICLE 7.
CONVERSION
Section 7.01. Conversion of Notes into Common Stock.
(a) Subject to the terms and provisions of this Indenture, at
the option of the Holder thereof, any Note or any principal amount thereof then
outstanding may, at any time after the Approval Date and until the Conversion
Termination Date, be surrendered for conversion into shares of Common Stock in
accordance with Section 7.01(f) (the "Conversion Shares") at the Conversion
Price hereinafter provided (the "Optional Conversion"). In the event a Note is
redeemed in part, the Conversion Termination Date with respect to such partial
redemption shall only apply to the principal amount of the Note which is called
for redemption.
(b) Subject to the terms and provisions of this Indenture, if
at any time the Closing Bid Price of the Company's Common Stock is at least
$5.10 per share (as such price shall be adjusted from time to time pursuant to
Sections 7.03(a), 7.03(b) or 7.03(c) to the same extent and in the same relative
proportion as the Conversion Price), for a period of twenty (20) consecutive
trading days (provided that the Approval Date shall have occurred on or before
such twentieth day), then the Holder
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shall, if notice is given pursuant to subsection 7.01(d) below, be required to
convert (the "Mandatory Conversion") the outstanding principal amount of the
Holder's Notes as of the date such Notes are surrendered for conversion into
Conversion Shares at the Conversion Price in effect on the last trading day of
the 20-day period referred to above (such day hereinafter referred to as the
"Trigger Date"). As of the Trigger Date, such Holders shall have no further
rights under this Indenture or under the Notes (including, without limitation,
any rights under Article 7 of this Indenture), except as provided in subsection
7.01(d) or 7.01(e) below.
(c) To convert a Note, in whole or in part in connection with
an Optional Conversion after the Approval Date, a Holder shall surrender the
Note to the Company during usual business hours at the Company's principal
executive office, accompanied by written notice to the Company in form
reasonably satisfactory to the Company, of the Holder's intention to convert,
stating the portion of the Note that is to be converted and the name and address
of each person in whose name a share or shares of Common Stock issuable upon
such conversion is to be registered. When surrendered for conversion in
connection with an Optional Conversion, the Note shall, unless the shares
issuable on conversion are to be issued in the same name as the name in which
the Note is then registered, be duly endorsed, or accompanied by instruments of
transfer in form reasonably satisfactory to the Company duly executed by the
Holder or his or its duly authorized attorney. As promptly as practical after
the surrender and giving of notice to convert as herein provided, the Company
shall deliver or cause to be delivered at its office or agency maintained for
that purpose to or upon written order of the Holder of the Note, certificates
representing the number of fully paid and nonassessable Conversion Shares into
which said Note is converted and, in the event of partial conversion, a new Note
in an aggregate principal amount equal to the unconverted portion of said Note,
dated as of the date to which interest has been paid, and if no interest has
been paid, dated as of the date of the Note converted in part, and in all other
respects identical to the Note converted. All Notes surrendered for conversion
shall, if surrendered to the Company, be delivered to the Trustee for
cancellation and shall be so cancelled by the Trustee.
(d) If there shall be a Mandatory Conversion, at the election
of the Company, the Holders shall be given ten (10) days prior written notice of
the date on which the Company shall effect such Mandatory Conversion (the
"Mandatory Conversion Date"). On or before the Mandatory Conversion Date, the
Holders shall surrender all Notes to the Company at the Company's principal
executive office, together with written notice to the Company of the name and
address of each person in whose name a share or shares of Common Stock issuable
upon such conversion is to be registered. When surrendered for conversion upon a
Mandatory Conversion, the Notes shall, unless the shares issuable on conversion
are to be issued in the same name as the name in which the Notes are then
registered, be duly endorsed, or accompanied by instruments of transfer in form
reasonably satisfactory to the Company duly executed by the Holders or their
duly authorized attorneys. On the Mandatory Conversion Date, the Company shall
have prepared and ready for delivery or cause to be delivered at its office or
agency maintained for that purpose to the Holders of the Notes, certificates
representing the number of fully paid and nonassessable Conversion Shares into
which said Notes are converted. Such Conversion Shares shall be delivered only
upon receipt by the Company of the certificates for the Notes being converted.
From and after the Mandatory Conversion Date, interest on the Notes will cease
to accrue and the sole right of the Holders of the Notes shall be to receive the
Conversion Shares and accrued and unpaid interest on the Notes up to the
Mandatory Conversion Date. All Notes surrendered for conversion shall, if
surrendered to the Company, be delivered to the Trustee for cancellation and
shall be so cancelled by the Trustee.
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(e) Upon either an Optional Conversion or a Mandatory
Conversion, the Company shall pay to the Trustee on behalf of the Holder or
Holders whose Notes are converted, any unpaid interest accrued on the converted
portion of the Note through the date of conversion. If a Note is surrendered for
conversion during the period from the close of business on any Interest Payment
Record Date to the opening of business on the succeeding Interest Payment Date,
the Holder must surrender the Note accompanied by payment by check or other
method reasonably acceptable to the Company of an amount equal to the interest
payable from the date of conversion to such Interest Payment Date; provided,
however, that no such payment need be made if there shall exist at the time of
conversion an Event of Default in the payment of interest on the Notes.
(f) Upon conversion as provided herein, the Note (or any
Note(s) issued upon transfer or exchange) shall convert into such number of
shares of Common Stock equal to the outstanding principal amount of said Note or
portion thereof which is being converted, divided by $3.70 (the "Conversion
Price"); provided, however, that the Conversion Price shall be adjusted to an
amount equal to the greater of (i) $2.50 per share (as adjusted from time to
time pursuant to Section 7.03(c) to the same extent and in the same relative
proportion as the Conversion Price) and (ii) the average Closing Bid Price for
the twenty (20) consecutive trading days beginning on March 15, 1999; provided
that in no event shall the adjusted Conversion Price as aforesaid be greater
than the Conversion Price in effect immediately prior to such adjustment. In
addition to the foregoing, the Conversion Price may be adjusted from time to
time in accordance with Section 11.03 hereof; provided, however, that in no
event (other than pursuant to Section 7.03(c)) shall the Conversion Price be
reduced, upon any adjustment, to less than $2.50.
Section 7.02. Reservation of Commission Shares.
(a) The Company covenants and agrees that it has reserved and
shall at all times reserve and keep available out of its authorized but unissued
Common Stock, solely for the purpose of issuing such shares upon the conversion
of the Notes, the full number of Conversion Shares then deliverable upon the
conversion of the Notes then outstanding, free of preemptive rights. The Company
covenants and agrees that the Conversion Shares shall, at the time of delivery
of the certificates for such shares of Common Stock, be duly authorized, validly
issued and fully paid and nonassessable shares of Common Stock.
(b) Each person in whose name any certificate for the
Conversion Shares is issuable upon the conversion of a Note shall, for all
purposes, be deemed to have become the holder of record of the Common Stock
represented thereby on, and such certificate shall be dated, with respect to an
Optional Conversion, the date upon which such Note was duly surrendered and
notice of conversion was given in accordance with the provisions of this Note,
and with respect to a Mandatory Conversion, the Mandatory Conversion Date;
provided, however, that if the date of such surrender and notice is a date upon
which the stock transfer books of the Company are closed, such person shall be
deemed to have become the record holder of such shares on, and such certificate
shall be dated, the next business day on which the stock transfer books of the
Company are open.
Section 7.03. Adjustment to Conversion Price.
(a) Except as hereinafter provided, in case the Company shall
at any time after the date hereof issue or sell any shares of Common Stock
(other than the issuances or sales referred to in Section 7.03(c) or 7.03(e)
hereof), including shares held in the Company's treasury and shares of Common
Stock issued upon the exercise of any options, rights or warrants to subscribe
for shares of
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Common Stock (other than the issuances or sales of Common Stock pursuant to
rights to subscribe for such Common Stock distributed to all the stockholders of
the Company) and shares of Common Stock issued upon the direct or indirect
conversion or exchange of securities for shares of Common Stock, for a
consideration per share less than the Conversion Price in effect immediately
prior to the issuance or sale of such shares, or without consideration, then
forthwith upon such issuance or sale, the Conversion Price shall (until another
such issuance or sale or other adjustment) be reduced to the price (calculated
to the nearest full cent) determined by dividing (I) an amount equal to the sum
of (A) the product of (X) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale, multiplied by (Y) the Conversion
Price in effect on the date immediately prior to the issuance or sale of such
shares, plus (B) the aggregate amount of all consideration, if any, received by
the Company upon such issuance or sale, by (II) the total number of shares of
Common Stock outstanding immediately after such issuance or sale; provided,
however, that in no event shall the Conversion Price be adjusted pursuant to
this computation to an amount in excess of the Conversion Price in effect
immediately prior to such computation.
For the purposes of any computation to be made in accordance with this
Section 11.03(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of stockholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of the Company, other
than shares of Common Stock, into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (ii) of this Section
7.03(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, rights or warrants and upon the conversion or exchange
of convertible or exchangeable securities.
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(b) Except in the case of the Company issuing rights to subscribe for
shares of Common Stock to all the stockholders of the Company or issuances or
sales referred to in Section 7.03(e), if the Company shall at any time after the
date hereof issue options, rights or warrants to subscribe for shares of Common
Stock, or issue any securities convertible into or exchangeable for shares of
Common Stock, (i) for a consideration per share less than the Conversion Price
in effect immediately prior to the issuance of such options, rights, or
warrants, or (ii) without consideration, the Conversion Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 7.03(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under all the options, rights or warrants so issued
shall be deemed to be issued and outstanding at the time all such options,
rights or warrants were issued (without giving effect to any additional shares
of Common Stock that may be issued after the date of issuance of such options,
rights or warrants pursuant to future adjustments resulting from the
anti-dilution provisions contained in such options, rights or warrants ("Future
Adjustments")), and for a consideration equal to the minimum purchase price per
share (without giving effect to any Future Adjustments) provided for in the
options, rights or warrants at the time of issuance, plus the consideration
(determined in the same manner as consideration received on the issue or sale of
shares in accordance with the terms of such options, rights or warrants), if
any, received by the Company for the options, rights or warrants, and if no
minimum price is provided in such options, rights or warrants, then the
consideration shall be equal to zero; provided, however, that upon the
expiration or other termination of the options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subsection (i) (and for the
purposes of subsection (v) of Section 7.03(a) hereof) shall be reduced by such
number of shares as to which options, warrants and/or rights shall have expired
or terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Conversion Price then in effect shall
forthwith be readjusted in such event (and also if the options, rights or
warrants are exercised for a price in excess of the minimum price provided in
such securities) and thereafter be the Conversion Price which it would have been
had adjustment been made on the basis of the issuance only of shares actually
issued or issuable upon the exercise of those options, rights or warrants as to
which the exercise rights shall not have expired or terminated unexercised;
provided, further, that no such readjustment to the Conversion Price, if any,
shall affect any portion of this Note that is converted or redeemed prior to the
effective date of such readjustment.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities(without giving effect to any Future Adjustments), and for a
consideration equal to the consideration received by the Company for such
securities, plus the minimum consideration (without giving effect to any Future
Adjustments), if any, receivable by the Company upon the conversion or exchange
thereof; provided, however, that upon the actual conversion or exchange or
termination of the right to convert or exchange such convertible or exchangeable
securities (whether by reason of redemption or otherwise), the number of shares
deemed to be issued and outstanding pursuant to this subsection (b) (and for the
purpose of subsection (v) of Section 7.03(a) hereof) shall be reduced by such
number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding and the Conversion Price then in effect
shall forthwith be readjusted in such event (and also if the options, rights or
warrants are exercised for a price in excess of the minimum price provided in
such securities) and thereafter be the price which it would have been had
adjustment been
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<PAGE> 29
made on the basis of the issuance only of the shares actually issued or issuable
upon the conversion or exchange of those convertible or exchangeable securities
as to which the conversion or exchange rights shall not have expired or
terminated unexercised; provided, further, that no such readjustment to the
Conversion Price, if any, shall affect any portion of this Note that is
converted or redeemed prior to the effective date of such readjustment.
(iii) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in subsection
(i) of this Section 7.03(b), or in the price per share at which the securities
referred to in subsection (ii) of this Section 7.03(b) are convertible or
exchangeable, the options, rights or warrants or conversion or exchange rights,
as the case may be, shall be deemed to have expired or terminated on the date
when such price change became effective in respect of shares not theretofore
issued pursuant to the exercise or conversion or exchange thereof, and the
Company shall be deemed to have issued upon such date new options, rights or
warrants or convertible or exchangeable securities at the new price in respect
of the number of shares issuable upon the exercise of such options, rights or
warrants or the conversion or exchange of such convertible or exchangeable
securities.
(c) (i) In case the Company shall: (A) declare a dividend of Common
Stock on its Common Stock, (B) subdivide outstanding Common Stock into a larger
number of shares of Common Stock by reclassification, stock split or otherwise,
or (C) combine outstanding Common Stock into a smaller number of shares of
Common Stock by reclassification or otherwise, the Conversion Price then in
effect immediately prior to any such event shall be adjusted proportionately so
that thereafter the Holders shall be entitled to receive upon conversion of the
Notes the number of Conversion Shares which such Holders would have owned after
the happening of any of the events described above had the Notes been converted
immediately prior to the happening of such event, provided that the Conversion
Price shall in no event be reduced to less than the par value of the shares
issuable upon conversion. An adjustment made pursuant to this Section 7.03(c)
shall become effective immediately after the record date in the case of a
dividend or immediately after the payment date in the event no record date is
fixed to determine the stockholders entitled to receive such dividend (and
readjusted back to the Conversion Price in effect prior to such adjustment if
the dividend is not paid) and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(ii) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon conversion of the Notes (other than change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in case of any
consolidation or merger with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or change of outstanding shares of
Common Stock, other than a change as a result of a subdivision or combination of
such shares or a change in par value, as aforesaid), or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, the Holders shall have the right thereafter to
convert the Notes into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a Holder of the number of shares of
Common Stock of the Company for which the Notes might have been converted
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance.
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<PAGE> 30
The above provisions of this Section 7.03(c)(i) and (ii) shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales or conveyances.
(d) In the event that the Company shall at any time prior to
the conversion of all of the Notes declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
payable out of current or retained earnings) or otherwise distribute to its
stockholders any monies, assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Company shall
promptly thereafter give the Holder the notice set forth in Section 7.04 hereof.
If the Company fails to give such notice, the Holders shall be entitled to
receive, upon the conversion of the Notes, the same monies, property, assets,
rights, evidences of indebtedness, securities or any other thing of value that
the Holders would have been entitled to receive at the time of such dividend or
distribution. The Company shall make appropriate provisions to ensure the timely
performance of the provisions of this Subsection 7.03(c).
(e) Notwithstanding anything contained in this Indenture to
the contrary, no adjustment of the Conversion Price shall be made (i) upon the
issuance of options or stock pursuant to the Company's stock plans in effect on
the date of issuance of the Original Notes or subsequently approved by the
Company's stockholders and the issuance or sale by the Company of any shares of
Common Stock pursuant to the exercise of any such option, or (ii) upon the
issuance or sale by the Company of any shares of Common Stock pursuant to the
exercise of any options or warrants or upon conversion of any outstanding
convertible security, in any such case if previously issued and outstanding as
of the date of issuance of the Original Notes or (iii) if the amount of such
adjustment shall be less than 1% of the Conversion Price; provided, however,
that in such case any adjustment that would otherwise be required to be made
shall be carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least 1% of the Conversion Price.
Section 7.04. Notices to Holders Prior to Taking Certain Types of Action.
(a) In case the Company proposes to take any action referred
to in Section 7.03(d) above, or to effect the liquidation, dissolution or
winding up of the Company, then the Company shall cause notice thereof to be
mailed to the Holder, at Holder's address appearing in the Company's records (or
shall cause the notice to be delivered to the Trustee which shall thereupon mail
such notice to the Holders as aforesaid), at least thirty (30) days prior to the
date on which the transfer books of the Company shall close or a record be taken
for such stock dividend, sale or issuance or the date when such
reclassification, liquidation, dissolution or winding up shall be effective, as
the case may be. Neither the failure to give such notice referred to in this
Section 7.04(a) or (b) nor any defect therein or in the mailing thereof shall
affect the validity of any action taken in connection with such transaction.
(b) Whenever the Conversion Price shall be adjusted as
provided in Section 7.03 above, the Company shall forthwith deliver to the
Trustee and shall file at the office designated for the conversion of the Note,
a statement, signed by the Chairman of the Board, the President, any Vice
President, the Treasurer or Secretary of the Company, showing in reasonable
detail the facts requiring such adjustment and the Conversion Price that will be
effective after such adjustment. The Company shall also cause the Trustee to
deliver a notice setting forth any such adjustment to be sent by mail, first
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class, postage prepaid, to the Holder at its address appearing on the Note
register maintained by the Trustee.
(c) No fractional shares of Common Stock shall be issuable
upon conversion of the Note, but a payment in cash will be made in respect of
any fraction of a share which would otherwise be issuable upon the surrender of
the 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.
Section 7.05. Holders Not Entitled to Rights as Stockholders.
No Holder shall be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company which
may at any time be issuable on the conversion of such Holder's Note for any
purpose, nor shall anything contained in this Indenture be construed to confer
upon any Holder, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matters submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive dividends
or subscriptions rights or otherwise until such Holder's Note shall have been
converted and the Common Stock issuable upon the conversion hereof shall have
become deliverable as provided herein.
Section 7.06. Compliance with Governmental Requirements.
The Company covenants that if any shares of Common Stock
required to be reserved for purposes of conversion of Notes hereunder require
registration with or approval of any governmental authority under any Federal or
State law, or any national securities exchange, before such shares may be issued
upon conversion, the Company will use its best efforts to cause such shares to
be duly registered or approved, as the case may be.
Section 7.07. Payment of Taxes Upon Certificates for Shares Issued Upon
Conversion.
The issuance of certificates for shares of Common Stock upon
the conversion of Notes shall be made without charge to the converting Holders
for any tax in respect of the issuance of such certificates, and such
certificates shall be issued in the respective names of, or in such names as may
be directed by, the Holders of the Notes converted; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate in a
name other than that of the Holder of the Note converted, and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
Section 7.08. Trustee's Duties with Respect to Conversion Provisions.
The Trustee, subject to the provisions of Section 8.1 shall
not at any time be under any duty or responsibility to any Holder to determine
whether any facts exist which may require any adjustment of the Conversion
Price, or with respect to the nature or extent of any such adjustment when made,
or with respect to the method employed, or herein or in any supplemental
indenture provided to be employed, in making the same. The Trustee shall not be
accountable with respect to the registration
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<PAGE> 32
under securities laws, listing, validity or value (or the kind or amount) of any
shares of Common Stock, or of any other securities or property, which may at any
time be issued or delivered upon the conversion of any Note; and the Trustee
makes no representation with respect thereto. The Trustee shall not be
responsible for any failure of the Company to make any cash payment or to issue,
transfer or deliver any shares of stock or stock certificates or other
securities or property upon the surrender of any Note for the purpose of
conversion; and the Trustee, subject to the provisions of Section 8.1, shall not
be responsible for any failure of the Company to comply with any of the
covenants of the Company contained in this Section 7.
ARTICLE 8.
TRUSTEE
Section 8.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the same circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others and no implied
covenants or obligations shall be read into this Indenture against the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture but, in the case of any such certificates or opinions
which by any provision hereof are specifically required to be furnished
to the Trustee, the Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of this
Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 8.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
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(4) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity satisfactory to it against such risk or liability is
not reasonably assured to it.
(d) Whether or not therein expressly so provided, paragraphs
(a), (b), (c), (e) and (f) of this Section 8.01 shall govern every provision of
this Indenture that in any way relates to the Trustee.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity reasonably satisfactory to it
against any loss, liability, expense or fee.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by the law.
Section 8.02. Rights of Trustee.
Subject to Section 8.01 hereof:
(1) The Trustee may rely on and shall be protected in acting
or refraining from acting upon any document reasonably believed by it
to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in
the document.
(2) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or both,
which shall conform to the provisions of Section 13.05 hereof. The
Trustee shall be protected and shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or
opinion.
(3) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent (other than
the negligence or willful misconduct of an agent who is an employee of
the Trustee) appointed by it with due care.
(4) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers; provided that the Trustee's
conduct does not constitute negligence or bad faith.
(5) The Trustee may consult with counsel of its selection, and
the advice or opinion of such counsel as to matters of law shall be
full and complete authorization and protection from liability in
respect of any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such
counsel.
Section 8.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may make loans to, accept deposits from,
perform services for or otherwise deal with the Company, or any Affiliates
thereof, with the same rights it would have if it were not Trustee. Any Agent
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may do the same with like rights. The Trustee, however, shall be subject to
Sections 8.10 and 8.11 hereof.
Section 8.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Company's use of the proceeds from the sale of Notes or any money paid to the
Company pursuant to the terms of this Indenture and it shall not be responsible
for any statement in the Notes or any document used in connection with the sale
of the Notes other than its certificate of authentication.
Section 8.05. Notice of Event of Defaults.
If an Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each Noteholder notice of the
Event of Default within 90 days after it occurs. Except in the case of an Event
of Default constituting a default in payment of the principal of or interest on
any Note, the Trustee may withhold the notice if and so long as the board of
directors of the Trustee, the executive committee or any trust committee of such
board and/or its Trust Officers in good faith determine(s) that withholding the
notice is in the interests of the Noteholders.
Section 8.06. Reports by Trustee to Holders.
If required by TIA Section 313(a), within 60 days after May 15
of any year, commencing the May 15 following the date of this Indenture, the
Trustee shall mail to each Noteholder a brief report dated as of such May 15
that complies with TIA Section 313(a); provided that no such report need be
transmitted if no such events listed in TIA Section 313(a) have occurred within
such period. The Trustee also shall comply with TIA Section 313(b)(2). The
Trustee shall also transmit by mail all reports as required by TIA Section
313(c) and TIA Section 313(d).
A copy of each report at the time of its mailing to
Noteholders shall be filed with the SEC and each stock exchange on which the
Notes are listed. The Company shall promptly notify the Trustee when the Notes
are listed on any stock exchange.
Section 8.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time such
reasonable compensation as shall be agreed in writing between the Company and
the Trustee for its services hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust). The Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it in connection with
its duties under this Indenture, including the reasonable compensation,
disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify each of the Trustee and any
predecessor Trustee for, and hold it harmless against, any and all loss, damage,
claim, liability, reasonable expense (including but not limited to reasonable
attorneys' fees and expenses) or taxes (other than taxes based on the income of
the Trustee) incurred by it in connection with the acceptance or performance of
its duties under this Indenture including the reasonable costs and expenses of
defending itself against any claim or liability in connection
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<PAGE> 35
with the exercise or performance of any of its powers or duties hereunder
(including, without limitation, settlement costs). The Trustee shall notify the
Company in writing promptly of any claim asserted against the Trustee for which
it may seek indemnity. However, the failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder.
Notwithstanding the foregoing, the Company need not reimburse
the Trustee for any expense or indemnify it against any loss or liability
incurred by the Trustee through its negligence or bad faith. To secure the
payment obligations of the Company in this Section 8.07, the Trustee shall have
a lien prior to the Notes on all money or property held or collected by the
Trustee in its capacity as such, except such money or property held in trust to
pay principal of and interest on particular Notes. The obligations of the
Company under this Section 8.07 to compensate and indemnify the Trustee and each
predecessor Trustee and to pay or reimburse the Trustee and each predecessor
Trustee for expenses, disbursements and advances shall be joint and several
liabilities of the Company and shall survive the satisfaction and discharge of
this Indenture, including the termination or rejection hereof in any bankruptcy
proceeding to the extent permitted by law.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(b) hereof occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
For purposes of this Section 8.07, the term "Trustee" shall
include any trustee appointed pursuant to Article 10.
Section 8.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company in writing,
such resignation to become effective upon the appointment of a successor
Trustee. The Holders of a majority in principal amount of the outstanding Notes
may remove the Trustee by notifying the removed Trustee in writing and may
appoint a successor Trustee with the Company's written consent which consent
shall not be unreasonably withheld. The Company may remove the Trustee at its
election if:
(1) the Trustee fails to comply with Section 8.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of a majority in principal amount of the outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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If the Trustee fails to comply with Section 8.10 hereof, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately following
such delivery, the retiring Trustee shall, subject to its rights under Section
8.07 hereof, transfer all property held by it as Trustee to the successor
Trustee, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Noteholder. Notwithstanding replacement of the
Trustee pursuant to this Section 8.08, the Company's obligations under Section
8.07 hereof shall continue for the benefit of the retiring Trustee.
Section 8.09. Successor Trustee by Consolidation, Merger
or Conversion.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation or national banking association, subject to Section 8.10 hereof, the
successor corporation or national banking association without any further act
shall be the successor Trustee.
Section 8.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1) and (2) in every respect. The Trustee
shall have a combined capital and surplus of at least $100,000,000 as set forth
in its most recent published annual report of condition. The Trustee shall
comply with TIA Section 310(b), including the provision in Section 310(b)(1);
provided that there shall be excluded from the operation of TIA Section
310(b)(1) any indenture or indentures under which other securities, or conflicts
of interest or participation in other securities, of the Company or the
Guarantors are outstanding if the requirements for exclusion set forth in TIA
Section 310(b)(1) are met.
Section 8.11. Preferential Collection of Claims Against
Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
Section 8.12. Paying Agents.
The Company shall cause each Paying Agent other than the
Trustee to execute and deliver to it and the Trustee an instrument in which such
agent shall agree with the Trustee, subject to the provisions of this Section
8.12:
(1) that it will hold all sums held by it as agent for the
payment of principal of, or premium, if any, or interest on, the Notes
(whether such sums have been paid to it by the Company or by any
obligor on the Notes) in trust for the benefit of Holders of the Notes
or the Trustee;
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(2) that it will at any time during the continuance of any
Event of Default, upon written request from the Trustee, deliver to the
Trustee all sums so held in trust by it together with a full accounting
thereof; and
(3) that it will give the Trustee written notice within three
(3) Business Days of any failure of the Company (or by any obligor on
the Notes) in the payment of any installment of the principal of,
premium, if any, or interest on, the Notes when the same shall be due
and payable.
ARTICLE 9.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01. Amendments. No amendment, modification or waiver of any provision
of this Indenture, and no consent to departure from performance or compliance
with any such provision, shall in any event be effective unless the same is in
writing and signed by the Holders of 51% or more in the aggregate principal
amount of Notes at the time outstanding, except that no such amendment may (a)
extend the Maturity Date of any Note, or reduce the principal amount thereof, or
reduce the rate or extend the time or payment of interest thereon, without the
consent of the Holder of each of the Notes so affected; (b) modify the
provisions of the Notes with respect to the subordination of the Notes in a
manner adverse to the Holders thereof or alter the provisions in respect of the
right to convert the Notes, without the consent of the Holders of 100% in
aggregate principal amount of Notes at the time outstanding; or (c) reduce the
aforesaid percentage of Notes, the consent of the Holders of which is required
for any amendment, without the consent of the Holders of 100% in aggregate
principal amount of Notes at the time outstanding. Notwithstanding the
foregoing, however, the Company, when authorized by a Board Resolution, and the
Trustee may modify, waive, amend or supplement this Indenture or the Notes
without notice to or consent of any Noteholder: (1) to cure any ambiguity,
defect or inconsistency, or to make any other change that does not materially
and adversely affect the rights of any Noteholder; (2) to make any other change
that does not adversely affect in any material respect the rights of any
Noteholders hereunder; or (3) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the Notes.
The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture authorized or permitted by the terms of
this Indenture and to make any further appropriate agreements and stipulations
which may be therein contained, but the Trustee shall not be obligated to enter
into any such supplemental indenture which adversely affects its own rights,
duties or immunities under this Indenture.
Section 9.02. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Notes shall comply with the TIA as then in effect.
Section 9.03. Revocation and Effect of Consents.
Until a modification, amendment, supplement, waiver or other
action becomes effective, a consent to it by a Holder of a Note is a continuing
consent conclusive and binding upon such Holder
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and every subsequent Holder of the same Note or portion thereof, and of any Note
issued upon the transfer thereof or in exchange therefor or in place thereof,
even if notation of the consent is not made on any such Note. Any such Holder or
subsequent Holder, however, may revoke the consent as to his Note or portion of
a Note, if the Trustee receives the notice of revocation before the date the
modification, amendment, supplement, waiver or other action becomes effective.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
modification, amendment, supplement, or waiver. If a record date is fixed, then,
notwithstanding the preceding paragraph, those Persons who were Holders at such
record date (or their duly designated proxies), and only such Persons, shall be
entitled to consent to such modification, amendment, supplement, or waiver or to
revoke any consent previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid or effective for
more than 90 days after such record date unless the consent of the requisite
number of Holders has been obtained.
After a modification, amendment, supplement, waiver or other
action becomes effective, it shall bind every Noteholder, unless it makes a
change described in any of clauses (a) through (c) of Section 9.01 hereof. In
that case, the modification, amendment, supplement, waiver or other action shall
bind each Holder of a Note who has consented to it and every subsequent Holder
of a Note or portion of a Note that evidences the same debt as the consenting
Holder's Note.
Section 9.04. Notation on or Exchange of Notes.
If a modification, amendment, supplement or waiver changes the
terms of a Note, the Trustee may request the Holder of the Note to deliver it to
the Trustee. In such case, the Trustee shall place an appropriate notation on
the Note about the changed terms and return it to the Holder. Alternatively, if
the Company or the Trustee so determines, the Company in exchange for the Note
shall issue and the Trustee shall authenticate a new security that reflects the
changed terms. Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such modification, amendment,
supplement or waiver.
Section 9.05. Trustee to Sign Amendments, etc.
The Trustee shall sign any modification, amendment, supplement
or waiver authorized pursuant to this Article 9 if the modification, amendment,
supplement or waiver does not adversely affect the rights, duties, liabilities
or immunities of the Trustee. If it does, the Trustee may, but need not, sign
it. In signing or refusing to sign such modification, amendment, supplement or
waiver, the Trustee shall be entitled to receive and, subject to Section 8.01
hereof, shall be fully protected in relying upon an Officers' Certificate and an
Opinion of Counsel stating that such modification, amendment, supplement or
waiver is authorized or permitted by this Indenture and such supplemental
indenture constitutes the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms (subject to customary
exceptions). The Company may not sign a modification, amendment or supplement
until the Board of Directors of the Company approves it.
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ARTICLE 10.
DISCHARGE OF INDENTURE; DEFEASANCE
Section 10.01. Discharge of Indenture.
The Company may terminate its obligations under the Notes and
this Indenture, except the obligations referred to in the last paragraph of this
Section 10.01, if there shall have been cancelled by the Trustee or delivered to
the Trustee for cancellation all Notes theretofore authenticated and delivered
(other than any Notes that are asserted to have been destroyed, lost or stolen
and that shall have been replaced as provided in Section 2.07 hereof) and the
Company has paid all sums payable by it hereunder or deposited all required sums
with the Trustee.
After such delivery the Trustee upon request shall acknowledge
in writing the discharge of the Company's obligations under the Notes and this
Indenture except for those surviving obligations specified below.
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company in Sections 2.07, 8.07, 10.04, 10.05
and 10.07 hereof shall survive.
Section 10.02. Legal Defeasance.
The Company may at its option, by Board Resolution, be
discharged from its obligations with respect to the Notes on the date the
conditions set forth in Section 10.03 below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the Notes and to have satisfied all its other obligations under such Notes
and this Indenture insofar as such Notes are concerned (and the Trustee, at the
expense of the Company, shall, subject to Section 10.05 hereof, execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of outstanding Notes to receive solely from the trust funds described in
Section 10.03 hereof and as more fully set forth in such Section, payments in
respect of the principal of and interest on such Notes when such payments are
due, (B) the Company's obligations with respect to such Notes under Sections
2.03, 2.04, 2.05, 2.06, 2.07, 2.08 and 2.13 hereof, (C) the rights, powers,
trusts, duties, and immunities of the Trustee hereunder (including claims of, or
payments to, the Trustee under or pursuant to Section 8.07 hereof) and (D) this
Article 10.
Section 10.03. Conditions to Defeasance.
The following shall be the conditions to application of
Section 10.02 hereof to the outstanding Notes:
(a) the Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 8.10 hereof who shall agree to comply with the
provisions of this Article 10 applicable to it) as funds in trust for
the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of
the Notes, (i) money in an amount, or (ii) U.S. Government Obligations
which through the scheduled payment of principal and interest in
respect thereof in
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accordance with their terms will provide, not later than the due date
of any payment, money in an amount, or (iii) combination thereof,
sufficient, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall
be applied by the Trustee (or other qualifying trustee) to pay and
discharge, the principal of and accrued interest on the outstanding
Notes at the maturity date of such principal or interest, or on dates
for payment and redemption of such principal and interest selected in
accordance with the terms of this Indenture and of the Notes;
(b) no Event of Default with respect to the Notes shall have
occurred and be continuing on the date of such deposit, or shall have
occurred and be continuing at any time during the period ending on the
91st day after the date of such deposit or, if longer, ending on the
day following the expiration of the longest preference period under any
Bankruptcy Law applicable to the Company in respect of such deposit (it
being understood that this condition shall not be deemed satisfied
until the expiration of such period);
(c) such Legal Defeasance shall not result in a breach or
violation of, or constitute default under any other agreement or
instrument to which the Company is a party or by which it is bound;
(d) the Company shall have delivered to the Trustee an Opinion
of Counsel stating that, as a result of such Legal Defeasance, neither
the trust nor the Trustee will be required to register as an investment
company under the Investment Company Act of 1940, as amended;
(e) in the case of an election under Section 10.02 above, the
Company shall have delivered to the Trustee an Opinion of Counsel
stating that (i) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling to the effect that
or (ii) there has been a change in any applicable Federal income tax
law with the effect that, and such opinion shall confirm that, the
Holders of the outstanding Notes or persons in their positions will not
recognize income, gain or loss for Federal income tax purposes solely
as a result of such Legal Defeasance and will be subject to Federal
income tax on the same amounts, in the same manner, including as a
result of prepayment, and at the same times as would have been the case
if such Legal Defeasance had not occurred;
(f) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance
under Section 10.02 above have been complied with; and
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit under clause (a) was not
made by the Company with the intent of defeating, hindering, delaying
or defrauding any creditors of the Company or others.
Section 10.04. Deposited Money and U.S. Government
Obligations to Be Held in Trust; Other
Miscellaneous Provisions.
All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee pursuant to Section 10.03 hereof in
respect of the outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the
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payment, either directly or through any Paying Agent as the Trustee may
determine, to the Holders of such Notes, of all sums due and to become due
thereon in respect of principal and accrued interest, but such money need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no duty to invest such money or U.S. Government Obligations.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to this Section 10.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article 10 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 10.03 hereof which, in the opinion of a nationally-recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent Legal Defeasance.
Section 10.05. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 10.02 hereof by reason of
any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the obligations of the Company under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article 10 until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with Section
10.01 hereof; provided, however, that if the Company has made any payment of
principal of, premium, if any, or accrued interest on any Notes because of the
reinstatement of their obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money or
U.S. Government Obligations held by the Trustee or Paying Agent.
Section 10.06. Moneys Held by Paying Agent.
In connection with the satisfaction and discharge of this
Indenture, all moneys then held by any Paying Agent under the provisions of this
Indenture shall, upon demand of the Company, be paid to the Trustee, or if
sufficient moneys have been deposited pursuant to Section 10.03 hereof, to the
Company, and thereupon such Paying Agent shall be released from all further
liability with respect to such moneys.
Section 10.07. Moneys Held by Trustee.
Any moneys deposited with the Trustee or any Paying Agent or
then held by the Company in trust for the payment of the principal of or
interest on any Note that are not applied but remain unclaimed by the Holder of
such Note for two years after the date upon which the principal of or interest
on such Note shall have respectively become due and payable shall be repaid to
the Company upon Company Request, or if such moneys are then held by the Company
in trust, such moneys shall be released from such trust; and the Holder of such
Note entitled to receive such payment shall thereafter, as an unsecured general
creditor, look only to the Company for the payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such trust money shall
thereupon cease; provided,
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however, that the Trustee or any such Paying Agent, before being required to
make any such repayment, may, at the expense of the Company either mail to each
Noteholder affected, at the address shown in the register of the Notes
maintained by the Registrar pursuant to Section 2.03 hereof, or cause to be
published once a week for two successive weeks, in a newspaper published in the
English language, customarily published each Business Day and of general
circulation in The City of New York, New York, a notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such mailing or publication, any unclaimed balance of
such moneys then remaining will be repaid to the Company. After payment to the
Company or the release of any money held in trust by the Company, Noteholders
entitled to the money must look only to the Company for payment as general
creditors unless applicable abandoned property law designates another person.
ARTICLE 11.
SUBORDINATION OF NOTES
Section 11.01. Notes Subordinated to Senior Indebtedness.
The payment of the principal of and accrued interest on the
Notes is hereby expressly subordinated in right of payment, in the manner and to
the extent hereinafter expressly set forth, to the prior payment in full of all
Senior Indebtedness (as hereinafter defined), whether outstanding on the date
hereof or hereafter created, incurred or assumed. The Holders, by their
acceptance of the Notes, agree to and shall be bound by the provisions hereof.
Section 11.02. Payment Over of Proceeds upon Dissolution, Etc.
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 Company and the Holders, by their acceptance of the Notes,
agree that:
(a) The holders of all Senior Indebtedness shall first be
entitled to receive payment in full, in accordance with the terms of such Senior
Indebtedness, of the principal thereof and interest thereon, before the Holders
or the Trustee on their behalf shall be entitled to receive any payment on
account of the principal of, or interest on, the Notes.
(b) The Holders assign to the holders of Senior Indebtedness
for the purposes and to the extent set forth in this Section 11.02, all the
Holders' 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 this Article 11 with respect to
the Notes, to the payment in full of the principal of, and interest on all
Senior Indebtedness to which the Holders would be entitled except for the
provisions of this Section 11.02(b) ("Subordinated Securities"). The Holders
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authorize and direct 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 Notes, and in
connection therewith and for such purpose, the holders of the Senior
Indebtedness are hereby authorized and permitted to assert, file, prosecute and
vote any claim or other interest on account of the Notes which may be required
in order to seek and obtain payment on account of the Notes under the
circumstances described in this Section 11.02; and
(c) In the event that, notwithstanding the provisions of
Section 11.02(b) hereof, 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 any Holder or by the Trustee on
such Holder's behalf before the payment in full of the principal of and interest
on Senior Indebtedness in accordance with the terms of such Senior Indebtedness,
such payment of distribution shall be held in trust for the benefit of, and
shall be paid over to, the holders of Senior Indebtedness, ratably according to
the aggregate amount remaining unpaid on such Senior Indebtedness held by each
such holder, to the extent necessary to pay in full the principal of and
interest on such Senior Indebtedness, in accordance with the terms of such
Senior Indebtedness.
Section 11.03. Suspension of Payment when Senior Indebtedness in Default.
The Company shall not make any payment of the principal of, or
interest on, the Notes (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
Holders written notice of the occurrence of any such default (or the Company
shall have given such written notice to the Trustee on behalf of the Holders),
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 Notes under
circumstances described in clause (a) and (b) above shall be held by the
Holders, or by the Trustee, in trust for the holders of Senior Indebtedness,
provided Company shall give the Holders written notice of the occurrence of any
default referred to in the preceding sentence (or the Company shall give such
written notice to the Trustee on behalf of the Holders).
Section 11.04. Refrain From Taking Action.
Prior to the date on which the Senior Indebtedness shall have
been paid in full, the Holders shall not, and the Trustee on behalf of the
Holders, shall not:
(a) Sue for, take or receive from 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 the Notes; provided, however, that absent the occurrence and
continuance of any default under the terms of the Senior Indebtedness, the
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Holders, or the Trustee on behalf of the Holders, 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 Notes, pursuant to the Notes.
(b) Foreclose or attempt to foreclose upon any of the property
of 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, 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 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 or to the Trustee in connection with the 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
Notes.
(e) Assert any demand, objection, defense and/or counterclaim
(including any rights of marshalling or equitable subordination) relating to the
Notes and the Senior Indebtedness, against the holders of the Senior
Indebtedness.
Notwithstanding any provision to the contrary set forth in
this Section 11.04, (a) interest at the Default Rate shall commence, and shall
continue to, accrue as provided as in Section 6.02, upon the occurrence of any
of the Events of Default referred in such Section; (b) the Holders and the
Trustee shall not be prevented from, to the extent permitted under this
Indenture, accelerating the maturity of the principal of, and accrued interest
on, the Note upon or following the occurrence of an Event of Default (other than
an Event of Default specified in Section 6.01(b)) 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 Holders or to
the Trustee on behalf of the Holders by Company or any holder of Senior
Indebtedness, provided that only one such notice may be given to the Holders or
to the Trustee on behalf of the Holders, pursuant to this clause in any one
hundred twenty (120) day period and no notice may be given in respect of any
such Senior Indebtedness default, the existence of which any holder of Senior
Indebtedness had knowledge at the time any other notice was delivered pursuant
to this clause.
Section 11.05. Subrogation to Rights of Holders of Senior Indebtedness.
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 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 or by the Trustee on behalf of the Holders but for the provisions
of this Article 11, until the principal of, and interest on, the Notes shall be
paid in full; it being understood that the provisions of this Article 11 are,
and are intended, solely for the purpose of defining the relative rights of the
Holders, on the one hand, and the holders of Senior Indebtedness, on the other
hand. Except as set forth in Sections 11.02, 11.03 and 11.04, nothing in this
Article 11 or the Notes is intended to or shall impair the obligations of
Company hereunder, subject to
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the rights of the Holders and creditors of the Company other than the holders of
Senior Indebtedness, nor shall anything in this Indenture or in the Notes
prevent the Holders or the Trustee on behalf of the Holders from exercising all
remedies otherwise permitted hereunder or thereunder or by applicable law upon
an Event of Default, subject, in any event, to the rights, if any, under this
Article 11 of the holders of Senior Indebtedness in respect of any payment or
distribution of cash, property or securities of the Company (other than
Subordinated Securities) received upon the exercise of any such remedy.
Section 11.06. Trustee's Relation to Senior
Indebtedness.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article 11, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the
Trustee shall not be liable to any holder of Senior Indebtedness if it shall
mistakenly pay over or deliver to Holders, the Company or any other Person
moneys or assets to which any holder of Senior Indebtedness shall be entitled by
virtue of this Article 11 or otherwise.
Section 11.07. Provisions Solely to Define Relative
Rights.
The provisions of this Article 11 are and are intended solely
for the purpose of defining the relative rights of the Notes on the one hand and
the holders of Senior Indebtedness on the other hand. Nothing contained in this
Article or elsewhere in this Indenture or in the Notes is intended to or shall
(a) impair, as among the Company, its creditors other than holders of Senior
Indebtedness and the Holders, the obligation of the Company, which is absolute
and unconditional, to pay to the Holders the principal of and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms, or (b) affect the relative rights against the Company of the Holders and
creditors of the Company other than the holders of Senior Indebtedness or (c)
prevent the Trustee or the Holder of any Note from exercising all remedies
otherwise permitted by applicable law upon an Event of Default under this
Indenture, subject to the rights, if any, under this Article 11 of the holders
of Senior Indebtedness (i) in any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, arrangement, reorganization or other similar
case or proceeding in connection therewith, or any liquidation, dissolution or
other winding-up, or any assignment for the benefit of creditors or other
marshaling of assets and liabilities referred to in Section 11.02 hereof, to
receive, pursuant to and in accordance with such Section, cash, property and
securities otherwise payable or deliverable to the Trustee or such Holder, or
(ii) under the conditions specified in Section 11.03, to prevent any payment
prohibited by such Section or enforce their rights pursuant to such Section
11.03 hereof.
The failure to make a payment on account of principal of or
interest on the Notes by reason of any provision of this Article 11 shall not be
construed as preventing the occurrence of an Event of Default hereunder.
Section 11.08. Trustee to Effectuate Subordination.
Each Holder authorizes and directs the Trustee on his behalf
to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes, including, in the event of any
dissolution,
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winding-up, liquidation or reorganization of the Company whether in bankruptcy,
insolvency, receivership proceedings, or otherwise, the timely filing of a claim
for the unpaid balance of the indebtedness of the Company owing to such Holder
in the form required in such proceedings and the causing of such claim to be
approved. If the Trustee does not file such a claim prior to 30 days before the
expiration of the time to file such a claim, the holders of Senior Indebtedness
may file such a claim on behalf of the Holders.
Section 11.09. Notice to Trustee.
(a) The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the making of any
payment to or by the Trustee at its Corporate Trust Office in respect of the
Notes. Notwithstanding the provisions of this Article 11 or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee in respect of the Notes, unless and until the Trustee shall have
received written notice thereof from the Company or a holder of Senior
Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
this Section 11.09, shall be entitled in all respects to assume that no such
facts exist.
(b) Subject to the provisions of Section 8.01 hereof, the
Trustee shall be entitled to rely on the delivery to it of a written notice to
the Trustee and the Company by a Person representing itself to be a holder of
Senior Indebtedness (or a trustee, fiduciary or agent therefor) to establish
that such notice has been given by a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor); provided, however, that failure to give
such notice to the Company shall not affect in any way the ability of the
Trustee to rely on such notice. In the event that the Trustee determines in good
faith that further evidence is required with respect to the right of any Person
as a holder of Senior Indebtedness to participate in any payment or distribution
pursuant to this Article 11, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 11, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 11.10. Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company
referred to in this Article 11, the Trustee, subject to the provisions of
Section 8.01 hereof, and the Holders shall be entitled to rely upon any order or
decree entered by any court of competent jurisdiction in which such insolvency,
bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up
or similar case or proceeding is pending, or a certificate of the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit
of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 11.
- 40 -
<PAGE> 47
Section 11.11. Rights of Trustee as a Holder of
Senior Indebtedness; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to
all the rights set forth in this Article 11 with respect to any Senior
Indebtedness which may at any time be held by it, to the same extent as any
other holder of Senior Indebtedness, and nothing in this Indenture shall deprive
the Trustee of any of its rights as such holder. Nothing in this Article 10
shall apply to claims of, or payments to, the Trustee under or pursuant to
Section 7.07 hereof.
Section 11.12. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting hereunder, the term
"Trustee" as used in this Article 10 shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article 10 in addition to or in place of the Trustee.
Section 11.13. No Suspension of Remedies.
Nothing contained in this Article 10 shall limit the right of
the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to Article 6 or to pursue any rights or remedies
hereunder or under applicable law, subject to the rights, if any, under this
Article 10 of the holders, from time to time, of Senior Indebtedness.
ARTICLE 12.
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or
conflicts with another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
Section 12.02. Notices.
Any notice or communication shall be given in writing and
delivered in person, sent by facsimile, delivered by commercial courier service
or mailed by first-class mail, postage prepaid, addressed as follows:
If to the Company or any Guarantor:
SubMicron Systems Corporation
6330 Hedgewood Drive, #150
Allentown, PA 18106
Attention: Chief Financial Officer
Fax Number: 610-391-9412
- 41 -
<PAGE> 48
Copy to:
Cozen and O'Connor
1900 Market Street
Philadelphia, Pennsylvania 19103
Attention: Steven N. Haas, Esq.
Fax Number: 215-665-2013
If to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Administration
Fax Number: 212-852-1625
Such notices or communications shall be effective when
received and shall be sufficiently given if so given within the time prescribed
in this Indenture.
The Company or the Trustee by written notice to the others may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Noteholder shall be
mailed to him by first-class mail, postage prepaid, at his address shown on the
register kept by the Registrar. If a notice or communication to a Noteholder is
mailed in the manner provided above, it shall be deemed duly given on the date
so deposited in the mail, whether or not the addressee receives it.
Failure to mail a notice or communication to a Noteholder or
any defect in it shall not affect its sufficiency with respect to other
Noteholders.
In case by reason of the suspension of regular mail service,
or by reason of any other cause, it shall be impossible to mail any notice as
required by this Indenture, then such method of notification as shall be made
with the approval of the Trustee shall constitute a sufficient mailing of such
notice.
Section 12.03. Communications by Holders with Other Holders.
Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
- 42 -
<PAGE> 49
Section 12.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company to the Trustee
to take any action under this Indenture, the Company shall furnish to the
Trustee at the request of the Trustee:
(1) an Officers' Certificate (which shall include the
statements set forth in Section 12.05 below) in form and substance
reasonably satisfactory to the Trustee stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel (which shall include the statements
set forth in Section 12.05 below) in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 12.05. Statements Required in Certificate and Opinion.
Each certificate and opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, it or he
has made such examination or investigation as is necessary to enable it
or him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
Person, such covenant or condition has been complied with.
Section 12.06. When Treasury Notes Disregarded.
In determining whether the Holders of the required aggregate
principal amount of Notes have concurred in any direction, waiver or consent,
Notes owned by the Company or any other obligor on the Notes or by any Affiliate
of any of them shall be disregarded as though they were not outstanding, except
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Notes which the Trustee
actually knows are so owned shall be so disregarded. Notes so owned which have
been pledged in good faith shall not be disregarded if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
the Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of any of them.
- 43 -
<PAGE> 50
Section 12.07. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or
meetings of Noteholders. The Registrar and Paying Agent may make reasonable
rules for their functions.
Section 12.08. Business Days; Legal Holidays.
A "Business Day" is a day that is not a Legal Holiday. A
"Legal Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day
on which banking institutions are not required to be open in the State of New
York. If a payment date is a Legal Holiday at a place of payment, payment may be
made at that place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
Section 12.09. Governing Law.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
Section 12.10. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan, security or debt agreement of the Company. No such indenture, loan,
security or debt agreement may be used to interpret this Indenture.
Section 12.11. No Recourse Against Others.
No recourse for the payment of the principal of or premium, if
any, or interest on any of the Notes, or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in this Indenture or in any supplemental
indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any stockholder, officer,
director, partner, affiliate, beneficiary or employee, as such, past, present or
future, of the Company or of any successor corporation or against the property
or assets of any such stockholder, officer, employee, partner, affiliate,
beneficiary or director, either directly or through the Company or any successor
corporation thereof, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that this Indenture and the Notes are solely obligations of
the Company, and that no such personal liability whatever shall attach to, or is
or shall be incurred by, any stockholder, officer, employee, partner, affiliate,
beneficiary or director of the Company or any successor corporation thereof,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or the Notes or implied therefrom, and that any and all such personal liability
of, and any and all claims against every stockholder, officer, employee,
partner, affiliate, beneficiary and director, are hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issuance of the Notes. It is understood that this limitation
on recourse is made expressly for the benefit of any such shareholder, employee,
officer, partner, affiliate, beneficiary or director and may be enforced by any
one or all of them.
- 44 -
<PAGE> 51
Section 12.12. Successors.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee, any additional trustee
and any Paying Agents in this Indenture shall bind its successor.
Section 12.13. Multiple Counterparts.
The parties may sign multiple counterparts of this Indenture.
Each signed counterpart shall be deemed an original, but all of them together
represent one and the same agreement.
Section 12.14. Table of Contents, Headings, etc.
The table of contents, cross-reference sheet and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
Section 12.15. Separability.
Each provision of this Indenture shall be considered separable
and if for any reason any provision which is not essential to the effectuation
of the basic purpose of this Indenture or the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
- 45 -
<PAGE> 52
IN WITNESS WHEREOF, the parties have caused this Indenture to
be duly executed, and the Company's corporate seal to be hereunto affixed and
attested, all as of the date and year first written above.
<TABLE>
<S> <C>
SUBMICRON SYSTEMS CORPORATION
By: -----------------------------------
Name:
Title:
ATTEST:
- -----------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By: -----------------------------------
Name:
Title:
ATTEST:
- -----------------------------------
Name:
Title:
</TABLE>
- 46 -
<PAGE> 53
EXHIBIT A
CUSIP__________
Number
SUBMICRON SYSTEMS CORPORATION
8% CONVERTIBLE SUBORDINATED NOTE DUE MARCH 26, 2002
SubMicron Systems Corporation, a Delaware corporation (the
"Company," which term includes any successor corporation), for value received
promises to pay to ________________________ or registered assigns the principal
sum of ___________________ Dollars, on March 26, 2002.
Interest Payment Dates: March 31, June 30, September 30 and December
31, commencing March 31, 1998
Record Dates: March 15, June 15, September 15 and December 15
Reference is made to the further provisions of this Note
contained herein, which will for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be
signed manually or by facsimile by its duly authorized officers.
SUBMICRON SYSTEMS CORPORATION
By:
--------------------------
By:
--------------------------
[SEAL]
Certificate of Authentication:
This is one of the 8% Convertible
Subordinated Notes due March 26,
2002 referred to in the
within-mentioned Indenture
Dated:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By: -----------------------------------
Authorized Signatory
A-1
<PAGE> 54
(REVERSE SIDE)
SUBMICRON SYSTEMS CORPORATION
8% SENIOR SUBORDINATED NOTE DUE MARCH 26, 2002
1. INTEREST.
SubMicron Systems Corporation, a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note
quarter annually on March 31, June 30, September 30 and December 31 of each year
(each an "Interest Payment Date"), commencing on ________________, at the rate
of 8% per annum. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
date of the original issuance of the Notes.
In an Event of Default set forth in Sections 6.01(a), (e) or
(f) of the Indenture (as defined herein) shall occur and continue for five (5)
days, whether or not the Holder shall (if permitted under the Indenture) declare
the unpaid principal amount of this Note, together with accrued and unpaid
interest thereon, to be immediately due and payable, and whether or not such
Event of Default occurs after the occurrence of any other Event of Default
described in Section 6.01 of the Indenture, then interest shall begin to accrue
on the outstanding principal balance of this Note from the date of such Event of
Default to the earlier of (i)the date of payment in full of the outstanding
principal of this Note and all accrued and unpaid interest hereunder or (ii) the
date of Event of Default is cured, at the rate of 16% per annum as to Events of
Default under Sections 6.01(d), (e) or (g) and 10% per annum as to an Event of
Default under Section 6.01(f) (in either event, the "Default Rate").
In no event shall the Holder be entitled to receive interest,
however characterized, at an effective rate in excess of the maximum rate
permitted by law. In the event that a court of competent jurisdiction shall
finally determine that such amounts paid or agreed to be paid by the Company in
connection with this Note causes the effective interest rate on this Note to
exceed the maximum rate permitted by law, such interest or other consideration
shall automatically be reduced to a rate which results in an effective interest
rate under this Note equal to the maximum rate permitted by law over the term
hereof, and, in such event, the Holder shall apply to the reduction of the
unpaid principal balance of this Note any amounts received by it deemed to
constitute excessive interest.
2. METHOD OF PAYMENT.
The Company will pay interest on this Note provided for in
Paragraph 1 above to the person who is the registered Holder of this Note at the
close of business on the March 15, June 15, September 15 and December 15
preceding the applicable Interest Payment Date (whether or not such day is a
Business Day). The Holder must surrender this Note to the Company or to a Paying
Agent to collect principal payments. The Company will pay principal and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts; provided, however, that the Company may pay
principal, premium, if any, and interest by check payable in such money. It may
mail an interest check to the Holder's registered address.
A-2
<PAGE> 55
3. PAYING AGENT AND REGISTRAR.
Initially, United States Trust Company of New York, a New York
corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company
may change any Paying Agent or Registrar without notice to the Holders of the
Notes. Neither the Company nor any of its Subsidiaries or Affiliates may act as
Paying Agent but may act as registrar or co-registrar.
4. INDENTURE.
The Company issued this Note under an Indenture dated as of
__________, 1997 (the "Indenture") by and between the Company and the Trustee.
The terms of this Note include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of the Indenture. This
Note is subject to all such terms, and the Holder of this Note is referred to
the Indenture and said Trust Indenture Act for a statement of them. All
capitalized terms in this Note, unless otherwise defined, have the meanings
assigned to them by the Indenture.
The Notes are general unsecured obligations of the Company
limited to up to $8,692,028 aggregate principal amount and are pari passu in
right of payment and obligation with the Company's 8% Convertible Subordinated
Notes due March 26, 2007 issued pursuant to a Subordinated Note and Preferred
Stock Purchase Agreement effective March 26, 1997.
5. 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 indefeasible payment and satisfaction in full in cash of all existing
and future Senior Indebtedness as defined in the Indenture, and this Note is
issued subject to such provisions. Each Holder of this Note, by accepting the
same, (a) agrees to and shall be bound by such provisions, (b) authorizes and
directs the Trustee, on behalf of such Holder, to take such action as may be
necessary or appropriate to effectuate the subordination as provided in the
Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such
purpose; provided, however, that the Indebtedness evidenced by this Note shall
cease to be so subordinate and subject in right of payment upon any defeasance
of this Note referred to in Paragraph 7 below.
6. OPTIONAL REDEMPTION.
The Company may redeem the Notes, in whole or in part, at any
time at the Redemption Price and in the manner set forth in Article 3 of the
Indenture.
7. NOTICE OF REDEMPTION.
Notice of redemption will be mailed via first class mail at
least 15 days prior to the redemption date to each Holder of Notes to be
redeemed at its registered address as it shall appear on the register of the
Notes maintained by the Registrar. On and after any Redemption Date, interest
will cease to accrue on the Notes or portions thereof called for redemption
unless the Company shall fail to redeem any such Note.
A-3
<PAGE> 56
8. CONVERSION OF NOTES INTO COMMON STOCK.
This Note is convertible into shares of Common Stock of the
Company, at the option of the Holder, at the Conversion Price then in effect in
the manner and to the extent set forth in Article 7 of the Indenture. This Note
is also convertible into shares of Common Stock, at the option of the Company,
at the Conversion Price then in effect, in the manner and to the extent set
forth in Article 7 of the Indenture.
9. DENOMINATIONS, TRANSFER, EXCHANGE.
The Notes are in registered form without coupons in
denominations of $1,000 and integral multiples thereof. A Holder may register
the transfer or exchange of Notes in accordance with the Indenture. The
Registrar 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 need not register the transfer
of or exchange any Note selected for redemption or register the transfer of or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed or any Note after it is called for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
10. PERSONS DEEMED OWNERS.
The registered Holder of this Note may be treated as the owner
of it for all purposes.
11. UNCLAIMED MONEY.
If money for the payment of principal or interest on any Note
remains unclaimed for two years, the Trustee or Paying Agent will pay the money
back to the Company at its request. After that, Holders entitled to money must
look to the Company for payment as general creditors unless an "abandoned
property" law designates another person.
12. AMENDMENT, SUPPLEMENT AND WAIVER.
Subject to certain exceptions, the Indenture or the Notes may
be modified, amended or supplemented by the Company and the Trustee with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding and any existing default or compliance with any provision may
be waived in a particular instance with the consent of the Holders of a majority
in principal amount of the Notes then outstanding. Without the consent of
Holders, the Company and the Trustee may amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including for curing
any ambiguity, defect or inconsistency or making any other change that does not
materially and adversely affect the rights of any Holder.
13. SUCCESSOR ENTITY.
When a successor corporation assumes all the obligations of
its predecessor under the Notes and the Indenture and immediately before and
thereafter no Event of Default or event, with the giving of notice or passage of
time or both, would constitute an Event of Default, exists and certain other
conditions are satisfied, the predecessor corporation will be released from
those obligations.
A-4
<PAGE> 57
14. DEFAULTS AND REMEDIES.
Events of Default are set forth in the Indenture. If an Event
of Default (other than an Event of Default pursuant to Section 6.01(b) of the
Indenture) occurs and is continuing, the Trustee by notice to the Company, or
the Holders of not less than 25% in aggregate principal amount of the Notes then
outstanding by written notice to the Company and the Trustee, may declare to be
immediately due and payable the entire principal amount of all the Notes then
outstanding plus accrued but unpaid interest to the date of acceleration and (i)
such amounts shall become immediately due and payable; provided, however, that
after such acceleration but before judgment or decree based on such acceleration
is obtained by the Trustee, the Holders of a majority in aggregate principal
amount of the outstanding Notes may rescind and annul such acceleration and its
consequences if all existing Events of Default, other than the nonpayment of
principal or interest that has become due solely because of the acceleration,
have been cured or waived and if the rescission would not conflict with any
judgment or decree. No such rescission shall affect any subsequent Event of
Default or impair any right consequent thereto. In case an Event of Default
specified in Section 6.01(b) of the Indenture with respect to the Company
occurs, such principal amount and interest with respect to all of the Notes
shall be due and payable immediately without any declaration or other act on the
part of the Trustee or the Holders of the Notes. The Trustee may withhold from
Holders notice of any continuing Event of Default (except an Event of Default in
payment of principal or interest) if it determines that withholding notice is in
their interests.
15. TRUSTEE DEALINGS WITH THE COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS.
As more fully described in the Indenture, a director, officer,
employee, partner, affiliate, beneficiary or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Notes or the Indenture or for any claim based on, in respect or by reason
of, such obligations or their creation. The Holder of this Note by accepting
this Note waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of this Note.
17. DEFEASANCE AND COVENANT DEFEASANCE.
The Indenture contains provisions for defeasance of the entire
indebtedness on this Note upon compliance by the Company with certain conditions
set forth in the Indenture.
18. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder of
a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
A-5
<PAGE> 58
19. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on
Uniform Note Identification Procedures, the Company has caused CUSIP numbers to
be printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of the Notes. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
20. GOVERNING LAW.
THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF COMMONWEALTH OF
PENNSYLVANIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE
PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS INDENTURE OR THE NOTES.
THE COMPANY WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN
REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO:
SUBMICRON SYSTEMS CORP., 6330 Hedgewood Drive, #150, Allentown, Pennsylvania
18106, Attention: Chief Financial Officer.
21. AUTHENTICATION
This Note shall not be valid until the Trustee manually signs
the Certificate of Authentication on the other side of this Note.
A-6
<PAGE> 59
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
<PAGE> 1
Exhibit 5
[COZEN AND O'CONNOR LETTERHEAD]
November 12, 1997
SubMicron Systems Corporation
6330 Hedgewood Drive - #150
Allentown, PA 18106
Re: Securities and Exchange Commission -
Registration Statement on Form S-4
Gentlemen:
As counsel to SubMicron Systems Corporation (the "Company"),
we have assisted in the preparation of the Company's Registration Statement on
Form S-4 , File No. 333-38741 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
registering $8,692,028 in principal amount of the Company's 8% Convertible
Subordinated Notes Due 2002 (the "Notes"), and such number of shares (the
"Shares") of the Company's Common Stock, par value $.0001 (Common Stock") as may
be issuable from time to time upon conversion of the Notes, which are being
offered in connection with an offer by the Company to exchange the Notes for its
outstanding 8% Convertible Subordinated Notes Due 2002 (the "Exchange Offer").
In this connection, we have examined and considered the
original or copies, certified or otherwise identified to our satisfaction, of
the Company's Certificate of Incorporation and its Bylaws, as each has been
amended to date, resolutions of its Board of Directors, the form Note and form
of Indenture (the "Indenture") between the Company and United States Trust
Company of New York, as Trustee (the "Trustee"), under which the Notes shall be
issued, and such other documents and records relating to the Company and the
issuance and sale of the Notes and the Shares as we have deemed appropriate
for the purpose of rendering
EXHIBIT "5"
<PAGE> 2
SubMicron Systems Corporation
November 12, 1997
Page 2
- -------------------------
this opinion.
In our examination of documents, instruments and other papers,
we have assumed the genuineness of all signatures on original and certified
documents and the conformity to original and certified documents of all copies
submitted to us as conformed, photostat or other copies. As to matters of fact
which have not been independently established, we have relied upon
representations of the officers of the Company.
Based upon the foregoing examination, and the information
supplied, it is our opinion that: (i) the Notes to be issued in the Exchange
Offer, when issued pursuant to the Indenture and authenticated by the
Trustee as required therein, will be duly authorized and validly issued; and
(ii) the Shares are duly authorized and, when issued upon conversion of the
Notes in accordance with the Notes and the Indenture, will be duly and validly
issued, fully paid and non-assessable.
We hereby expressly consent to the inclusion of this opinion
as an exhibit to the Registration Statement.
Very truly yours,
COZEN AND O'CONNOR
<PAGE> 1
Exhibit 10.13
SUBORDINATED NOTE AND PREFERRED STOCK PURCHASE AGREEMENT
THIS SUBORDINATED NOTE AND PREFERRED STOCK PURCHASE AGREEMENT
(this "Agreement"), effective March 26, 1997 (the "Effective Date"), is between
each of the persons or entities identified on Schedule 1 attached hereto (the
"Buyer") and SUBMICRON SYSTEMS CORPORATION, a Delaware corporation (the
"Company"). All of the persons or entities identified on Schedule 1 are
hereinafter collectively referred to as the "Buyers."
In consideration of the mutual agreements, undertakings and
covenants herein contained, the parties, intending to be legally bound hereby,
agree as follows:
1. Purchase and Sale. Subject to the terms and conditions of
this Agreement, effective on the Effective Date, the Company shall issue and
sell to the Buyer, and the Buyer shall purchase from the Company, the securities
set forth below.
(a) The Company's 8% Convertible Subordinated Note
due March 15, 2002 in the aggregate principal amount set forth on Schedule 2
attached hereto (the "8% Note"). The 8% Note shall be in the form attached
hereto as Exhibit "A".
(b) The number of shares of the Company's Series A
Preferred Stock as is set forth on Schedule 2 attached hereto (the "Preferred
Stock"). The Preferred Stock shall be convertible into shares of the Common
Stock of the Company, par value $.01 per share (the "Common Stock"), at the
rate, and otherwise shall have the designations, preferences, limitations and
rights, provided for in the Certificate of Designations and Preferences of the
Preferred Stock in the form attached hereto as Exhibit "B".
The Preferred Stock, the 8% Note and the Common Stock underlying the Preferred
Stock and 8% Note shall be hereinafter collectively referred to as the "New
Securities."
2. Consideration and Exchange. In consideration and exchange
for the New Securities, effective on the Effective Date, Buyer shall deliver to
the Company the Company's 9% Convertible Subordinated Note due December 15, 1997
held by Buyer in the aggregate principal amount set forth on Schedule 2 attached
hereto (the "9% Note") and the Warrants held by Buyer to purchase the shares of
Common Stock set forth on Schedule 2 attached hereto (the "Warrants"), each
marked "Cancelled." The 9% Note and the Warrants are hereinafter collectively
referred to as the "Old Securities."
<PAGE> 2
3. Closing Deliveries.
(a) The Company shall deliver or cause to be
delivered to Buyer as soon as practicable following the date hereof, the
following:
(i) The 8% Note;
(ii) Certificate(s) evidencing the shares of
Preferred Stock purchased hereby;
(iii) An opinion of Cozen and O'Connor,
counsel to the Company, in form and substance reasonably satisfactory to Company
and Robert Goldberg, Esquire ("Goldberg") of Ellis, Funk, Goldberg, Labovitz &
Dokson, P.C., counsel to Buyers;
(iv) A check in an amount not to exceed
$10,000, made payable to Goldberg, as payment of the fee for his services on
behalf of Buyers in connection with the review and negotiation of this Agreement
and related documents and agreements; and
(v) A letter signed by David F. Levy and
James S. Molinaro, addressed to the Buyers, pursuant to which Messrs. Levy and
Molinaro will agree to vote their shares of Common Stock in favor of the
Nominees in accordance with Section 9(c) of this Agreement.
(b) Buyer hereby delivers to Cozen and O'Connor,
counsel for the Company, the 9% Note of Buyer and Buyer's Warrants, each marked
"Cancelled." Such securities shall be held by Cozen and O'Connor in escrow and
shall only be released to the Company once the deliveries to be made pursuant to
Paragraph 3(a) above have been made.
4. Representations and Warranties of the Company. The Company
hereby represents and warrants to Buyer as follows:
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company has all requisite corporate power and authority to own and lease its
properties and to conduct its business as presently conducted.
(b) The New Securities, when issued in accordance
with or as contemplated by their terms or the terms of this Agreement, as the
case may be, will be validly issued and outstanding. The shares of Preferred
Stock and the shares of Common Stock underlying the shares of Preferred Stock
and the 8% Note have been (or will have been prior to the Effective Date) duly
and validly authorized and reserved for issuance (subject,
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<PAGE> 3
as to the Common Stock underlying the 8% Note, to approval of the Company's
stockholders pursuant to Paragraph 9(a)), and, if and when issued, will be fully
paid and non-assessable. Upon transfer and delivery of the New Securities to
Buyer, Buyer shall obtain full and legal title to the New Securities, free and
clear of any lien, charge or other encumbrance of any nature, except for any
restrictions set forth in the respective New Security.
(c) The Company has all necessary corporate power to
enter into this Agreement, to issue and deliver the New Securities, and to carry
out all of the transactions contemplated hereby and thereby, subject to the
proviso in the following sentence. The execution, delivery and performance of
this Agreement by the Company and the consummation of the transactions
contemplated hereby, including, without limitation, the issuance of the New
Securities, have been duly authorized by all requisite corporate action on the
part of the Company; provided, however, that the 8% Note, by its terms, will not
be convertible into Common Stock unless and until the Company's stockholders
approve the convertibility of the 8% Notes in accordance with Paragraph 9(a) of
this Agreement. This Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles.
(d) The Company has previously furnished Buyer true and
correct copies of the following documents which have been filed by the Company
with the Securities and Exchange Commission ("SEC") pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (such documents are
hereinafter collectively called the "SubMicron SEC Filings"): (i) its Annual
Report on Form 10-K for the year ended December 31, 1995; (ii) quarterly reports
on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and September
30, 1996; (iii) Proxy Statement dated May 1, 1996; and (iv) all reports on Form
8-K filed by the Company with the SEC during the period from and after January
1, 1996. The SubMicron SEC Filings constitute all reports the Company was
required to file under the Exchange Act since January 1, 1996. At the time of
filing with the SEC, the SubMicron SEC Filings (i) were prepared in all material
respects in accordance with the applicable requirements of the Exchange Act and
the rules and regulations thereunder, (ii) did not contain any untrue statement
of a material fact, and (iii) did not omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The audited and unaudited financial statements contained
in the SubMicron SEC Filings are true and correct in all material respects and
present fairly the consolidated financial condition and results of operations
and changes in stockholders' equity and cash flows as of the dates and for the
period indicated, except
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<PAGE> 4
as may otherwise be stated in such financial statements. For purposes of this
Agreement, all financial statements of the Company shall be deemed to include
any notes to such financial statements.
(e) The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, $.0001 par value per share, of which
16,879,643 Shares were issued and outstanding as of March 1, 1997, and 5,000
Shares of Preferred Stock, $.01 par value, none of which are issued and
outstanding (before giving effect to the transactions contemplated by this
Agreement). The outstanding shares of Common Stock have been duly authorized and
validly issued, and are fully paid and nonassessable. As of March 1, 1997, the
Company had reserved 2,310,378 shares of Common Stock for issuance upon the
exercise of warrants or options that have been granted prior to the date hereof
(other than shares of Common Stock underlying the 9% Notes (as defined in
Paragraph 8) and all of the Warrants issued to the Buyers) or that may hereafter
be granted under the Company's stock option plans.
(f) Except as described in the SubMicron SEC Filings, there
are no current actions, claims, suits, proceedings or, to the best of the
Company's knowledge, investigations, pending against the Company or its
properties before any court, governmental agency, arbitration board or other
tribunal, nor has the Company received any written notice of any threat thereof
which would be required to be disclosed by the Company on an Annual Report on
Form 10-K pursuant to Item 103 of Regulation S-K under the Exchange Act.
(g) Neither the Company nor any of its "affiliates" (as such
term is defined in Rule 12b-2 under the Exchange Act) has filed a petition or
request for reorganization or protection or relief under the bankruptcy laws of
the United States or any state or territory thereof; made any general assignment
for the benefit of creditors; or consented to the appointment of a receiver or
trustee, including a custodian under the United States bankruptcy laws, whether
such receiver or trustee is appointed in a voluntary or involuntary proceeding
which has not been discharged prior to the date hereof.
5. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to the Company as follows:
(a) This Agreement has been duly executed and
delivered by Buyer and constitutes the valid and legally binding obligation of
the Buyer, enforceable in accordance with its terms, subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles.
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<PAGE> 5
(b) Buyer is acquiring the New Securities for
investment for Buyer's own account and not with a view to, or for resale in
connection with, any distribution of the New Securities. Buyer understands that
the New Securities have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or under any state securities or blue sky laws,
and, as a result thereof, are subject to substantial restrictions on transfer.
Buyer acknowledges that the New Securities must be held indefinitely unless
subsequently registered under the Securities Act and any applicable state
securities or blue sky laws, or exemptions from registration under the
Securities Act.
(c) Upon transfer and delivery of the Old Securities
to the Company, the Company shall obtain full and legal title to the Old
Securities, free and clear of any lien, charge or other encumbrance of any
nature.
(d) Buyer has read, understands and is familiar with
the risk factors set forth on Exhibit "C" attached hereto (the "Risk Factors"),
is familiar with the nature of the risks associated with acquiring the New
Securities in consideration of the Old Securities, and has determined that the
purchase of the New Securities is consistent with Buyer's investment objectives.
(e) Buyer has been provided with a copy of and has
reviewed the SubMicron SEC Filings. Buyer acknowledges that he is familiar with
the condition of the Company, financial and otherwise, and with its business
operations and prospects (including the information contained in the Risk
Factors), and further acknowledges that Buyer and Buyer's advisors have been
provided with or have been given access to all of the financial and other
information requested by them or deemed by them to be necessary or material for
Buyer to make the investment decision to acquire the New Securities in
consideration for the Old Securities and that Buyer has based such decision
solely on the foregoing.
6. Payment of Accrued Interest and Release. The Company
acknowledges and agrees that all interest which accrued but was not paid on the
9% Note prior to the Effective Date will be paid in cash on the Effective Date,
with such interest to be calculated in accordance with the terms and conditions
of the 9% Note. Subject to the foregoing, Buyer, for the consideration set forth
in this Agreement, hereby releases the Company and its officers, directors,
stockholders, employees, agents, successors and assigns and any persons
controlling any of the foregoing from any and all liability, claims and causes
of action of any and all kinds which Buyer may have against the Company to the
date hereof in connection with the compliance by Company (or failure to comply)
with the terms and conditions of the Old Securities.
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<PAGE> 6
7. Legends. Each certificate or instrument representing the
New Securities shall be endorsed with the following legend:
"The securities represented by this certificate or
instrument have been acquired for investment and have
not been registered under the Securities Act of 1933,
as amended, or the securities laws of any state. The
securities may not be transferred in the absence of
such registration or exemptions therefrom under such
Act and such laws."
8. Exit Consent. The 9% Notes contain certain restrictions on
the payment of dividends and other distributions and the incurrence of certain
unsecured debt (Sections 7 and 8, respectively, of the 9% Notes). In addition,
the 9% Notes provide that it shall be an Event of Default if the Company has
earnings per share of less than $.20 for fiscal years 1995 or 1996 (Section 5.7
of the 9% Notes). Further, the 9% Notes contain anti-dilution provisions that
adjust the conversion price at which the 9% Notes are converted into shares of
Common Stock and, therefore, the number of shares of Common Stock issuable upon
conversion of the 9% Notes. Issuance of the New Securities pursuant to this
Agreement would likely cause an adjustment to the conversion price and the
number of shares issuable upon subsequent conversion of any of the 9% Notes
which remain outstanding after the Effective Date. With full knowledge of the
foregoing, Buyer hereby consents to (i) modify the 9% Notes by eliminating
Sections 7 and 8 thereof (the restrictions on dividends and distributions and on
certain indebtedness, respectively), Section 5.7 (the earnings-per-share Event
of Default), Section 5.8 (the Event of Default for non-compliance with Sections
7 or 8) and all references in the 9% Notes to the foregoing provisions and (ii)
the waiver of any anti-dilution adjustments with respect to the conversion price
or the number of shares issuable upon conversion of the 9% Notes as a result of
this Agreement or the issuance of any of the New Securities. In order for the
foregoing consent and waiver to be effective, such consent and waiver must be
agreed to by Buyers holding at least 51% of the aggregate principal amount of
the 9% Notes outstanding. For purposes of this Paragraph 8, the term "9% Notes"
shall mean all of the Company's 9% Subordinated Convertible Notes due December
15, 1997 issued in connection with the Company's Confidential Private Placement
Memorandum dated December 1, 1995.
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<PAGE> 7
9. Post-Effective Date Covenants.
(a) Covenant to Obtain Stockholder Approval. To the
extent required by the rules and regulations of the principal national
securities exchange or market on which the Common Stock is traded, the Company
hereby agrees to use its best efforts to obtain, on or before September 30,
1997, approval by the Company's stockholders of the convertibility feature of
the Company's 8% Subordinated Convertible Notes being acquired by the Buyers and
any replacement notes thereof (collectively, the "Aggregate 8% Notes"). The
Company agrees, subject to receiving any and all necessary approvals from the
SEC, and if stockholder approval is necessary to permit the convertibility
feature of the Aggregate 8% Notes, to hold a meeting of its stockholders on or
before September 30, 1997 (the "1997 Meeting") for the purpose of seeking
approval of its stockholders as aforesaid, and that the 1997 Meeting will be
held pursuant to a proxy statement which the Company, among other matters,
proposes and recommends voting FOR such approval. In connection with the
foregoing, Buyer hereby constitutes and appoints David F. Levy, Buyer's true and
lawful attorney-in-fact and agent with respect to Buyer's Preferred Stock or any
Common Stock held by Buyer, with full power of substitution and resubstitution,
for Buyer and in Buyer's name, place and stead, in any and all capacities, to
vote FOR approval of the convertibility feature of the Aggregate 8% Notes at the
1997 Meeting. This power of attorney shall be deemed to be a power coupled with
an interest and therefore irrevocable and shall to the fullest extent permitted
by applicable law survive the bankruptcy, death, incapacity, disability or
incompetence of the undersigned.
(b) Exchange Offer. Within 90 days from the Effective
Date, the Company hereby agrees to file with the SEC an offer to exchange (the
"Exchange Offer") all of the Aggregate 8% Notes for a like aggregate principal
amount of debt securities of the Company (the "Exchange Notes") which are
substantially similar to the Aggregate 8% Notes (and which shall be issued
pursuant to, and entitled to the benefits of, a trust indenture qualified under
the Trust Indenture Act of 1939, as amended ("TIA")), except that the Exchange
Notes shall have been registered pursuant to an effective Registration Statement
under the Securities Act (the "Notes Registration Statement") and will contain
such other changes as may be required to comply with the TIA. The Company shall
use its best efforts to cause the Notes Registration Statement to become
effective under the Securities Act by no later than September 30, 1997. If, as
of the consummation of the Exchange Offer, the shares of Common Stock underlying
Buyer's Exchange Notes are freely saleable pursuant to Rule 144(k) under the
Securities Act or any successor provision or the Notes Registration Statement,
the Company shall deliver to Buyer an opinion of the Company's counsel to that
effect. If, as of the consummation of the Exchange Offer, the shares of Common
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<PAGE> 8
Stock underlying Buyer's Exchange Notes are not freely saleable pursuant to Rule
144(k) under the Securities Act or any successor provision or as a result of the
Notes Registration Statement (or would not have been freely saleable pursuant to
the Notes Registration Statement had Buyer participated in the Exchange Offer),
the Company agrees to use its best efforts to file a Registration Statement on
Form S-3 or other appropriate form covering the resale of such shares of Common
Stock; to use its best efforts to cause such Registration Statement to become
effective under the Securities Act by no later than September 30, 1997; and to
maintain the effectiveness of such Registration Statement to the same extent and
subject to the same limitations and conditions as set forth in Paragraph 9(d)
below until the later of (i) the date all of the Common Stock underlying Buyer's
Exchange Notes have been sold or (ii) the date all such shares may be sold
pursuant to Rule 144(k) under the Act (or any successor provision). Each of the
Buyers who participates in the Exchange Offer will be required to represent that
any Exchange Notes received by such Buyer will be acquired in the ordinary
course of Buyer's business, that at the time of the consummation of the Exchange
Offer such Buyer will have no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, and that such Buyer is
not affiliated with the Company within the meaning of Rule 405 promulgated under
the Securities Act and if it is such an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act, to the
extent applicable.
(c) Board Representation. At the Company's next Board
of Directors Meeting after the Effective Date (currently scheduled for April 4,
1997) (the "Date of Election"), the Board of Directors of the Company will elect
as Directors of the Company of such class as the Company may determine two
individuals (the "Nominees") that are mutually agreeable to the Company and the
Representative (as defined below) for a minimum term of one year. Unless
otherwise agreed to by the Company and the Representative, the Nominees shall be
Ronald Booth and Maurice Gallagher, each of whom is acceptable to Company. Upon
the expiration of the term of either such Nominee, (i) if more than 50% of the
principal amount of the Aggregate 8% Notes remains outstanding at the expiration
of such term or was outstanding at any time within the six months prior to the
end of such term, the Company will, at the request of the Representative and
such Nominee, nominate such Nominee, or another nominee mutually agreeable to
the Company and the Representative, for reelection as a director of the Company,
and (ii) if more than 25% but not more than 50% of the principal amount of the
Aggregate 8% Notes remains outstanding at the expiration of such term or was
outstanding at any time within the six months prior to the end of such term, the
Company will, if at such time such Nominee is the sole Nominee serving on the
Board of Directors, at the request of the Representative and such Nominee,
nominate such
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<PAGE> 9
Nominee, or another nominee mutually agreeable to the Company and the
Representative, for reelection as a director of the Company. Notwithstanding
anything contained in this Subparagraph 9(c) to the contrary, the foregoing
obligations of the Company are subject to the Nominees agreeing, in writing,
prior to service on the Board, that one such Nominee will resign as a Director
effective on the later of (i) the first anniversary of the Date of Election or
(ii) the date that is six months following the date more than 50% of the
original aggregate principal amount of the Aggregate 8% Notes is no longer
outstanding for any reason, and that the other such Nominee will so resign
effective on the later of (x) the first anniversary of the Date of Election or
(y) the date that more than 25% of the original aggregate principal amount of
the Aggregate 8% Notes is no longer outstanding for any reason. For purposes of
this Subsection 9(c), the term Representative shall mean that person designated
by the holders of more than 50% of the outstanding principal amount of the
Aggregate 8% Notes as the Representative of the Buyers for purposes of this
Subsection 9(c). If the Representative is a Buyer or an affiliate of a Buyer and
at any time after his designation the Representative (if he is a Buyer) or such
Buyer (if the Representative is an affiliate of a Buyer) shall no longer hold an
8% Note, the Buyers shall designate a new Representative. If a Representative is
not designated as aforesaid, the Representative shall be the holder of the
largest outstanding principal amount of the Aggregate 8% Notes at the time the
Nominees are required to be designated. This paragraph 9(c) supersedes any prior
agreements of the Company in connection with the Old Securities with respect to
the election or appointment of directors or advisors to the Board of Directors.
(d) The Company's Registration Statement on Form S-3
(File No. 333-4516) covering, among others, the Common Stock underlying the 9%
Notes and Warrants of the Buyers, has been declared effective by the SEC (the
"Registration Statement"). As soon as reasonably practicable, but in no event
later than 45 days following the date hereof, the Company agrees to file with
the SEC an amendment to the prospectus constituting part of the Registration
Statement, modified to, among other things, include the Common Stock underlying
Buyer's Preferred Stock (such prospectus, as amended or supplemented, being
hereinafter referred to as the "Prospectus"), which Prospectus will be usable by
Buyer, if necessary, in connection with the sale, if any, of the Common Stock
underlying the Preferred Stock. The Company hereby agrees to maintain the
effectiveness of the Registration Statement until the later of (i) the date all
of the Common Stock underlying the Preferred Stock purchased by Buyer has been
sold or (ii) the date all such shares may be sold pursuant to Rule 144(k) under
the Act (or any successor provision); provided, however, that if the Company is
unable to maintain the effectiveness of the Registration Statement due to the
fact that the Company is engaged in negotiations with respect to an
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<PAGE> 10
acquisition or other material event that would, in the written opinion of
Company's counsel, require the filing with the SEC of a Form 8-K (other than
pursuant to Item 5 of Form 8-K) or in the event that such acquisition or other
material event would require the inclusion in the Registration Statement of
information not readily available to the Company (collectively a "Deferral
Event"), the Company may postpone (the "Postponement") maintaining the
effectiveness of the Registration Statement until the later of (i) the date such
information becomes available or the Form 8-K is filed, as the case may be, or
(ii) 60 days. The Company shall promptly advise Buyer of the Postponement (the
"Notice of Postponement"), and the Company shall not be permitted to give any
such Notice of Postponement and to so postpone maintaining the effectiveness of
the Registration Statement more than once in any twelve month period.
10. Further Assurances. From time to time hereafter, at the
request of the other party, the Company or Buyer, as the case may be, shall
execute and deliver such other instruments or documents as may be requested by
such requesting party to more fully vest and perfect title to the New Securities
or the Old Securities, as the case may be, and all rights thereunder, in favor
of such party.
11. Miscellaneous.
(a) This Agreement shall be for the benefit of and
shall be binding upon Buyer and the Company and their respective successors and
assigns.
(b) This Agreement and the documents executed and
delivered pursuant thereto, constitute the entire agreement between the parties
with respect to the subject matter contained herein, and supersedes all prior
and contemporaneous oral and written communications and agreements with respect
thereto.
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<PAGE> 11
(c) This Agreement shall be governed by the laws of
the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
THE BUYER
/s/
-----------------------------
SUBMICRON SYSTEMS CORPORATION
By: /s/
--------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.14
EXECUTION COPY
---------------------------------------------------------
ASSET PURCHASE AGREEMENT
AMONG
SUBMICRON SYSTEMS CORPORATION,
SYSTEMS CHEMISTRY INCORPORATED
AND
THE BOC GROUP, INC.
DATED AS OF JUNE 27, 1997
---------------------------------------------------------
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TABLE OF CONTENTS
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ARTICLE I
PURCHASE AND SALE OF
ASSETS AND ASSUMPTION OF LIABILITIES..................................... 1
Section 1.1 Purchase and Sale.................................................................................. 1
Section 1.2 Consideration...................................................................................... 5
Section 1.3 Closing............................................................................................ 6
Section 1.4 Deliveries by Seller............................................................................... 6
Section 1.5 Deliveries by Buyer................................................................................ 7
Section 1.6 Post-Closing Adjustment............................................................................ 8
ARTICLE II
RELATED MATTERS............................................... 9
Section 2.1 Use of the Seller's Names and Logos................................................................ 10
Section 2.2 Books and Records.................................................................................. 10
Section 2.3 No Ongoing or Transition Services.................................................................. 10
Section 2.4 Intercompany Accounts.............................................................................. 11
Section 2.5 Taxes.............................................................................................. 11
Section 2.6 Bulk Sales Law..................................................................................... 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER................................... 11
Section 3.1 Organization....................................................................................... 11
Section 3.2 Authorization...................................................................................... 12
Section 3.3 Interests in Other Entities........................................................................ 12
Section 3.4 Consents and Approvals; No Violations.............................................................. 12
Section 3.5 Financial Statements............................................................................... 13
Section 3.6 Absence of Undisclosed Liabilities................................................................. 13
Section 3.7 Absence of Material Adverse and Other Changes...................................................... 14
Section 3.8 Title, Ownership and Related Matters............................................................... 14
Section 3.9 Leases............................................................................................. 15
Section 3.10 Intellectual Property............................................................................. 15
Section 3.11 Computer Software and Databases................................................................... 17
Section 3.12 Employee Benefit Plans; ERISA..................................................................... 17
Section 3.13 Environmental Matters............................................................................. 18
Section 3.14 Certain Fees. .................................................................................... 18
Section 3.15 Material Contracts................................................................................ 18
Section 3.16 Assumptions or Guarantee of Indebtedness.......................................................... 19
Section 3.17 Tax Returns, Books and Records.................................................................... 19
Section 3.18 Warranty Claims................................................................................... 20
Section 3.19 Absence of Defaults............................................................................... 20
Section 3.20 Litigation........................................................................................ 20
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Section 3.21 Product Liability Claims.......................................................................... 21
Section 3.22 Employee Benefit Plans; ERISA..................................................................... 21
Section 3.23 No Third Party Options............................................................................ 22
Section 3.24 Labor Matters..................................................................................... 22
Section 3.25 Limitations....................................................................................... 23
Section 3.26 Insurance......................................................................................... 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER................................... 23
Section 4.1 Organization and Authority of Buyer................................................................ 23
Section 4.2 Consents and Approvals; No Violations.............................................................. 24
Section 4.3 Financing.......................................................................................... 24
Section 4.4 Litigation......................................................................................... 25
Section 4.5 Investigation by Buyer............................................................................. 25
Section 4.6 Certain Fees....................................................................................... 25
ARTICLE V
COVENANTS.................................................. 25
Section 5.1 Conduct of the Business............................................................................ 25
Section 5.2 Access to Information.............................................................................. 26
Section 5.3 Regulatory Compliance.............................................................................. 27
Section 5.4 Consents; Assignments.............................................................................. 28
Section 5.5 Reasonable Best Efforts............................................................................ 29
Section 5.6 Limitation of Seller's Liabilities................................................................. 29
Section 5.7 Public Announcements............................................................................... 30
Section 5.8 Covenant Not to Compete............................................................................ 30
Section 5.9 Employees; Employee Benefits....................................................................... 31
Section 5.10 Benefit Plans..................................................................................... 33
Section 5.11 Tax Treatment..................................................................................... 34
Section 5.12 Non-Solicitation.................................................................................. 34
Section 5.13 Discovery of Facts................................................................................ 35
Section 5.14 Promissory Note; Security Interest................................................................ 35
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE PARTIES................................... 36
Section 6.1 Conditions to Each Party's Obligation.............................................................. 36
Section 6.2 Conditions to Obligations of Seller and
Systems Chemistry.................................................................... 37
Section 6.3 Conditions to Obligations of Buyer................................................................. 37
Section 6.4 Materiality of Conditions.......................................................................... 38
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ARTICLE VII
TERMINATION; AMENDMENT; WAIVER........................................ 38
Section 7.1 Termination........................................................................................ 38
Section 7.2 Procedure and Effect of Termination................................................................ 39
Section 7.3 Amendment, Modification and Waiver................................................................. 40
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION................................. 40
Section 8.1 Survival of Representations and Warranties......................................................... 40
Section 8.2 Seller's Agreement to Indemnify.................................................................... 41
Section 8.3 Buyer's Agreement to Indemnify..................................................................... 42
Section 8.4 Third Party Indemnification........................................................................ 44
Section 8.5 Exclusive Remedy................................................................................... 47
ARTICLE IX
MISCELLANEOUS................................................ 48
Section 9.1 Fees, Expenses and Taxes........................................................................... 48
Section 9.2 Further Assurances................................................................................. 48
Section 9.3 Notices............................................................................................ 48
Section 9.4 Severability....................................................................................... 50
Section 9.5 Binding Effect; Assignment......................................................................... 50
Section 9.6 No Third Party Beneficiaries....................................................................... 50
Section 9.7 Interpretation..................................................................................... 50
Section 9.8 Jurisdiction and Consent to Service................................................................ 51
Section 9.9 Entire Agreement................................................................................... 51
Section 9.10 Governing Law..................................................................................... 51
Section 9.11 Specific Performance.............................................................................. 51
Section 9.12 Counterparts...................................................................................... 52
ARTICLE X
CERTAIN DEFINITIONS............................................. 52
</TABLE>
iii
<PAGE> 5
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 1.1(a)(i) Leased Property Being Transferred
Schedule 1.1(a)(ii) Computer Software
Schedule 1.1(a)(iii) Inventory
Schedule 1.1(a)(vii) Accounts Receivables
Schedule 1.1(a)(viii) Intellectual Property
Schedule 1.1(c)(iii) Contracts not to be Assigned to Buyer
Schedule 2.3 Ongoing Agreements
Schedule 2.4 Intercompany Loan
Schedule 3.4 Consents and Approvals
Schedule 3.5 Financial Statements
Schedule 3.8 Title to Assets
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Environmental Matters
Schedule 3.15 Material Contracts
Schedule 3.16 Guarantees
Schedule 3.17 Tax Returns
Schedule 3.18 Warranty Claims
Schedule 3.19 Defaults
Schedule 3.20 Litigation
Schedule 3.21 Product Liability Claims
Schedule 3.24 Employees
Schedule 3.26 Insurance
Schedule 5.1 Conduct of Business
Schedule 5.9(a) Transferred Employees
</TABLE>
EXHIBITS
EXHIBIT A Bill of Sale and Assignment
EXHIBIT B Undertaking
EXHIBIT C Promissory Note
EXHIBIT D Escrow Agreement
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of June 27, 1997 is
by and among SubMicron Systems Corporation, a Delaware corporation, having a
principal office at 6620 Grant Way, Allentown, Pennsylvania 18106 ("Seller"),
Systems Chemistry Incorporated, a wholly owned subsidiary and a California
corporation ("Systems Chemistry"), and The BOC Group, Inc., a Delaware
corporation ("Buyer").
RECITALS
A. Seller is, among other things, engaged through its wholly
owned subsidiary Systems Chemistry Incorporated in the development, distribution
and sale of chemical distribution systems (the "Business").
B. Seller desires to sell to Buyer, and Buyer desires to
purchase from Seller, certain assets and operations of Systems Chemistry as more
fully described herein, upon the terms and subject to the conditions set forth
herein.
Now, therefore, in consideration of the
mutual agreements herein and in reliance upon the representations and warranties
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF
ASSETS AND ASSUMPTION OF LIABILITIES
Section 1.1 Purchase and Sale.
(a) Subject to the terms and conditions
of this Agreement, at the Closing, Seller will sell, convey, assign, transfer
and deliver to Buyer, and Buyer will purchase, acquire and accept from Seller,
all of Seller's rights, title and interests in and to all of the properties,
contracts and other assets (of every kind, nature, character and description,
whether real, personal
<PAGE> 7
or mixed, whether tangible or intangible, whether accrued, contingent or
otherwise and wherever situated), goodwill and business as a going concern of
Systems Chemistry, all as of the Closing Date (as defined in Section 1.3
hereof), other than the Excluded Assets (as defined in Section 1.1(c) hereof)
(collectively, the "Assets"), including, without limitation, the following:
(i) all leases of real property and all
contracts, commitments or other agreements relating thereto to which
Seller or Systems Chemistry is a party or by which Seller or Systems
Chemistry is bound and which relate exclusively to Systems Chemistry
listed on Schedule 1.1(a)(i);
(ii) all software, computer programs,
program control language and systems, and databases and documentation
and resource material of Systems Chemistry and the rights of Seller or
Systems Chemistry in the licenses or other agreements relating thereto,
listed on Schedule 1.1(a)(ii);
(iii) all inventory, wherever located,
including raw materials, work-in-progress, finished goods, supplies
and other inventories which relate to Systems Chemistry, a summary of
which and the locations of which are set forth on Schedule 1.1(a)(iii)
(the "Inventory") and any rights of Seller or Systems Chemistry to the
warranties received from suppliers and any related claims, credits,
rights of recovery and setoff with respect to such Inventory;
(iv) all fixtures and supplies which relate
exclusively to Systems Chemistry and the leasehold improvements, plant
and equipment located on the Leased Premises;
(v) all rights in, to and under all
contracts, licenses, leases (other than leases for real property),
commitments, purchase orders and other agreements which relate
exclusively to Systems Chemistry;
2
<PAGE> 8
(vi) all customer lists of Systems
Chemistry;
(vii) all cash, accounts receivable, lock
boxes and bank accounts of Systems Chemistry listed on Schedule
1.1(a)(vii);
(viii) subject to Section 2.1 hereof, all
Intellectual Property, as that term is defined in Section 3.10 below,
including without limitation, all trademarks, trade names, service
marks, logos, copyrights, applications for the foregoing and licenses
thereof, advertising materials, brochures and literature, manuals,
drawings, blueprints and specifications, and all other intellectual
property rights and other proprietary rights of Systems Chemistry
listed on Schedule 1.1(a)(viii);
(ix) all permits, licenses, approvals and
authorizations by governmental authorities or third parties which are
transferable by Seller or Systems Chemistry and which are primarily
used or held for use in and are transferable by Systems Chemistry;
(x) all of the books of account (or copies
thereof) to the extent related to the Business, the Assets and/or the
Assumed Liabilities;
(xi) all historical personnel and payroll
records of each Affected Employee (as defined in Section 5.9) in
possession of Seller, Systems Chemistry or any Affiliate; and
(xii) all other assets reflected on the
Final Statement (as defined in Section 1.6(a)).
(b) Such sale, assignment, transfer and delivery of
the Assets will be effected by delivery by Seller to Buyer of (i) a duly
executed bill of sale and assignment agreement (the "Bill of Sale and
Assignment") substantially in the form set forth as Exhibit A attached hereto,
and (ii) such other duly executed, good and sufficient instruments of
conveyance, transfer and as-
3
<PAGE> 9
signment as shall be necessary to convey to Buyer all of Seller's and Systems
Chemistry's rights, title and interests in and to the Assets (collectively, the
"Other Instruments").
(c) Notwithstanding anything contained in Sections
1.1(a) or 1.1(b) hereof to the contrary, there are expressly excluded from the
Assets to be sold, conveyed, assigned and transferred to Buyer and from the
assets owned by the Seller or Systems Chemistry, the following assets
(collectively, the "Excluded Assets"):
(i) the consideration delivered by Buyer
pursuant to this Agreement;
(ii) all securities of Seller and Systems
Chemistry;
(iii) contracts, if any, which will not be
assigned (including certain employment contracts) listed on Schedule
1.1(c)(iii);
(iv) all insurance policies and all refunds,
rights and claims thereunder, except for proceeds from insurance for
losses or damages incurred prior to the Closing that are not
compensated by a purchase price adjustment;
(v) subject to Section 2.4 hereof, all
intercompany debt and accounts between Seller and its affiliates, on
the one hand and Systems Chemistry, on the other hand;
(vi) Seller's Trademarks and Logos (as
defined in Section 2.1 hereof); and
(vii) all corporate minute books and stock
transfer books and the corporate seal of Systems Chemistry and Seller
as well as all tax returns of Seller which shall continue to remain the
property of Seller.
(d) Notwithstanding anything contained in this
Agreement to the contrary, it is expressly understood that, except for the
obligations and other liabilities listed on the Undertaking attached hereto as
Exhibit
4
<PAGE> 10
B, which Buyer shall specifically assume and agree to perform, pay and discharge
as set forth in said Undertaking ("Assumed Liabilities"), Buyer shall not assume
or agree to perform, pay or discharge, any debts, obligations, claims or
liabilities of any kind or nature, whether perfected or not, whether known or
not, arising out of or relating to any event or events occurring on or prior to
the Closing, including without limitation, the items set forth on Schedule
1.1(d), any income tax liabilities resulting from the transactions contemplated
by this Agreement, any tax liabilities attributable to the operation of the
business prior to the Closing that are not accrued on the Closing Balance Sheet,
and any environmental matters arising out of the conduct of the Business by
Seller prior to the Closing that are not set forth on Schedule 3.13.
Section 1.2 Consideration. Subject to the terms and conditions
of this Agreement, Buyer will deliver or cause to be delivered to Seller at the
Closing the following:
(a) An amount (the "Purchase Price") in cash by wire
transfer of immediately available funds to such bank account as shall be
designated by Seller prior to the Closing which shall consist of payment for
Assets determined by adding $4,700,000 to the Net Assets (as hereinafter
defined) of Systems Chemistry as set forth on the May 31, 1997 balance sheet
(the "5/31/97 Balance Sheet") to be prepared on a basis consistent with GAAP
(including the adoption of the percentage of completion method of accounting),
of which $1,500,000 ("Purchase Price Holdback") shall be retained by Buyer
following the Closing Date and applied to any Post-Closing Adjustment owed by
Seller pursuant to Section 1.6 or returned to Seller as the case may be, plus a
subordinated, unsecured loan to the Seller in the amount of $5,000,000 to be
payable on or before the third anniversary of the Closing in accordance with the
terms of a Promissory Note attached hereto as Exhibit C. The parties acknowledge
and agree that the entire balance due under the loan shall become due and
payable immediately upon any Change in Control of Seller.
(b) An undertaking substantially in the form set
forth as Exhibit B attached hereto (the "Undertaking"), whereby Buyer will
assume and agree to pay and
5
<PAGE> 11
discharge the Assumed Liabilities as provided in the Undertaking.
Section 1.3 Closing. The Closing of the transactions
contemplated by this Agreement shall take place as promptly as practicable, and
in any event not later than the second business day, following the satisfaction
or waiver of all of the conditions to Closing set forth in Article VI hereof, at
10:00 a.m., local time, at the offices of Skadden, Arps, Slate, Meagher & Flom
LLP, 919 Third Avenue, New York, New York, or on such other date and at such
other time or place as the parties may agree. The date of the Closing is
sometimes referred to herein as the "Closing Date."
Section 1.4 Deliveries by Seller. At the Closing, Seller will
deliver or cause to be delivered to Buyer (unless delivered previously) the
following:
(a) a duly executed Bill of Sale and Assignment;
(b) the Other Instruments referred to in Section
1.1(b)(ii);
(c) the books and records of Systems Chemistry to the
extent provided in Section 2.2 hereof;
(d) the officer's certificate referred to in Section
6.3(b) hereof;
(e) properly completed IRS Form 8594, in accordance
with Section 5.10 of this Agreement; and
(f) the consents referred to in Section 5.4 hereof;
(g) an executed Assignment and Assumption of Leases,
Consents of Landlord and Estoppel Certificate(s);
(h) the opinion of Skadden, Arps, Slate, Meagher &
Flom LLP as to the enforceability of this Agreement pursuant to Delaware law
against the Seller and Systems Chemistry, which opinion may contain customary
exceptions and limitations, including, without limitation, that no opinion will
be expressed as to any viola-
6
<PAGE> 12
tion of law or contract, as to any matters relating to intellectual property,
environmental, ERISA, litigation, labor or insurance, the Promissory Note or any
security thereunder, and will assume that the parties have the authority to
enter into this Agreement;
(i) the Promissory Note referred to in Section 1.2
hereof; and
(j) all other documents, instruments and writings
required to be delivered by Seller at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith.
Section 1.5 Deliveries by Buyer. At the Closing, Buyer will
deliver or cause to be delivered to Seller (unless previously delivered) the
following:
(a) the Purchase Price referred to in Section 1.2(a)
hereof;
(b) the duly executed Assignment and Assumption of
Leases;
(c) the duly executed Undertaking;
(d) the officer's certificate referred to in Section
6.2(b) hereof;
(e) the opinion of Buyer's in-house counsel as to the
enforceability of this Agreement against the Buyer, which opinion may contain
customary exceptions and limitations;
(f) properly completed IRS Form 8594, in accordance
with Section 5.10 of this Agreement; and
(g) all other documents, instruments or writings
(including, if necessary, the Other Instruments) required to be delivered by
Buyer at or prior to the Closing pursuant to this Agreement or otherwise
required in connection herewith.
7
<PAGE> 13
Section 1.6 Post-Closing Adjustment.
(a) Within 90 days after the Closing Date, Seller
shall prepare and deliver to Buyer a statement (the "Closing Date Statement")
setting forth the Net Assets (as hereinafter defined) of Systems Chemistry as of
the Closing Date, which Statement shall be prepared, in all material respects,
in accordance with U.S. generally accepted accounting principles ("GAAP"),
including adoption of the percentage of completion method of accounting.
Following the Closing, Buyer shall give Seller and any independent auditors of
Seller access at all reasonable times to the properties, books, records and
personnel of Systems Chemistry relating to periods prior to the Closing Date for
purposes of preparing and reviewing the Statement. Buyer shall have 60 days
following delivery to Buyer of the Statement to notify Seller of any dispute of
any Disputable Item, as such term is defined below, contained in the Closing
Date Statement. A Disputable Item means any item or item(s) as to which the
amount in dispute exceed(s) a threshold amount of $5,000 for any single item
and, in such event, an adjustment to the Purchase Price shall be made only to
the extent that the aggregate amount of such item exceeds $50,000 (a "Disputable
Item"). Such notice shall set forth in reasonable detail the basis for such
dispute. If Buyer fails to notify Seller of any such dispute within such 60-day
period or such dispute does not relate to a Disputable Item, the Statement shall
be deemed to be the "Final Statement". In the event that Buyer shall so notify
Seller of any dispute of any Disputable Item, Buyer and Seller shall cooperate
in good faith to resolve such dispute as promptly as possible.
(b) If Buyer and Seller are unable to resolve any
such dispute within 60 days of Buyer's delivery of such notice, such dispute
shall be resolved by a big six accounting firm mutually agreed upon by Buyer and
Seller. If Seller and Buyer cannot agree on such accounting firm to be retained,
Seller and Buyer shall each submit to the other party's independent auditor the
name of another big six independent accounting firm which does not at the time
and has not in the prior two years provided services to Seller or Buyer, and the
firm shall be selected by lot from these two firms by the independent auditors
of the two parties. The independent accounting firm retained by Seller and Buyer
(the "Independent
8
<PAGE> 14
Accounting Firm") shall make its determination as promptly as practicable and
such determination shall be final and binding on the parties. Any expenses
relating to the engagement of the Independent Accounting Firm shall be shared
equally by Buyer and Seller. The Closing Date Statement, as modified by
resolution of any such disputes by Buyer and Seller or by the Independent
Accounting Firm, shall be the "Final Statement".
(c) The Purchase Price shall be increased by the
amount by which closing net assets as set forth in the Final Statement (the
"Closing Net Assets") exceed the net assets set forth in the 5/31/97 Statement
and the Purchase Price shall be decreased by the amount by which the Closing Net
Assets is less than the net assets set forth in the 5/31/97 Statement. Buyer or
Seller, as the case may be, shall within five business days after delivery of
the Final Statement make payment by wire transfer in immediately available funds
of the amount of such difference as determined pursuant to the preceding
sentence, together with interest thereon at a rate equal to 5% per annum from
the Closing Date to the date of payment. The Purchase Price Holdback shall be
applied to any balance due to Buyer pursuant to this Section without interest
referred to in the preceding sentence.
(d) The term "Net Assets" shall mean Total Assets
minus Current Liabilities. The terms "Total Assets" and "Current Liabilities"
shall mean, respectively, the total assets (excluding Excluded Assets) and
current liabilities (excluding Excluded Liabilities) of Systems Chemistry as
shown on the Final Statement.
(e) Buyer's and Seller's rights to indemnification
pursuant to Article VIII hereof (and any limitations on such rights) shall not
be deemed to limit, supersede or otherwise affect Buyer's or Seller's rights to
a full purchase price adjustment pursuant to this Section 1.6, provided that no
indemnification claim may be made with respect to any item that is fully
compensated by a post-Closing adjustment.
ARTICLE II
RELATED MATTERS
9
<PAGE> 15
Section 2.1 Use of the Seller's Names and Logos. It is
expressly agreed that Buyer is not purchasing or acquiring from Seller any
right, title or interest in the names of Seller or any trade names, trademarks,
identifying logos or service marks related thereto or employing the word
"SubMicron" or any variation thereof, including without limitation "SubMicron
Systems Corporation", or any confusingly similar trade name, trademark or logo
(collectively, the "Seller's Trademarks and Logos").
Section 2.2 Books and Records.
(a) Each of Buyer and Seller agree that all books and
records of Systems Chemistry relating to the Business prior to the Closing Date
(including, but not limited to, correspondence, memoranda, books of account,
personnel and payroll records and the like)(the "Business Records") shall be
preserved for a period of at least seven (7) years following the Closing Date.
Following such seven (7) year period, neither Seller, on the one hand, nor
Buyer, on the other hand, will dispose of any such books and records without
first offering such books and records to the other party. After the Closing
Date, where there is some legitimate business purpose, the party in possession
of any Business Records shall provide the other party and its authorized
representatives with access, upon prior reasonable notice specifying the need
therefor, during regular business hours, to the Business Records, and the other
party or its representatives shall have the right to examine and make copies of
such Business Records; provided that the foregoing right shall not be
exercisable in such a manner as to unreasonably interfere with the normal
operations of such party.
Section 2.3 No Ongoing or Transition Services. Except (a) as
identified in Schedule 2.3, (b) for other intercompany agreements to be entered
into at Closing between Buyer and Seller's affiliates, if any (the "Intercompany
Agreements"), in order to formalize and establish the ongoing business
relationship between Systems Chemistry and such affiliates of Seller, and (c) as
otherwise agreed to by Seller and Buyer, at the Closing, all data processing,
accounting, sales, insurance, banking, personnel, legal, communications and
other products or services provided (i) to Systems Chemistry by Seller
10
<PAGE> 16
or any affiliates of Seller or (ii) to Seller or any affiliates of Seller by
Systems Chemistry, including any agreements or understandings (written or oral)
with respect thereto, will terminate.
Section 2.4 Intercompany Accounts. On or prior to the Closing
Date, all intercompany accounts between Systems Chemistry, on the one hand, and
Seller and its affiliates, on the other hand, except for the intercompany loan
set forth on Schedule 2.4, shall be settled. Buyer shall have no liability for
Seller's or Systems Chemistry's intercompany loans. No adjustment shall be made
to the Purchase Price as a result of any such settlement.
Section 2.5 Taxes. The Purchase Price shall be exclusive of
any sales, transfer, excise or use taxes thereon, and Buyer agrees to pay all
applicable state and local sales, transfer, excise, value added, use or other
similar taxes and all recording and filing fees, whether levied on Seller or
Buyer, that are payable by reason of the sales, transfers, leases, rentals,
licenses, and assignments contemplated hereby.
Section 2.6 Bulk Sales Law. Buyer hereby waives compliance by
Seller with the requirements and provisions of any "bulk-transfer" laws of any
jurisdiction that may otherwise be applicable with respect to the sale of any or
all of the Assets to Buyer. Seller hereby agrees to hold Buyer harmless from the
claims of Seller's or Systems Chemistry's creditors arising from Seller's
conduct of the Business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Systems Chemistry and Seller represent and warrant to Buyer as
follows:
Section 3.1 Organization. Systems Chemistry is a corporation
duly organized, validly existing and, where applicable, in good standing under
the laws of the jurisdiction of its incorporation and in all other jurisdictions
in which Systems Chemistry conducts business, and has all requisite corporate
and other power and
11
<PAGE> 17
corporate authority to own, lease and operate the properties owned, leased and
operated by the Business and to carry on its operations as now being conducted
by it. Systems Chemistry is duly qualified or licensed and in good standing to
do business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary. Seller has heretofore made available to Buyer complete and correct
copies of the Articles of Incorporation and By-Laws of Systems Chemistry as
currently in effect.
Section 3.2 Authorization. Seller and Systems Chemistry have
the corporate power and corporate authority to execute and deliver this
Agreement and the other agreements and instruments to be executed pursuant
hereto, including the Promissory Note (the "Related Agreements") and consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of Seller and Systems Chemistry and no
other corporate proceedings on the part of Seller and Systems Chemistry are
necessary to authorize the execution, delivery and performance of this Agreement
and the Related Agreements or the consummation of the transactions contemplated
hereby and thereby. This Agreement and the Promissory Note at the Closing will
have been duly executed and delivered by Seller and constitute, and when
executed and delivered, each of the Related Agreements to be executed and
delivered by Seller pursuant hereto will constitute, a valid and binding
agreement of Seller, enforceable against Seller in accordance with its terms.
Section 3.3 Interests in Other Entities. Systems Chemistry has
no interest in the outstanding stock of any corporation or in any partnership,
joint venture or other entity.
Section 3.4 Consents and Approvals; No Violations. Except for
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and as set forth in Schedule 3.4, neither the
execution and delivery of this Agreement or the Related Agreements nor the
consummation by Seller of the transactions contemplated hereby and thereby will,
12
<PAGE> 18
on the date of the Closing (a) conflict with or result in any breach of any
provision of the Articles of Incorporation or By-Laws of Seller; (b) require on
the part of Seller any filing with, or the obtaining of any permit,
authorization, consent or approval of, any governmental or regulatory authority
whether within or outside the United States or of any third party; (c) result in
a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
mortgage, other evidence of indebtedness, guarantee, license, agreement, lease
or other contract or instrument or obligation to which Seller or Systems
Chemistry is a party; or (d) to the best knowledge of Seller, violate any order,
injunction, decree, statute, rule or regulation applicable to Seller or Systems
Chemistry.
Section 3.5 Financial Statements. Seller has previously
furnished to Buyer true and accurate copies of the unaudited balance sheets of
Systems Chemistry as of December 31, 1996 and the balance sheet of Systems
Chemistry as of March 31, 1997 and related statements of operations and
cash-flows for the periods then ended (the "Financial Statements"). The
Financial Statements have been prepared in all respects on a basis consistent
with GAAP, consistently applied (other than for the preparation of notes
otherwise required by GAAP). Except as explained in the accompanying
disclosures, if any, to the Financial Statements or in Schedule 3.5, such
Financial Statements fairly present, in all material respects, the financial
position and the results of operations and cash-flows of Systems Chemistry as of
the respective dates and periods thereof. The accounts receivable to be shown on
the Closing Date Financial Statement will completely and accurately represent
sales made and services performed in the conduct of the Business in bona fide
transactions. The accounts receivable outstanding on the Closing Date will not
be subject to any defenses, counterclaims or rights of set-off, except as
disclosed in the notes to the Closing Date Financial Statement.
Section 3.6 Absence of Undisclosed Liabilities. Except (a) for
liabilities and obligations incurred in the ordinary course of business and
consistent with past practice since March 31, 1997, and (b) as otherwise
disclosed herein or in the Disclosure Schedule, to the best knowledge of Seller,
Systems Chemistry has no
13
<PAGE> 19
liabilities or obligations (whether direct, indirect, accrued or contingent) of
such nature as would be required to be reported under GAAP.
Section 3.7 Absence of Material Adverse and Other Changes.
Except as otherwise contemplated by this Agreement, since March 31, 1997, (a)
there has not been any adverse change in the business, results of operations or
financial condition of Systems Chemistry (other than changes resulting from
changes in general economic or financial conditions or changes affecting
generally the business in which Systems Chemistry operates), (b) Seller has
conducted the Business in the ordinary course, (c) Seller or System Chemistry
has not increased the compensation or benefits of any of the officers or
employees set forth on Schedule 5.9(a), (d) Seller has not sold or disposed of
the material properties or assets of Systems Chemistry, except in the ordinary
course of business, (e) Seller has not suffered any loss or damage to the
properties or assets of Systems Chemistry and (f) Seller has not entered into
any agreement or made any commitment to take any of the actions described in
this Section 3.7.
Section 3.8 Title, Ownership and Related Matters.
(a) Except as set forth in Schedule 3.8, Seller or
Systems Chemistry has, or will as of the Closing have, and will deliver to
Buyer, good and marketable title to all of the Assets, including, without
limitation, in each case free and clear of all mortgages, pledges, security
interests, liens, charges, options, easements, rights-of-way or other
encumbrances of any nature whatsoever (collectively, "Liens"), except for
Permitted Liens. The term "Permitted Liens" shall mean (i) unperfected
mechanics', carriers', workers', repairers', materialmens', warehousemens' and
other similar rights to Liens arising or incurred in the ordinary course of
business, and (ii) Liens arising or resulting from any action taken by Buyer.
(b) Except for properties or assets subject to
Permitted Liens, Seller has, or will as of the Closing have, good and valid
title to, or rights by license, lease or other agreement to use, all properties
and assets necessary to permit the business to be conducted as currently
conducted.
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<PAGE> 20
Section 3.9 Leases.
(a) Schedule 1.1(a)(viii) lists, as of the date
hereof, all real leases of real property used by Systems Chemistry
(collectively, the "Leases"), all correspondence with respect to the Leases, and
copies of all notices of violation or default regarding the Leases. True and
complete copies of the Leases and all written amendments and agreements relating
thereto have been made available to Buyer. Except as set forth in Schedule
1.1(a)(i), Seller has, or will as of the Closing have, a valid leasehold
interest in the Leases free and clear of all Liens, other than Permitted Liens.
(b) Seller is currently the sole tenant in each of
the premises set forth in the Premises leases ("Leased Premises"). The Leased
Premises are currently leased pursuant to the Premises Leases. Seller has paid
all rent and additional rental charges specified in the Premises Leases that are
due and owing and is not currently in default under the Premises Leases, nor
will Seller be in default as of the Closing Date of any rent, rental charges or
other obligations under the Premises Leases. Prior to the Closing Date, if
required by the terms of the lease, Seller will obtain the consent of the
Landlord to assign all of the Seller's rights and obligations under the Premises
Leases to the Purchaser as of the Closing Date in accordance with the Assignment
and Assumption of Leases, the Estoppel Certificates and the Consents of Landlord
in the form provided by Buyer attached hereto as Schedule 3.9. Other than the
Leased Premises, Seller has no leasehold interest, occupancy rights or other
ownership interest in any real property used in the operation of the Business,
whether located in the United States, the United Kingdom, or in any other
jurisdiction.
Section 3.10 Intellectual Property.
(a) Schedule 1.1(a)(viii) lists by ownership all
material domestic and foreign trademarks, trade names, service marks, brand
names, service names, mark registrations, logos, assumed names, registered
copyrights, patents and all applications therefor (collectively, the
"Intellectual Property") which are owned or licensed by Seller or Systems
Chemistry and used in the operation of the business as currently conducted,
except
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that Schedule 1.1(a)(viii) shall include unregistered Intellectual Property
including know-how, processes, formulae and trade secrets or Intellectual
Property for which no application is pending only to the extent such
Intellectual Property is material to the Business. Except as set forth in
Schedule 1.1(a)(viii), there are no pending or threatened claims of which Seller
has been given written notice, by any person against the use by Systems
Chemistry of the Intellectual Property.
(b) Seller or Systems Chemistry has, or will have as
of the Closing, such ownership of or such rights by license, lease or other
agreement to the Intellectual Property as are necessary to permit Systems
Chemistry to conduct its operations as currently conducted.
(c) Any existing patents and copyrights included in
the Assets are valid and enforceable.
(d) Seller or Systems Chemistry has, or will have as
of the Closing, the right to use the Assets without payment to or interference
from any other party, and no other domestic and foreign trademarks, trade names,
service marks, service names, brand names, mark registrations, logos, assumed
names, registered copyrights, patents, applications, inventions, processes,
know-how, formulae, trade secrets, licenses or applications therefor are
necessary for the conduct of the Business. Neither Seller nor Systems Chemistry
has received any notice of any claim of infringement or interference relating to
the Assets or notice of any other claim or proceeding relating to the Assets.
(e) Neither Seller nor Systems Chemistry infringes
upon or unlawfully or wrongfully uses any domestic and foreign trademarks, trade
names, service marks, service names, brand names, mark registrations, logos,
assumed names, registered copyrights, patents or applications therefor,
inventions, processes, know-how, formulae, trade secrets, or licenses or
applications therefor owned or claimed by a third party.
(f) No present or former employee of Seller or
Systems Chemistry, and no other person owns or has any proprietary, financial or
other interest, direct
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or indirect, in whole or in part, in the Intellectual Property.
(g) Buyer shall acquire all of the rights of Seller
or Systems Chemistry under any agreements of Seller or Systems Chemistry with
Furon.
Section 3.11 Computer Software and Databases. Schedule
1.1(a)(ii) lists and identifies by category all of the computer software
programs and databases material to the Business (other than off-the-shelf
software) which are owned, licensed, leased or otherwise used by Systems
Chemistry in connection with the Business as currently conducted, whether
purchased, licensed, leased or internally developed. To the best knowledge of
Seller, Systems Chemistry has, or will have as of the Closing, such ownership of
or such rights by license, lease or other agreement to such scheduled computer
programs and databases as are necessary to permit Systems Chemistry to conduct
its operations as currently conducted, except as set forth in Schedule
1.1(a)(ii).
Section 3.12 Employee Benefit Plans; ERISA.
Schedule 3.12 lists (i) each "employee benefit plan" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), and all other material employee benefit, bonus, incentive
or deferred compensation, stock option (or other performance or equity-based),
severance, change in control and fringe benefit plans maintained or contributed
to by Systems Chemistry, the Seller or any trade or business, whether or not
incorporated (an "ERISA Affiliate"), that, together with Seller would be deemed
a "single employer" within the meaning of Section 4001 of ERISA, for the benefit
of any U.S. employee or former U.S. employee of Systems Chemistry (the "U.S.
Plans") and (ii) each employee benefit, bonus, incentive or deferred
compensation, stock option (or other performance or equity-based), severance,
change-in-control and fringe benefit plan (other than any employment or
personnel policy, practice or procedure) maintained, or participated in, by
Seller or its affiliates for the benefit of non-U.S. employees or former
employees of Systems Chemistry or under which any such person is covered, is
eligible for coverage or has benefit rights, by reason of employment with any of
the Seller or affiliates (the "Foreign
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Plans"). The U.S. Plans and the Foreign Plans are referred to herein
collectively as the "Plans". Seller has made available to Buyer copies of each
of the Plans, including all amendments to date.
Section 3.13 Environmental Matters.
(a) Except as set forth in Schedule 3.13 and Buyer's Phase I site
reviews, Seller or Systems Chemistry hold, and are in compliance with, all
permits, licenses and government authorizations required for Systems Chemistry
to conduct the Business under state and federal laws relating to pollution and
the storage, handling, transportation, use, disposal, or discharge of hazardous
or toxic substances, waste or materials, and is otherwise in compliance with all
applicable Environmental Law, as defined herein, with respect to Systems
Chemistry.
(b) Except as set forth in Schedule 3.13, as it relates to Systems
Chemistry, neither Seller nor any of its subsidiaries has received any written
request for information, notice of violation of any Environmental Law, or has
been notified that it is a potentially responsible party, under the federal
Comprehensive Environmental Response, Compensation, and Liability Act or any
similar state law with respect to any on-site or off-site location.
(c) Neither Seller nor Systems Chemistry has caused any unpermitted
disposal, release or discharge into the air, soil, surface waters or groundwater
at any of the Leased Premises.
Section 3.14 Certain Fees. Except in connection with the
retention of Credit Suisse First Boston Corporation (whose fees shall be the
sole responsibility of Seller), (i) Seller has not employed any financial
advisor or finder and (ii) neither Seller nor Systems Chemistry has incurred any
liability for any financial advisory or finders' fees in connection with this
Agreement or the Related Agreements or the transactions contemplated hereby or
thereby.
Section 3.15 Material Contracts. Schedule 3.15 contains a
complete list of all contracts, or other agreements that relate to the Business
as it is conducted in the United States, the United Kingdom or in any other
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jurisdiction and which equals or exceeds $20,000 in payments or liability
annually or in excess of $50,000 in payments or liability during the entire term
of the contract (the "Material Contracts"). The contracts that relate to the
Business will be assumed by Buyer at the Closing. Copies of all Material
Contracts have been furnished to Buyer. Seller or Systems Chemistry has in all
respects performed all of the obligations required to be performed by Seller or
by Systems Chemistry under the assumed contracts and is not in default or, to
the knowledge of Seller or Systems Chemistry, alleged to be in default under any
of the Material Contracts.
Section 3.16 Assumptions or Guarantee of Indebtedness. Except
as set forth on Schedule 3.16, Seller or Systems Chemistry is not directly or
contingently liable on any indebtedness of any customer, supplier or other
creditor, or employee of Seller or Systems Chemistry with respect to the
Business or the Assets, including without limitation, liability by way of
agreement (contingent or otherwise) to provide funds for payment, to fund or to
otherwise invest in, or otherwise to assure any person or entity against loss,
whether as a result of the assumption, guarantee or endorsement of any debt.
Section 3.17 Tax Returns, Books and Records. Except as set
forth on Schedule 3.17, with respect to the Business, Seller or Systems
Chemistry has (i) filed or caused to be filed all federal, state, local and
foreign tax returns and reports required to be filed by it; and (ii) paid all
taxes upon the assets, income, franchises, licenses and sales of the Business
which are shown to be due thereon pursuant to such tax returns and any other
taxes for which a notice of assessment or demand for payment has been received.
All monies required to be withheld by or accrued as an expense of Systems
Chemistry from or on behalf of employees of the Business for income taxes,
social security and unemployment insurance taxes have been collected or
withheld, and either paid to the respective governmental agencies or, with
respect to taxes not yet due, set aside in accounts for such purpose or accrued,
reserved against and entered upon the books of Systems Chemistry. There is no
tax lien, whether imposed by any federal, state, county, local or foreign taxing
authority, outstanding against the Assets or the Business of Systems Chemistry
except for the Permitted
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Liens described on Schedule 3.17 which will not be removed or discharged prior
to the Closing Date.
Section 3.18 Warranty Claims. Except as set forth on Schedule
3.18, there are no existing or, to the best knowledge of Seller or Systems
Chemistry, threatened claims against Systems Chemistry for defective parts,
equipment, services or other products purchased, manufactured, shipped or sold
in the course of operating the Business of Systems Chemistry.
Section 3.19 Absence of Defaults. Except as set forth on
Schedule 3.19, neither Seller nor Systems Chemistry is in default under any
contract, lease or other agreement included in the Assumed Liabilities and
neither Seller nor Systems Chemistry has knowledge of any such default or
violation or claimed default or violation which with notice or lapse of time or
both would constitute a default or violation on the part of any party under any
such contract, lease or other agreement. Except as set forth on Schedule 3.19,
all of such contracts, leases or other agreements are legal, valid and binding
obligations of Seller enforceable against Seller in accordance with their terms,
except that (a) such enforcement may be subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws, now or hereafter
in effect, relating to or limiting creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Section 3.20 Litigation. Except as set forth on Schedule 3.20,
there are no actions, suits, or other proceedings, or claims of patent,
trademark or copyright infringement, unfair competition, breach of contract, or
any other claims, or any investigations formally instituted and pending or, to
the knowledge of Seller or Systems Chemistry, threatened against Systems
Chemistry or its properties or assets, at law, in equity or admiralty, or before
or by any federal, state, local, foreign or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitration panel, and Seller and Systems Chemistry know of no
circumstance that would reasonably be likely to give rise to such claims. The
Assets are
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not subject to any judgment, order, writ, injunction or decree of any court or
federal, state, local, foreign or other governmental department, commission,
board, bureau, agency or instrumentality, or arbitration panel.
Section 3.21 Product Liability Claims. Except as set forth on
Schedule 3.21, there are no product liability claims pending, or to the
knowledge of Seller or Systems Chemistry, threatened, in connection with the
conduct of the Business, and Seller and Systems Chemistry know of no
circumstance that would reasonably be likely to give rise to a product liability
claim.
Section 3.22 Employee Benefit Plans; ERISA.
(a) Seller and Systems Chemistry have complied with
continuation coverage requirements of Section 1001 of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, and ERISA Sections 601 through
608. Seller and Systems Chemistry shall be responsible for complying with the
requirements of Code Section 4980 B and Part 6 of Title 1 of ERISA for its
employees (including the Transferred Employees) and their "qualified
beneficiaries" whose "qualifying event" (as such terms are defined in Code
Section 4980 (B) occurs on or prior to the Closing.
(b) Seller or Systems Chemistry have not had an "obligation to
contribute" to a "multiemployer plan." With respect to any "multiemployer plan"
to which any entity or person in a "controlled group" with Seller (other than
Seller itself) has had or currently has an "obligation to contribute," there is
no material liability incurred under Title IV of ERISA or event which could
result in a material claim being made against Seller. For the purposes of this
paragraph, the following definitions shall apply:
(i) "controlled group" shall have that
meaning as defined in ERISA Section 4001 (14) and ERISA Section 4001
(b) (1).
(ii) "obligation to contribute" shall have
that meaning as defined in ERISA Section 4212.
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(iii) "multiemployer plan" shall have that
meaning as defined in ERISA Section 3(37) or Section 4001 (a) (3).
Section 3.23 No Third Party Options. There are no existing
agreements, options, commitments or rights with, of, or to any person to acquire
any rights in the Assets or the Business or any interest therein except for the
rights of customers to acquire products from the Inventory.
Section 3.24 Labor Matters. Schedule 3.24 contains a true and
correct and complete list of all present employees and sales representatives
employed or engaged by Seller and Systems Chemistry in the Business. Seller,
within the last three (3) years, has not experienced any organized slowdown,
work interruption, strike, or work stoppage by those employees of Seller or
Systems Chemistry employed or engaged by Seller or Systems Chemistry in the
Business. Seller or Systems Chemistry is not a party to, and does not have any
obligation pursuant to, any oral and legally binding or written agreement,
collective bargaining or otherwise, with any party regarding the rates of pay or
working conditions of any of those employees of Seller or Systems Chemistry in
the Business, and Seller or Systems Chemistry is not obligated under any
agreement to recognize or bargain with any labor organization or union on behalf
of those of its or Systems Chemistry employees who are employed or engaged by
Seller or Systems Chemistry in the Business. None of Seller or System Chemistry
or any of its officers, directors, or employees has been charged or threatened
with the charge of any unfair labor practice in connection with the Business
within the last two (2) years. To the best knowledge of Seller, Seller and
Systems Chemistry are in compliance with all applicable federal, state, local
and foreign laws and regulations concerning the employer-employee relationship
and with all agreements relating to the employment of Seller's or Systems
Chemistry's employees, including applicable wage and hour laws, fair employment
laws, safety laws, worker compensation statutes, unemployment laws, and social
security laws. Except as described on Schedule 3.24 there are no pending or, to
the best knowledge of Seller, threatened claims, investigations, charges,
citations, hearings, consent decrees, or litigation concerning wages,
compensation, bonuses, commissions, awards, or payroll deduc-
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tions; equal employment or human rights violations regarding race, color,
religion, sex, national origin, age, handicap, veteran's status, marital status,
disability, or any other recognized class, status, or attribute under any
federal, state, local or foreign equal employment law prohibiting
discrimination; representation petitions of unfair labor practices; grievances
or arbitration pursuant to current or expired collective bargaining agreements;
occupational safety and health; workers' compensation; wrongful termination,
negligent hiring, invasion of privacy or defamation; immigration or any other
claim based on the employment relationship or termination of the employment
relationship (collectively, "Labor Claims"). Seller and Systems Chemistry are
not liable for any unpaid wages, bonuses, or commissions (other than those not
yet due) or any tax, penalty, assessment or forfeiture for failure to comply
with any of the foregoing. Except as described on Schedule 3.24, there is no
outstanding agreement or arrangement with respect to severance payments with
respect to any employee of Seller or Systems Chemistry in the Business.
Section 3.25 Limitations. Except for the representations and
warranties expressly set forth in this Article III, The Assets are sold "AS IS,
WHERE IS."
Section 3.26 Insurance. Schedule 3.26 contains a list of the
insurance presently maintained by Seller or Systems Chemistry on the Assets.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and Systems Chemistry
as follows:
Section 4.1 Organization and Authority of Buyer.
(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
Buyer has heretofore delivered to Seller complete and correct copies of its
Certificate of Incorporation and By-Laws as currently in effect.
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(b) Buyer has the corporate power and corporate
authority to execute and deliver this Agreement and the Related Agreements and
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Related Agreements and the consummation of
the transactions contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of Buyer and no other corporate proceedings
on the part of Buyer is necessary to authorize the execution, delivery and
performance of this Agreement and the Related Agreements or the consummation of
the transactions so contemplated hereby or thereby. This Agreement has been duly
executed and delivered by Buyer and constitutes, and when executed and delivered
each of the Related Agreements to be executed and delivered by Buyer pursuant
hereto will constitute, a valid and binding agreement of Buyer, enforceable
against Buyer in accordance with its terms.
Section 4.2 Consents and Approvals; No Violations. Except for
applicable requirements of the HSR Act and as set forth in Section 4.2 of a
disclosure schedule document (the "Buyer Disclosure Schedule") being delivered
by Buyer to Seller concurrently herewith, neither the execution and delivery of
this Agreement or the Related Agreements nor the consummation by Buyer of the
transactions contemplated hereby and thereby will (a) conflict with or result in
any breach of any provision of the Certificate of Incorporation or By-Laws of
Buyer; (b) require on the part of Buyer any filing with, or the obtaining of any
permit, authorization, license, consent or approval of, any governmental or
regulatory authority, whether within or outside the United States, or of any
third party; (c) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, mortgage, other evidence of indebtedness, guarantee, license,
agreement, lease or other contract, instrument or obligation to which Buyer is a
party or by which Buyer or any of its assets may be bound or (d) to the best
knowledge of Buyer, violate any order, injunction, decree, statute, rule or
regulation applicable to Buyer.
Section 4.3 Financing. Buyer has on the date of execution of
this Agreement and will have at the Closing sufficient immediately available
funds, in cash or pursuant to credit agreements in effect on the date of
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this Agreement, to pay the Purchase Price and any other amounts payable pursuant
to this Agreement and the Related Agreements and to effect the transactions
contemplated hereby and thereby, and to provide Buyer with adequate working
capital to operate the Business. Buyer has, as of the date hereof, provided
Seller with copies of all such credit agreements and all relevant related
documents.
Section 4.4 Litigation. As of the date hereof there is no
claim, action or proceeding pending or, to the best knowledge of Buyer,
threatened against Buyer, or which challenges the validity of this Agreement or
the Related Agreements, or the ability of the Buyer to consummate the
transactions contemplated hereby and thereby, by or before any court,
governmental or regulatory authority.
Section 4.5 Investigation by Buyer. Buyer has conducted its
own independent review and analysis of the business, operations, technology,
assets, liabilities, results of operations, financial condition and prospects of
Systems Chemistry and acknowledges that Seller has provided Buyer with access to
the personnel, properties, premises and records of Systems Chemistry for this
purpose.
Section 4.6 Certain Fees. Neither Buyer nor any of its
affiliates has employed any financial advisor or finder or incurred any
liability for any financial advisory or finders' fees in connection with this
Agreement or the Related Agreements or the transactions contemplated hereby and
thereby.
ARTICLE V
COVENANTS
Section 5.1 Conduct of the Business. Seller and Systems
Chemistry agree that, during the period from the date of this Agreement to the
Closing, except as (i) otherwise contemplated by this Agreement (including,
without limitation, transfers of Excluded Assets from Systems Chemistry to
Seller), (ii) as set forth in Schedule 5.1 or (iii) consented to by Buyer in
writing:
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(a) Seller and Systems Chemistry shall use their
reasonable best efforts to cause the business operations of Systems Chemistry to
be conducted in the ordinary course consistent with past practice and to
preserve intact the Business and the organization of Systems Chemistry in all
material respects; and
(b) Seller or Systems Chemistry shall not (i) sell or
dispose of any of the properties and material current assets of Systems
Chemistry, except in the ordinary course of business; (ii) except as may be
required by existing contracts, make any loans, advances (other than advances in
the ordinary course of business, including the payment of income tax
liabilities, and consistent with past practice of Systems Chemistry) or capital
contributions to, or investments in, any other person on behalf of Systems
Chemistry; (iii) increase in any manner the compensation of any of the officers
or other employees of Systems Chemistry; (iv) adopt, grant, extend or increase
the rate or terms of any bonus, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any such officers or employees
of Systems Chemistry, or (v) make any change in any of the present accounting
methods and practices of Systems Chemistry, except as required by changes in
GAAP and except for adoption of the percentage of completion method of
accounting.
Section 5.2 Access to Information.
(a) Between the date of this Agreement and the
Closing, Seller shall (i) give Buyer and its authorized representatives
reasonable access to all books, records, offices and other facilities and
properties of Systems Chemistry; (ii) permit Buyer to make such inspections
thereof as Buyer may reasonably request and (iii) cause the officers of Systems
Chemistry to furnish Buyer with such financial and operating data and other
information with respect to the Business as Buyer may from time to time
reasonably request; provided, however, that any such investigation shall be
conducted during normal business hours under the supervision of Seller's
personnel and in such a manner as to not interfere with the business operations
of Systems Chemistry.
(b) All information concerning Seller or Systems
Chemistry furnished or provided by Seller or
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Systems Chemistry or their affiliates to Buyer or its representatives (whether
furnished before or after the date of this Agreement) shall be held subject to
the Confidentiality Agreement between Seller and Buyer, dated as of February 3,
1997 (the "Confidentiality Agreement"). Notwithstanding anything to the contrary
contained in this Agreement, neither Seller nor any of its affiliates shall have
any obligation to make available or provide to Buyer or its representatives a
copy of any consolidated, combined or unitary Tax Return filed by Seller or any
of its affiliates or any related materials, except to the extent it relates
solely to Systems Chemistry.
Section 5.3 Regulatory Compliance.
(a) The parties hereto shall cooperate and use their
respective best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations with respect to U.S. or foreign antitrust matters and other
regulatory approvals and consents, including, without limitation, making all
filings and submissions under the HSR Act as may be required in connection with
this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby.
(b) Subject to the Confidentiality Agreement, Seller
and Buyer will coordinate and cooperate with each other in exchanging such
information and providing such assistance as the other may reasonably request in
connection with the foregoing and in seeking early termination of any applicable
waiting periods under the HSR Act or in connection with other regulatory
approvals and consents. Each of Seller and Buyer agrees to respond promptly to
and fully comply with any request for additional information or documents under
the HSR Act. Subject to the Confidentiality Agreement, Seller will provide
Buyer, and Buyer will provide Seller, with copies of all correspondence, filings
or communications (or memoranda setting forth the substance thereof) between
such party or any of its representatives, on the one hand, and any governmental
agency or authority or members of their respective staffs, on the other hand,
with respect to this Agreement and the transactions contemplated hereby.
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Section 5.4 Consents; Assignments.
(a) Each of Seller and Buyer shall cooperate, and use
their respective best efforts, to make all filings and obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties necessary to consummate the
transactions contemplated by this Agreement. Each of the parties hereto will
furnish to the other party such necessary information and reasonable assistance
as such other party may reasonably request in connection with the foregoing and
will provide the other party with copies of all filings made by such party with
any governmental entity or any other information supplied by such party to a
governmental entity in connection with this Agreement and the transactions
contemplated hereby.
(b) Anything contained in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any right, title or interest in, to or under any contract, license,
lease, commitment, sales order, purchase order or other agreement or any claim
or right of any benefit arising thereunder or resulting therefrom if an
attempted assignment thereof, without the consent of a third party thereto,
would constitute a breach thereof or in any way adversely affect the rights of
Buyer or Seller, thereunder. Buyer and Seller will use their respective
reasonable best efforts to obtain any consent, approval or amendment required to
novate and/or assign any agreements, leases, licenses and other rights of any
nature whatsoever relating to the Assets, whenever obtaining such consent,
approval or amendment is necessitated by reason of the transaction contemplated
by this Agreement, including, without limitation, all bids, quotations and
proposals which have been made by Seller or Systems Chemistry which are
outstanding as of the Closing Date; provided, however, that neither Seller nor
Systems Chemistry shall be obligated to pay any consideration therefor (except
for filing fees and other administrative charges) to the third party from whom
such consents, approvals and amendments are requested. In the event and to the
extent that Seller or Systems Chemistry is unable to obtain any such required
consent, approval or amendment, Seller or Systems Chemistry shall continue to be
bound thereby and unless not permitted by law or the terms thereof, Buyer shall
pay, perform and discharge fully all the obliga-
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tions of Seller or Systems Chemistry thereunder from and after the Closing Date
and indemnify Seller for all losses, costs and fees charged to Seller or Systems
Chemistry arising out of such performance by Buyer to the extent that Buyer
obtains the benefit thereof. Seller shall, without further consideration
therefor, pay and remit to Buyer promptly all monies, rights and other
considerations received in respect of such performance. If and when any such
consent shall be obtained or such agreement, lease, license or other right shall
otherwise become assignable or able to be novated, Seller or Systems Chemistry
shall promptly assign and novate all its rights and obligations thereunder to
Buyer without payment of further consideration and Buyer shall, without the
payment of any further consideration therefor, assume such rights and
obligations. Buyer and Seller will use their respective reasonable best efforts
to obtain any consent, approval or amendment required to novate and/or assign to
Buyer those agency, distribution and sales representative agreements in the
United States and the rest of the world whereby the agent, distributor or
representative sells the products of Seller or its Affiliates in addition to the
products of Systems Chemistry to the extent that such agreements relate to the
Business or products of Systems Chemistry.
Section 5.5 Reasonable Best Efforts. Subject to the terms and
conditions of this Agreement, Seller, Systems Chemistry and Buyer will use their
respective reasonable best efforts to take, or cause to be taken, all action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement and the Related Agreements. Seller and Buyer further covenant and
agree, with respect to a threatened or pending preliminary or permanent
injunction or other order, decree or ruling or statute, rule, regulation or
executive order that would adversely affect the ability of the parties hereto to
consummate the transactions contemplated hereby, to use their respective
reasonable best efforts to prevent or lift the entry, enactment or promulgation
thereof, as the case may be.
Section 5.6 Limitation of Seller's Liabilities. From and after
the Closing Date, except as expressly provided for in this Agreement, Seller
shall have no obligations or liabilities whatsoever relating to the
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operation of the Business or the Assumed Liabilities after the Closing Date,
including, without limitation, obligations or liabilities for any deductibles
with respect to insurance policies and obligations or liabilities under
guarantees by Seller of obligations or liabilities of Systems Chemistry. Buyer
shall release, indemnify and hold Seller harmless from all such obligations and
liabilities (including the costs of defense thereof and reasonable attorneys
fees and expenses) that are alleged against or might otherwise be imposed on
Seller. Buyer shall cooperate with Seller, both before and after the Closing
Date, by taking, and after Closing, causing Systems Chemistry to take, all
actions Seller shall reasonably request to effect the termination of any such
Seller guarantee, obligation or liability.
Section 5.7 Public Announcements. Except as the parties shall
mutually agree, the parties shall not issue any report, statement or press
release or otherwise make any public statements with respect to this Agreement
or the Related Agreements and the transactions contemplated hereby and thereby,
except as in the reasonable judgment of the party may be required by law or in
connection with the obligations of a publicly-held company, in which case the
language of any such report, statement or press release shall be mutually agreed
to by the parties except as may be otherwise so required.
Section 5.8 Covenant Not to Compete. Seller, Systems Chemistry
and each of their Affiliates agrees that for a period of five (5) years after
the Closing Date, neither they nor any of their Affiliates will directly or
indirectly, own, manage, operate, join, control or participate in the ownership,
management, operation or control of any business, whether in corporate,
proprietorship or partnership form or otherwise participate as more than a five
percent (5%) owner in such business if such business competes with Systems
Chemistry as the business of Systems Chemistry is currently conducted. The
parties hereto acknowledge and agree that the remedy at law for any breach of
the foregoing will be inadequate and that Buyer, in addition to any other relief
available, shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damage. In the event that any limitation
of this Section 5.8 should be deemed to exceed that which is permitted by
applicable law, then the
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parties hereto agree that such provision shall be reformed to set forth the
maximum limitation permitted by law. Notwithstanding the foregoing, this Section
5.8 shall not apply in the event of a Change in Control of Seller. For purposes
of this Agreement, Change in Control shall mean the sale of all or substantially
all of the assets of Seller whether by merger or otherwise.
Section 5.9 Employees; Employee Benefits.
(a) Buyer shall offer to employ each person listed on
Schedule 5.9(a), who is an employee of either Seller or its affiliates or
Systems Chemistry on the Closing Date (the "Affected Employees"), other than
Affected Employees who are not actively employed by Seller or its affiliates or
Systems Chemistry on the Closing Date in a position substantially similar to
that held with Seller or its affiliates or Systems Chemistry as of the Closing
Date, with base salaries or wages substantially equivalent to those provided as
of such date. Buyer shall provide each Affected Employee who accepts employment
with Buyer ("Transferred Employee") with benefits that are comparable in the
aggregate to the benefits under the Plans provided to such Transferred Employees
immediately prior to the Closing Date. Nothing in this Section 5.9 shall be
deemed to require Buyer to retain any Transferred Employee for any period of
time. Buyer agrees that as to any Affected Employee not offered employment, such
action shall not be upon the basis of race, sex, age, religion, disability or
national origin. Buyer's offer of employment may be conditioned upon an Affected
Employee reporting to work within six business days after the Closing Date or
providing a written physician's statement acceptable to the Buyer that the
individual is fit to perform his or her job. Buyer shall give full credit for
all service with Systems Chemistry, Seller, any ERISA Affiliate or any other
affiliate of such entities (together with ERISA Affiliates, "Affiliates"), and
any predecessor thereto to the extent that service with such predecessor entity
was recognized under the applicable Plan, to each Transferred Employee for
purposes of eligibility to participate in, and vesting under any employee
benefit plan (including, but not limited to, any "employee benefit plan" as
defined in Section 3(3) of ERISA) maintained by Buyer or its subsidiaries for
Transferred Employees on or after the Closing Date except Buyer's retiree
medical plan, severance pay
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plan, salary continuation plan and defined benefit plan. For purposes of
computing deductible amounts for 1997 (or like adjustments or limitations on
coverage) under any employee welfare benefit plan (including, without
limitation, any "employee welfare benefit plan" as defined in Section 3(1) of
ERISA), expenses and claims previously recognized for similar purposes under the
applicable welfare benefit plan of Seller or any Affiliate shall be credited or
recognized under the comparable plan maintained after the Closing Date by Buyer
or its subsidiaries, and any preexisting condition requirements under any
employee welfare plan of Buyer or its subsidiaries that may otherwise be
applicable to Transferred Employees shall be waived.
(b) Buyer shall be responsible and assume all
liability for all salary and benefit continuation and/or severance payments
relating to any Transferred Employee that may be payable as a result of any
termination of employment with the Buyer after the Closing Date of any such
Transferred Employee.
(c) Neither Seller, Systems Chemistry nor Buyer
intends for this Section 5.9 to create any rights or obligations except as among
Seller, Systems Chemistry and Buyer, and no past, present or future employees of
Seller, its affiliates, Systems Chemistry or Buyer shall be treated as
third-party beneficiaries of this Section 5.9.
(d) Seller shall be responsible for the payment of
all wages, commissions, severance pay, vacation pay, and sick pay to Transferred
Employees that are earned or accrued but not yet paid through the date they
become Transferred Employees and for any employees of Seller its affiliates or
Systems Chemistry who are not Transferred Employees, up to and including the
date Seller terminates the employment of such employees. Except for obligations
specifically assumed by Buyer hereunder, Seller shall be responsible for the
payment of any amounts due to its, its affiliates or Systems Chemistry's
employees (including the Transferred Employees) pursuant to the Plans as a
result of their employment of such employees provided that in determining
bonuses and other similar payments due to Transferred Employees for any period
ended on or prior to the Closing Date, Seller shall, if payment thereof will
occur after
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the Closing Date, waive any requirement that such Employees be employees of
Seller on the date such bonuses or other similar payments are paid. Seller shall
be responsible for reporting all employee related costs and liabilities of
Transferred Employees accruing prior to the Closing Date, whether payable on or
after the Closing Date. Seller is responsible for all incurred but unreported or
unpaid medical claims of its or Systems Chemistry's employees or their
dependents, made, occurring or arising prior to and for the cost associated with
any hospital confinement that commences prior to the date they become
Transferred Employees. Expenses related to Seller's, its affiliates or System
Chemistry's employees receiving disability and, if applicable, workers'
compensation benefits prior to the date each employee becomes a Transferred
Employee shall be borne by Seller, Systems Chemistry or their insurer. Effective
on the Closing Date, Seller and Systems Chemistry shall, and hereby do, release
all Transferred Employees from any employment and/or confidentiality agreement
previously entered into between Seller, its affiliates or Systems Chemistry and
such Transferred Employees to the extent (but only to the extent) necessary for
Buyer to operate the Business in substantially the same manner as operated by
Seller prior to the Closing Date.
Section 5.10 Benefit Plans.
(a) Except for obligations specifically assumed by
Buyer under this Agreement, Buyer shall assume no responsibility with regard to
any Plans of Seller. To the extent necessary, Seller may continue to communicate
with the Transferred Employees regarding their rights and entitlement to any
benefits under the Plans, subject to Buyer's prior approval, which shall not be
unreasonably withheld, and the parties shall cooperate with each other in the
administration of all applicable employee benefit plans and programs.
(b) Prior to the time that Seller shall be required
to permit the direct rollover of distributions, to which Transferred Employees
may be entitled from Seller's 401(k) Plan, to the Buyer's 401(k) Plan: (i) Buyer
shall provide to Seller written assurances that the Buyer's 401(k) Plan to which
the rollovers are directed is an "eligible retirement plan" and, (ii) Seller
shall provide to Buyer written assurances that the
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<PAGE> 39
Seller's 401(k) Plan is an "eligible retirement plan." The term "eligible
retirement plan" shall have the meaning as set forth in Sections 401(a) (31) (D)
and 402 (c) (8) (B) of the Internal Revenue Code.
(c) Buyer has adopted a qualified 401(k) Plan and
established a trust which Buyer acknowledges and represents is intended to
satisfy the requirements for qualification under Section 401(a) and exemption
under Section 501(a) of the Internal Revenue Code of 1986, as amended. Buyer
acknowledges and represents that it has obtained a favorable determination
letter from the IRS stating that Buyer's 401(k) Plan as adopted satisfies the
requirements for qualification under Code Section 401(a), 401(k) and the trust
for exemption under Code Section 501(a).
Section 5.11 Tax Treatment. Buyer and Seller covenant and
agree that the transaction contemplated herein shall not be intended to be a
tax-free reorganization under Section 368 of the Code. The Purchase Price shall
be allocated in accordance with Code Section 1060 and consistent with Federal
Income Tax Form 8594, to reflect the adjustments made to arrive at the Purchase
Price (including any adjustment pursuant to Section 1.6 hereof). Neither Party
will take a position inconsistent with the valuations set forth on such final
Form 8594 as shall be delivered at the Closing pursuant to Sections 1.4 and 1.5
hereof. The allocation of the purchase price was arrived at by arms-length
negotiations, and in the judgement of the parties properly reflects the fair
market value of the Assets. Notwithstanding the foregoing, if any dispute arises
between the parties or their affiliates with respect to the tax treatment of the
transaction under Section 1060 of the Code, such dispute shall be submitted by
the parties to the Independent Accounting Firm for resolution at least 90 days
prior to the date on which any related tax filings are due. The resolution
provided by the Independent Accounting Firm shall be final, conclusive and
binding on the parties, and shall be issued no later than 30 days prior to the
date on which such filing is due. Fees and expenses relating to a dispute
described in this Section 5.11, shall be shall be borne equally by Seller and
Buyer.
Section 5.12 Non-Solicitation. Until the expiration of
eighteen (18) months after the Closing
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Date, Seller, Systems Chemistry or any Affiliate, shall not directly or
indirectly solicit or offer employment to any Affected Employee who is then an
employee of Buyer or who has terminated such employment without the consent of
Buyer within one hundred eighty (180) days of such solicitation or offer, and
except with respect to Ke Liang, Buyer shall not directly or indirectly solicit
or offer employment to any person who, after the Closing Date, is then an
employee of Seller, Systems Chemistry or any Affiliate, or who has terminated
such employment without the consent of Seller, Systems Chemistry or any
Affiliate, within one hundred eighty (180) days of such solicitation or offer.
Seller or Systems Chemistry shall enter into an agreement with Buyer at Closing
under which Seller will offer to continue to employ Ke Liang and make her
services available to Buyer on terms and conditions specified therein and under
which Buyer will reimburse Seller for all costs associated with Ke Liang's
employment.
Section 5.13 Discovery of Facts. If in the course of the
transactions contemplated by this Agreement, either party or their agents
acquire prior to Closing knowledge of any fact, law or circumstance which would
be required to be disclosed by such party to avoid breach of its warranties or
representations contained in this Agreement, then such party shall disclose such
fact, law or circumstance prior to Closing to the other party or be precluded
from asserting a claim for indemnity based on such fact, law or circumstance
after the Closing.
Section 5.14 Promissory Note; Security Interest.
(a) Following the Closing, Seller shall grant to
Buyer a first priority security interest in Seller's foreign accounts
receivables that are not secured by letters of credit (the "Collateral") to
secure the Promissory Note. Seller shall take any action that may be necessary
or desirable, or that Buyer may reasonably request, to assist Buyer in
perfecting the security interest in the Collateral and to maintain the validity,
perfection, enforceability and priority of such security interest. The parties
agree that Seller's obligations under this Section 5.14 shall not apply unless
and until all amounts owing to Seller's present lenders have been
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paid and all security therefor has been released. If Seller is unable to grant
to Buyer a first priority security interest in the Collateral after the Seller's
present lenders have been paid and all security released, Seller agrees to grant
Buyer a first priority security interest in other assets of Seller acceptable
to Buyer.
(b) After the Closing and so long as the Promissory
Note is outstanding, Seller agrees not to enter into any agreement or instrument
(including any credit, loan or other agreement for borrowed money), unless such
agreement or instrument permits payment of the Note in accordance with its
terms.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE PARTIES
Section 6.1 Conditions to Each Party's Obligation. The
respective obligation of each party to consummate the transactions contemplated
herein is subject to the satisfaction at or prior to the Closing of the
following conditions:
(a) Any waiting periods applicable to the
transactions contemplated by this Agreement under applicable U.S. and foreign
antitrust or trade regulation laws and regulations, including, without
limitation, under the HSR Act, shall have expired or been terminated and all
governmental authorizations or approvals required in connection with the
transactions contemplated by this Agreement shall have been obtained or given,
other than those authorizations and approvals, the failure of which to have been
obtained, would not individually or in the aggregate have a Material Adverse
Effect;
(b) No statute, rule or regulation shall have been
enacted, entered, promulgated or enforced by any court or governmental authority
which prohibits or restricts the consummation of the transactions contemplated
hereby or which would have a Material Adverse Effect;
(c) There shall not be in effect any judgment, order,
injunction or decree of any court of
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competent jurisdiction enjoining the consummation of the transactions
contemplated hereby; and
(d) All consents, the failure of which to be obtained
would in the aggregate have a Material Adverse Effect, shall have been obtained
at or prior to the Closing.
Section 6.2 Conditions to Obligations of Seller and Systems
Chemistry. The obligations of Seller and Systems Chemistry to consummate the
transactions contemplated herein are further subject to the satisfaction (or
waiver) at or prior to the Closing of the following conditions:
(a) The representations and warranties of Buyer
contained in Article IV of this Agreement shall be true and correct in all
material respects at the date hereof and as of the Closing as if made at and as
of such time, except (i) for changes permitted or contemplated hereby, (ii)
breaches that would not have a Material Adverse Effect, and (iii) except for
representations which are as of a specific date; and
(b) Buyer shall have performed in all material
respects its obligations under this Agreement required to be performed by it at
or prior to the Closing pursuant to the terms hereof; and Seller shall have
received a certificate from the president or vice president of Buyer to the
effect of clauses (a) and (b) above.
(c) Seller and Systems Chemistry shall have obtained
the consent of CoreStates Bank to consummate the transaction contemplated by
this Agreement.
Section 6.3 Conditions to Obligations of Buyer. The
obligations of Buyer to consummate the transactions contemplated hereby are
further subject to the satisfaction (or waiver) at or prior to the Closing of
the following conditions:
(a) The representations and warranties of Seller and
Systems Chemistry contained in Article III of this Agreement shall be true and
correct in all material respects at the date hereof and as of the Closing as if
made at and as of such time, except (i) for changes permitted or contemplated
hereby, (ii) breaches that
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would not have a Material Adverse Effect, and (iii) for representations which
are as of a specific date; and
(b) Seller shall have performed in all material
respects each of its obligations under this Agreement required to be performed
by it at or prior to the Closing pursuant to the terms hereof; and Buyer shall
have received a certificate from the president or chief operating officer of
Seller to the effect of clauses (a) and (b) above.
Section 6.4 Materiality of Conditions. Notwithstanding
anything contained herein, no condition involving the performance of agreements
by Seller, the accuracy of representations and warranties made by Seller or
Systems Chemistry as of the date hereof or the Closing, or the furnishing of an
officer's or other certificate shall be deemed not fulfilled, and Buyer shall
not be entitled to fail to consummate the transactions contemplated by this
Agreement or terminate this Agreement on such basis, if the respects in which
such agreements have not been performed, such representations and warranties
are untrue, or certificates do not conform to what is prescribed by this
Agreement, in the aggregate, are not materially adverse to the business, results
of operations or financial condition of Systems Chemistry.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.1 Termination. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned:
(a) at any time, by mutual written consent of Seller
and Buyer; or
(b) by Buyer, if (i) there has been a material
violation or breach by Seller or Systems Chemistry of any of the agreements,
representations or warranties contained in this Agreement and such violation or
breach would have a Material Adverse Effect, unless such violation or breach
will be cured on or before the Closing Date, provided Buyer has previously given
Seller reasonable written notice thereof, or (ii) any condition
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to the obligations of Buyer hereunder has (in the good faith judgment of the
Board of Directors of Buyer or on advice of the Seller) become impossible to
fulfill or, in all likelihood, would not be fulfilled; or
(c) by Seller or Systems Chemistry, if (i) there has
been a material violation or breach by Buyer of any of the agreements,
representations or warranties contained in this Agreement, unless such violation
or breach will be cured on or before the Closing Date, provided Seller has
previously given Buyer reasonable written notice thereof, or (ii) any material
condition to the obligations of Seller hereunder has (in the good faith
judgement of the Board of Directors of Seller or on advice of the Buyer) become
impossible to fulfill or, in all likelihood, would not be fulfilled; or
(d) by either Buyer or Seller if any government
agency commences action to enjoin this transaction; or
(e) by either Buyer or Seller, if through no fault of
the party seeking termination the Closing shall not have occurred on or prior to
August 31, 1997.
Section 7.2 Procedure and Effect of Termination. In the event
of the termination of this Agreement and the abandonment of the transactions
contemplated hereby pursuant to Section 7.1 hereof, written notice thereof shall
forthwith be given by the parties so terminating to the other party and this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned, without further action by Seller, on the one hand, or Buyer, on the
other hand. If this Agreement is terminated pursuant to Section 7.1 hereof:
(a) each party shall redeliver all documents, work
papers and other materials of the other parties relating to the transactions
contemplated hereby, whether so obtained before or after the execution hereof,
to the party furnishing the same, and all confidential information received by
any party hereto with respect to the other party shall be treated in accordance
with Section 5.2(b) hereof;
(b) all filings, applications and other submissions
made pursuant hereto shall, at the option of
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Seller and to the extent practicable, be withdrawn from the agency or other
person to which made; and
(c) there shall be no liability or obligation
hereunder on the part of Seller or Buyer or any of their respective directors,
officers, employees, affiliates, controlling persons, agents or representatives,
except that Seller or Buyer, as the case may be, may have liability to the other
party if the basis of termination is a willful, material breach by Seller or
Buyer, as the case may be, of one or more of the provisions of this Agreement,
and except that the obligations provided for in Sections 7.2(a), 7.2(b), 9.1(a)
and 9.10 hereof and the obligation to treat information in a confidential
manner, as set forth in Section 5.2(b) shall survive any such termination.
Section 7.3 Amendment, Modification and Waiver. This Agreement
may be amended, modified or supplemented at any time only by written agreement
of Seller and Buyer. Any failure of Seller, on the one hand, or Buyer, on the
other hand, to comply with any term or provision of this Agreement may be
waived, with respect to Buyer, by Seller and, with respect to Seller, by Buyer,
by an instrument in writing signed by or on behalf of the appropriate party, but
such waiver or failure to insist upon strict compliance with such term or
provision shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure to comply.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 8.1 Survival of Representations and Warranties. The
representations and warranties of Seller, Systems Chemistry and Buyer made in
Articles III and IV hereof and Section 5.1 hereof shall survive the Closing for
a period of seven years with respect to Section 3.17 (Tax), Section 3.10
(Intellectual Property) and Section 3.13 (Environmental), five years with
respect to Section 3.15 (Contracts) and Section 3.18 (Warranty Claims), and two
years with respect to all others, after the Closing Date, but, except as
provided in Section 7.2(c) hereof, shall not survive any termination of this
Agreement. This Section 8.1 shall not limit any covenant
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or agreement of the parties which contemplates performance after the Closing,
including, without limitation, the covenants and agreements set forth in Article
V (other than Section 5.1 hereof) hereof and in the Undertaking.
Section 8.2 Seller's Agreement to Indemnify.
(a) Subject to the terms and conditions set forth
herein, from and after the Closing, Seller shall indemnify and hold harmless
Buyer and its directors, officers, employees, affiliates, controlling persons,
agents and representatives and their successors and assigns (collectively, the
"Buyer Indemnitees") from and against all liability, demands, claims, actions or
causes of action, assessments, losses, damages, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) (collectively
"Buyer Damages") asserted against or incurred by any Buyer Indemnitee as a
result of or arising out of (i) an alleged breach of any representation or
warranty contained in Article III of this Agreement when made or at and as of
the Closing as though such representations and warranties were made at and as of
the Closing, and (ii) any liabilities and obligations not to be assumed by Buyer
hereunder.
(b) Seller's obligation to indemnify the Buyer
Indemnitees pursuant to clauses (i) and (ii) of Section 8.2(a) hereof with
respect to a breach of a representation or warranty contained in Article III of
this Agreement is subject to the following limitations:
(i) No indemnification shall be made by
Seller unless the amount of Buyer Damages (net of Tax Benefit) for any
single instance exceeds $5,000 and, in such event, indemnification shall
be made by Seller only to the extent that the aggregate amount of Buyer
Damages (net of Tax Benefit) exceeds $50,000;
(ii) In no event shall Seller's aggregate
obligation to indemnify the Buyer Indemnitees exceed $10,000,000;
(iii) The amount of any Buyer Damages shall
be reduced by (A) any amount received by a Buyer Indemnitee with respect
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thereto under any insurance coverage to the extent the proceeds of such
coverage are received by Buyer (net of any costs of such coverage
incurred by such Buyer Indemnitee)or from any other party alleged to be
responsible therefor, and (B) the amount of any Tax Benefit available
to the Buyer Indemnitee relating thereto. Buyer and any Buyer
Indemnitee shall use reasonable efforts to collect any amounts
available under such insurance coverage and from such other party
alleged to have responsibility. If a Buyer Indemnitee receives an
amount under insurance coverage or from such other party with respect
to Buyer Damages at any time subsequent to any indemnification provided
by Seller pursuant to this Section 8.2, then such Buyer Indemnitee
shall promptly reimburse Seller, as the case may be, for any payment
made or expense incurred by Seller in connection with providing such
indemnification up to such amount received by the Buyer Indemnitee (net
of any costs of such coverage or of obtaining such amount incurred by
such Buyer Indemnitee);
(iv) Seller shall be obligated
to indemnify the Buyer Indemnitees only for those Buyer Damages as to
which the Buyer Indemnitees have given Seller written notice thereof on
or prior to the time periods set forth in Section 8.1 hereof. Any
written notice delivered by a Buyer Indemnitee to Seller with respect
to Buyer Damages shall set forth with as much specificity as is
reasonably practicable the basis of the claim for Buyer Damages and, to
the extent reasonably practicable, a reasonable estimate of the amount
thereof, provided, however, that the bases of the claims and the
reasonable estimate shall be included solely for informational purposes
and shall not be deemed a waiver of any rights otherwise available to
Buyer under this Agreement.
Section 8.3 Buyer's Agreement to Indemnify.
(a) Subject to the terms and conditions
set forth herein, from and after the Closing, Buyer shall
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indemnify and hold harmless Seller and its directors, officers, employees,
affiliates, controlling persons, agents and representatives and their successors
and assigns (collectively, the "Seller Indemnitees") from and against all
liability, demands, claims, actions or causes of action, assessments, losses,
damages, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) (collectively, "Seller Damages") asserted against
or incurred by any Seller Indemnitee as a result of or arising out of (i) a
breach of any representation or warranty contained in Article IV of this
Agreement when made or at and as of the Closing as though such representations
and warranties were made at and as of the Closing, hereof and (ii) all Assumed
Liabilities.
(b) Buyer's obligation to indemnify
Seller Indemnitees pursuant to clauses (i) and (ii) of Section 8.3(a) hereof
with respect to a breach of a representation or warranty contained in Article IV
of this Agreement is subject to the following limitations:
(i) No indemnification shall be made by
Buyer unless the amount of Seller Damages (net of Tax Benefit) for any
single instance exceeds $5,000 and, in such event, indemnification shall
be made by Buyer only to the extent that the aggregate amount of Seller
Damages (net of Tax benefit) exceeds $50,000;
(ii) In no event shall Buyer's aggregate
obligation to indemnify Seller Indemnitees exceed $10,000,000;
(iii) The amount of any Seller Damages shall
be reduced by (A) any amount received by a Seller Indemnitee with
respect thereto under any insurance coverage to the extent the proceeds
of such coverage are received by Seller (net of any costs of such
coverage incurred by such Seller Indemnitee) or from any other party
alleged to be responsible therefor and (B) the amount of any Tax Benefit
available to Seller Indemnitee relating thereto. Seller and any Seller
Indemnitee shall use reasonable efforts to collect any amounts available
under such insurance coverage and
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from such other party alleged to have responsibility. If a Seller
Indemnitee receives any amount under insurance coverage or from such
other party with respect to Seller Damages at any time subsequent to
any indemnification provided by Buyer pursuant to this Section 8.3,
then such Seller Indemnitee shall promptly reimburse Buyer, as the case
may be, for any payment made or expense incurred by Buyer in connection
with providing such indemnification up to such amount received by
Seller Indemnitee net of any costs of such coverage or of obtaining
such amount incurred by such Seller Indemnitee;
(iv) Buyer shall be obligated
to indemnify Seller Indemnitees only for those Seller Damages as to
which Seller Indemnitees have given Buyer written notice thereof on or
prior to two years after the Closing Date. Any written notice delivered
by a Seller Indemnitee to Buyer with respect to Seller Damages shall
set forth with as much specificity as is reasonably practicable the
basis of the claim for Seller Damages and, to the extent reasonably
practicable, a reasonable estimate of the amount thereof; provided,
however, that the bases of the claim and the reasonable estimate shall
be included solely for informational purposes and shall not be deemed a
waiver of any rights otherwise available to Seller under this
Agreement.
Section 8.4 Third Party Indemnification. The obligations of
Seller to indemnify the Buyer Indemnitees under Section 8.2 hereof with respect
to Buyer Damages and the obligations of Buyer to indemnify Seller Indemnitees
under Section 8.3 hereof with respect to Seller Damages, in either case
resulting from the assertion of liability by third parties (each, as the case
may be, a "Claim") other than Patent Claims (as hereinafter defined) which will
be controlled exclusively by Buyer in accordance with Sections (c) and (d)
below, will be subject to the following terms and conditions:
(a) Any party against whom any Claim is asserted will
give the party required to provide indemni-
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ty hereunder written notice of any such Claim promptly after learning of such
Claim, and the indemnifying party may at its option undertake the defense
thereof by representatives of its own choosing. Failure to give prompt notice of
a Claim hereunder shall not affect the indemnifying party's obligations under
this Section 8.4, except to the extent the indemnifying party is materially
prejudiced by such failure to give prompt notice. If the indemnifying party,
within 30 days after notice of any such Claim, or such shorter period as is
reasonably required, fails to assume the defense of such Claim, the Buyer
Indemnitee or Seller Indemnitee, as the case may be (each, an "Indemnitee"),
against whom such claim has been made will (upon further notice to the
indemnifying party) have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk, and at the
expense, of the indemnifying party, subject to the right of the indemnifying
party to assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof.
(b) Anything in this Section 8.4 to the
contrary notwithstanding, the indemnifying party shall not enter into any
settlement or compromise of any action, suit or proceeding or consent to the
entry of any judgment (i) which does not include as an unconditional term
thereof the delivery by the claimant or plaintiff to the Indemnitee of a written
release from all liability in respect of such action, suit or proceeding or (ii)
for other than monetary damages without the prior written consent of the
Indemnitee, which consent shall not be unreasonably withheld.
(c) Anything in this Article VIII to the
contrary notwithstanding, with respect to Claims relating to or arising out of
domestic and foreign trademarks, trade names, service marks, service names,
brand names, mark registration, logos, assumed names, registered copyrights,
patents, applications, inventions, processes, know-how, formulae, trade secrets,
licenses or applications therefor, any and all patents claiming priority
therefrom, including any divisionals, continuations, reissues, re-examinations,
or extensions and any and all foreign counterparts of any such case ("Patent
Claims"). In no event shall Seller's obligation to indemnify the Buyer
Indemnitees exceed the lesser of (i) $10,000,000 or (ii) seventy (70%) percent
of the Buyer Damages incurred
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by any Buyer Indemnitee (the "Patent Cap"). Thirty (30%) percent of Buyer
Damages with respect to Patent Claims shall be borne by Buyer. Notwithstanding
anything in this Agreement to the contrary, this Section 8.4 shall provide
Buyer's sole remedy for Patent Claims.
(d) In the event that either party receives notice of a Patent Claim
and the alleged damages relating to such Patent Claim in the reasonable judgment
of Buyer is reasonably likely to exceed $1,000,000, Seller shall indemnify Buyer
and within thirty (30) days following receipt of such notice, Seller shall
deposit the first "Monthly Payment" (as defined below) into an interest bearing
escrow account ("Escrow Account") in accordance with the escrow agreement in a
form attached hereto as Exhibit D. The parties shall mutually agree on an Escrow
Agent at the time of any such notice. Seller shall make monthly payments of
$83,333.33 or such lesser amount such that in no event shall the total escrow
deposits exceed the Patent Cap or exceed seventy (70%) percent of the damages
alleged in the Patent Claim notice or, if the Patent Claim notice does not state
an amount of damages, the first subsequent notice in which an amount of damages
is alleged (the "Monthly Payment"). Seller shall make additional Monthly
Payments until the Patent Claim is settled or finally adjudicated, or until the
amount deposited in the Escrow Account equals the Patent Cap or equals seventy
(70%) percent of the damages alleged in the Patent Claim notice, whichever is
first to occur. Upon final adjudication or settlement of the Patent Claim, Buyer
shall provide Seller with a copy of the judgment or settlement evidencing the
amount of such judgment or settlement and other relevant documents, including
invoices, showing amounts expended on out-of-house attorneys fees, expert fees
and all other out-of-pocket costs incurred by Buyer directly related to such
settlement or judgment (all such costs, collectively "Buyer's Patent Damages").
Within thirty (30) days following Buyer's issuance of such documents, Seller
shall provide the Escrow Agent with authorization in writing to disburse funds
from the Escrow Account to Buyer in the amount of seventy (70%) percent of the
Buyer's Patent Damages. In the event that the balance in the Escrow Account at
the time of issuance of the aforesaid settlement or judgment is greater than
seventy (70%) of the Buyer's Patent Damages, Buyer shall authorize payment of
the entire excess balance in the Escrow Account
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<PAGE> 52
to Seller, including any accumulated interest. In the event that the balance in
the Escrow Account at the time of issuance of the aforesaid settlement or
judgement is less than seventy (70%) of the Buyer's Patent Damages, Seller shall
authorize payment of the entire balance in the Escrow Account to Buyer. Seller
shall pay to Buyer thereafter any unpaid portion of the Buyer's Patent Damages
to Buyer at the rate of $83,333.33 per month until the Patent Cap is reached.
The unpaid balance shall bear interest from and after the date of Buyer's
issuance of such documents at an annual rate equal to the prime lending rate
declared in effect by the Chase Manhattan Bank plus four (4%) percent. In the
event that after the initial receipt of a Patent Claim notice a period of six
months elapses from the date that Buyer or its representative responds to such
claim with no activity to pursue such claim, the Escrow Agent will be instructed
to return the funds in the Escrow Account to Seller. In the event that such
claim is later pursued, Seller shall make monthly payments pursuant to the
provisions of this paragraph.
Section 8.5 Exclusive Remedy. Buyer and Seller agree, to the
fullest extent permitted by law, that none of them or any of their directors,
officers, employees, affiliates, controlling persons, agents or representatives
shall have any liability or responsibility whatsoever to the other or such
other's directors, officers, employees, affiliates, controlling persons, agents
or representatives on any basis (including, without limitation, in contract or
tort, under federal or state securities laws or otherwise) based upon any
information provided or made available, or statements made, to Buyer or Seller
or their respective directors, officers, employees, affiliates, controlling
persons, agents or representatives (or any omissions therefrom), including,
without limitation, in respect of the specific representations and warranties
set forth in this Agreement, except (i) as and only to the extent expressly set
forth herein with respect to such representations and warranties and rights to
indemnification and subject to the limitations and restrictions contained herein
and (ii) claims for fraud.
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ARTICLE IX
MISCELLANEOUS
Section 9.1 Fees, Expenses and Taxes. (a) Whether or not the
transactions contemplated herein are consummated pursuant hereto, except as
otherwise provided herein, Seller and Buyer shall pay all respective fees and
expenses incurred by, or on behalf of, each of them in connection with, or in
anticipation of, this Agreement and the Related Agreements and the consummation
of the transactions contemplated hereby and thereby. Seller and Buyer shall
indemnify and hold harmless the other party from and against any and all claims
or liabilities for brokerage commissions and financial advisory and finders'
fees incurred by reason of any action taken by such party or otherwise arising
out of the transactions contemplated by this Agreement by any person claiming to
have been engaged by such party.
(b) Notwithstanding anything to the contrary in
paragraph (a) of this Section 9.1, Buyer shall pay, (i) all taxes described in
Section 2.5 hereof, and (ii) all transfer tax, intangible tax, deed tax,
documentary stamp tax or any other similar tax imposed by any municipality, in
each case, incurred in connection with this Agreement and the Related Agreements
and the transactions contemplated hereby and thereby will be borne by Buyer, and
Buyer (or Seller if required by applicable law)shall file all necessary
documentation with respect to such taxes. Buyer agrees that it will pay all
sales, transfer or other taxes which may be payable in connection with the
transactions contemplated by this Agreement and the Related Agreements.
Section 9.2 Further Assurances. From time to time after the
Closing Date, at the request of another party hereto and at the expense of the
party so requesting, each of the parties hereto shall execute and deliver to
such requesting party such documents and take such other action as such
requesting party may reasonably request in order to consummate more effectively
the transactions contemplated hereby.
Section 9.3 Notices. All notices, requests, demands, waivers
and other communications required or permitted to be given under this Agreement
shall be in
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writing and may be given by any of the following methods: (a) personal delivery;
(b) facsimile transmission; (c) registered or certified mail, postage prepaid,
return receipt requested; or (d) overnight delivery service. Notices shall be
sent to the appropriate party at its address or facsimile number given below (or
at such other address or facsimile number for such party as shall be specified
by notice given hereunder):
If to Buyer, to:
The BOC Group, Inc.
575 Mountain Avenue
Murray Hill, New Jersey 07974-2082
Fax No.: (908) 771-4803
Attention: Legal Department
If to Seller, to:
SubMicron Systems Corporation
6330 Hedgewood Drive
Allentown, Pennsylvania 18106
Attention: President
with a copy to:
Skadden, Arps, Slate,
Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-9931
Fax No.: (212) 735-2001
Attention: Joseph A. Coco, Esq.
All such notices, requests, demands, waivers and communications shall be deemed
received upon (i) actual receipt thereof by the addressee, (ii) actual delivery
thereof to the appropriate address or (iii) in the case of a facsimile
transmission, upon transmission thereof by the sender and issuance by the
transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error. In the case of
notices sent by facsimile transmission, the sender shall contemporaneously mail
a copy of the notice to the addressee at the address provided for above.
However, such mailing shall in no way alter the time at which the facsimile
notice is deemed received.
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Section 9.4 Severability. Should any provision of this
Agreement for any reason be declared invalid or unenforceable, such decision
shall not affect the validity or enforceability of any of the other provisions
of this Agreement, which remaining provisions shall remain in full force and
effect and the application of such invalid or unenforceable provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable shall be valid and enforced to the fullest extent permitted by
law.
Section 9.5 Binding Effect; Assignment. This Agreement and all
of the provisions hereof shall be binding upon and shall inure to the benefit of
the par- ties hereto and their respective successors and permitted assigns.
Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned, directly or indirectly, including, without limitation, by
operation of law, by any party hereto without the prior written consent of the
other parties hereto.
Section 9.6 No Third Party Beneficiaries. This Agreement is
solely for the benefit of Seller and its successors and permitted assigns, with
respect to the obligations of Buyer under this Agreement, and for the benefit of
Buyer, and its respective successors and permitted assigns, with respect to the
obligations of Seller, under this Agreement, and this Agreement shall not be
deemed to confer upon or give to any other third party any remedy, claim,
liability, reimbursement, cause of action or other right.
Section 9.7 Interpretation.
(a) The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
(b) As used in this Agreement, the term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
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(c) As used in this Agreement, the term "affiliate"
shall have the meaning set forth in Rule 12b- 2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
Section 9.8 Jurisdiction and Consent to Service. Without
limiting the jurisdiction or venue of any other court, Seller and Buyer (a)
agrees that any suit, action or proceeding arising out of or relating to this
Agreement may be brought solely in the state or federal courts of Delaware; (b)
consents to the exclusive jurisdiction of each such court in any suit, action or
proceeding relating to or arising out of this Agreement; (c) waives any
objection which it may have to the laying of venue in any such suit, action or
proceeding in any such court; and (d) agrees that service of any court paper may
be made in such manner as may be provided under applicable laws or court rules
governing service of process.
Section 9.9 Entire Agreement. Except for this Agreement, the
Confidentiality Agreement, the Disclosure Schedule, the Buyer Disclosure
Schedule and the Exhibits and other documents referred to herein or delivered
pursuant hereto which form a part hereof constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, between the parties
or any of them with respect to the subject matter hereof.
Section 9.10 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware
(regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies.
Section 9.11 Specific Performance. The parties acknowledge and
agree that any breach of the terms of this Agreement would give rise to
irreparable harm for which money damages would not be an adequate remedy and
accordingly the parties agree that, in addition to any other remedies, each
shall be entitled to enforce the
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terms of this Agreement by a decree of specific performance without the
necessity of proving the inadequacy of money damages as a remedy.
Section 9.12 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
ARTICLE X
CERTAIN DEFINITIONS
For the purposes of this Agreement, the following words and
phrases shall have the following meanings:
"5/31/97 Statement" has the meaning assigned by Section 1.2(a)
"Affected Employee" has the meaning assigned by Section
5.9(a).
"affiliate" has the meaning assigned by Section 9.7(c).
"Agreement" means this agreement, dated as of June 27, 1997,
together with any amendments thereto, by and among SubMicron Systems
Corporation, a Delaware corporation, Systems Chemistry Incorporated, a
California corporation and The BOC Group, Inc., a Delaware corporation.
"Assets" means all of the properties, contracts and other
assets of every kind, nature, character and description, whether real, personal
or mixed, whether tangible or intangible, whether accrued, contingent or
otherwise and wherever situated), goodwill and business as a going concern of
Systems Chemistry, all as of the Closing Date, other than the Excluded Assets,
as described in Section 1.1(a).
"Assumed Liabilities" means all obligations and liabilities of
Seller and Systems Chemistry, whether known or unknown, disclosed or
undisclosed, matured or unmatured, accrued, absolute, contingent or otherwise,
to be assumed by Buyer pursuant to this Agreement, as pro-
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vided in the Undertaking arising from the operation of the Business prior to the
Closing.
"Assignment and Assumption of Leases" means the duly executed
assignment and assumption agreement for each leased premises of Systems
Chemistry to be delivered at the Closing.
"Bill of Sale and Assignment" means the duly executed bill of
sale and assignment agreement, substantially in the form attached hereto as
Exhibit A, which Seller will deliver to Buyer effecting the sale, assignment,
transfer and delivery of the Assets.
"Business" means the business of Systems Chemistry as
described in Recital A conducted by Seller or by Systems Chemistry.
"Business Records" has the meaning assigned by Section 2.2.
"Buyer" means The BOC Group, Inc., a Delaware corporation.
"Buyer Damages" means all liability, demands, claims, actions
or causes of actions, assessments, losses, damages, costs and expenses
(including, without limitation, interest, penalties and reasonable attorneys'
fees and expenses) asserted against or incurred by any Buyer Indemnitee as a
result of or arising out of (i) a breach of any representation or warranty
contained in Article III of this Agreement when made or at and as of the Closing
as though such representations and warranties were made at and as of the
Closing, (ii) the indemnification contemplated by Section 8.2 hereof, and (iii)
except as otherwise expressly provided herein any liabilities and obligations
not to be assumed by Buyer as provided in the Undertaking.
"Buyer Disclosure Schedule" means the disclosure schedule
document being delivered to Seller by Buyer in connection herewith.
"Buyer Indemnitees" means Buyer and its directors, officers,
employees, affiliates, controlling persons, agents and representatives and their
successors and assigns.
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<PAGE> 59
"Change in Control" means the sale of all or substantially all
of the assets of Seller.
"Claim" means any assertion of liability by a Third Party.
"Closing" means the closing of the transactions described in
Section 1.3.
"Closing Date" means the date of the Closing as determined
pursuant to Section 1.3.
"Closing Net Assets" has the meaning assigned by Section
1.6(c).
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidentiality Agreement" means the confidentiality
agreement entered into between Buyer and Seller in connection with this
transaction.
"Credit Agreement" means the credit agreement among Seller,
Seller's affiliates (including Systems Chemistry) and CoreStates Bank dated
February 27, 1996, as amended.
"CoreStates Bank" means CoreStates Bank, N.A., a national
banking association having offices located at 12th Floor, Widener Building, 1345
Chestnut Street, Philadelphia Pennsylvania 19107-7618.
"Current Liabilities" has the meaning assigned by Section
1.6(d).
"Disclosure Schedule" mean the disclosure schedule document,
which includes all Schedules being delivered to Buyer by Seller in connection
herewith.
"Disputable Item" has the meaning assigned by Section 1.6(a).
"Environmental Law" means any local, county, state and/or
federal law or regulation that governs the existence of or provides a remedy for
release of Hazardous Substances, the protection of persons, natural resources or
the environment, the management of Hazardous
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<PAGE> 60
Substances, or other activities involving Hazardous Substances including,
without limitation, under CERCLA or any other similar federal, state, local
and/or county laws or regulations, in each case as in effect on or prior to the
Closing Date or, with respect to representations and warranties made on the date
hereof, on or prior to the date hereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" has the meaning assigned by Section 3.12.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" means the properties and assets of Systems
Chemistry excluded from the Assets by Section 1.1(c).
"FICA" means tax liability incurred pursuant to the Federal
Insurance Contributions Act.
"Final Statement" has the meaning assigned by Section 1.6(a).
"Financial Statements" has the meaning assigned by Section
3.5.
"FUTA" means tax liability incurred pursuant to the Federal
Unemployment Tax Act.
"GAAP" means U.S. generally accepted accounting principles,
consistently applied in accordance with Seller's past practices.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnitee" has the meaning assigned by Section 8.4(a).
"Independent Accounting Firm" has the meaning assigned by
Section 1.6(b).
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"Intellectual Property" has the meaning assigned by Section
3.10.
"Intercompany Agreements" has the meaning assigned by Section
2.3.
"Inventory" has the meaning assigned by Section 1.1(a)(iii).
"IRS" means the U.S. Internal Revenue Service.
"Lease" means the lease for any of the Leased Premises.
"Leased Premises" means the real property that is leased by
Seller or Systems Chemistry from Third Parties, which relates exclusively to
Systems Chemistry, as identified on Schedule 1.1(a)(i).
"Leases" has the meaning assigned by Section 3.9.
"Liens" means all mortgages, pledges, security interests,
liens, charges, options, easements, rights-of-way or other encumbrances of any
nature whatsoever.
"Material Adverse Effect" means an event which has a material
adverse effect on the business, results of operations or financial condition of
Systems Chemistry taken as a whole.
"Net Assets" has the meaning assigned by Section 1.6(d).
"Other Instruments" means such other duly executed, good and
sufficient instruments of conveyance, transfer and assignment as shall be
necessary to convey to Buyer all of Seller's rights, title and interests in and
to the Assets.
"Permitted Liens" has the meaning assigned by Section 3.8.
"Person" has the meaning assigned by Section 9.7(b).
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<PAGE> 62
"Purchase Price" means the payment to be made by Buyer in
consideration for the Assets as provided in Section 1.2, and, as the context
requires, as adjusted pursuant to Section 1.6 hereof.
"Related Agreements" has the meaning assigned by Section 3.2.
"Schedule(s)" means any Schedule(s) included in the Disclosure
Schedule.
"Seller" means SubMicron Systems Corporation, a Delaware
corporation.
"Seller Damages" means all liability, demands, claims, actions
and causes of action, assessments, losses, damages, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
asserted against or incurred by any Seller Indemnitees as a result of or arising
out of (i) a breach of any representation or warranty contained in Article IV of
this Agreement when made or at and as of the Closing as though such
representations and warranties were made at and as of the Closing, (ii) a breach
of the covenants and agreements contained in Article V hereof and (iii) all
Assumed Liabilities.
"Seller's Contribution Plan" means the SubMicron Systems
Corporation 401(k) Plan.
"Seller Indemnitees" means Seller and its directors, officers,
employees, affiliates, controlling persons, agents and representatives and their
successors and assigns.
"Seller's Trademarks and Logos" has the meaning assigned by
Section 2.1.
"Statement" has the meaning assigned by Section 1.6(a).
"Tax Benefit" means the amount of any tax benefit arising from
(i) a loss, deduction or credit for any Tax purpose or (ii) a carryforward or
carryback of a loss, deduction or credit for any Tax purpose computed using the
highest federal corporate tax rate in effect for the taxable year within which
an indemnifying party
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makes an indemnification payment to an Indemnitee pursuant to Articles VI or I
hereof and an assumed state and local tax rate of five and one-half (5 1/2)
percent before taking into account the deductibility of state and local taxes
for federal income tax purposes.
"Tax Return" means any report, return, statement or other
written information required to be supplied to any federal, state or local
taxing authority in connection with Taxes.
"Taxes" means all taxes, levies or other like assessments,
charges or fees (including estimated taxes, charges and fees), including,
without limitation, income, corporation, advance corporation, gross receipts,
transfer, excise, property, sales, use, value-added, license, payroll, pay as
you earn ("PAYE"), withholding, social security and franchise or other
governmental taxes or charges, imposed by the United States or any state,
county, local or foreign government or subdivision or agency thereof; and such
term shall include any interest, penalties or additions to tax attributable to
such taxes.
"Third Parties" means any parties other than the Parties to
this Agreement and their respective affiliates.
"Undertaking" means the duly executed undertaking,
substantially in the form attached hereto as Exhibit B, whereby Buyer will
assume and agree to pay and discharge the Assumed Liabilities.
"U.S. Plans" has the meaning assigned by Section 3.12(a).
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first above written.
SUBMICRON SYSTEMS CORPORATION
By: /s/
-----------------------------
Title:
--------------------------
SYSTEMS CHEMISTRY INCORPORATED
By: /s/
-----------------------------
Title:
--------------------------
THE BOC GROUP, INC.
By: /s/
-----------------------------
Title:
--------------------------
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<PAGE> 65
EXHIBIT D
FORM OF
ESCROW AGREEMENT
This escrow agreement ("Escrow Agreement") entered into this
____ day of ___________ among The BOC Group, Inc., a Delaware corporation (the
"Company" or "Buyer"), SubMicron Systems Corporation, a Delaware corporation
("SubMicron" or "Seller"), and Bank of [city, state] (the "Escrow Agent).
W I T N E S S E T H:
WHEREAS, under the terms of the Asset Purchase Agreement dated
June __, 1997 between SubMicron and the Company ("Asset Purchase Agreement")
SubMicron under certain circumstances shall deposit funds into an interest
bearing Escrow Account ("Escrow Account"): and
WHEREAS, SubMicron, the Company and the Escrow Agent wish to
establish and maintain such Escrow Account in accordance with the terms and
conditions set forth hereinbelow.
Now, therefore, the parties hereby agree as follows:
1. Upon receipt by the Company of notice of a Patent Claim as
set forth in Section 8.4 of the Asset
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<PAGE> 66
Purchase Agreement, SubMicron shall commence making deposits into the Escrow
Account. The Escrow Agent hereby agrees to accept the aforesaid sum and any
earnings thereon (collectively, the "Escrow Payment") and to hold the Escrow
Payment in accordance with the terms of this Escrow Agreement as set forth
hereinbelow.
2. SubMicron agrees to make Monthly Payments into the Escrow
Account in accordance with Section 8.4(c) of the Asset Purchase Agreement as
follows: Within thirty (30) days following receipt of notice that a Patent Claim
has been received Seller shall deposit the first "Monthly Payment" (as defined
below) into the Escrow Account. Seller shall make monthly payments of $83,333.33
or such lesser amount such that in no event shall the total escrow deposits
exceed seventy (70%) percent of the damages alleged in the Patent Claim (the
"Monthly Payment") or the first subsequent notice in which an amount of damages
is alleged. Seller shall make additional Monthly Payments until the Patent Claim
is settled or finally adjudicated, or until the amount deposited in the Escrow
Account equals ten million dollars ($10,000,000.) or equals (70%) percent of the
damages alleged in the Patent Claim, whichever is first to occur.
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<PAGE> 67
3. The Escrow Agent hereby agrees to disburse the Escrow
Payment upon the performance of the following conditions. Upon final
adjudication of the Patent Claim, Buyer shall provide Seller with a copy of the
judgment or settlement evidencing the amount of such judgment or settlement and
other relevant documents, including invoices, showing amounts expended on
out-of-house attorneys fees, expert fees and all other out-of-pocket costs
incurred by Buyer directly related to such settlement or judgment (all such
costs, collectively the "Buyer's Patent Damages"). Within thirty (30) days
following Buyer's issuance of such documents, Seller shall provide the Escrow
Agent with authorization in writing to disburse funds from the Escrow Account to
Buyer in the amount of seventy (70%) percent of the Buyer's Patent Damages. In
the event that the balance in the Escrow Account at the time of issuance of the
aforesaid settlement or judgment is less than seventy (70%) of the Buyer's
Patent Damages, Seller shall authorize payment of the entire balance in the
Escrow Account to Buyer. Seller shall pay to Buyer thereafter any unpaid portion
of the Buyer's Patent Damages to Buyer at the rate of $83,333.33 per month until
the Patent Cap is reached. The unpaid balance shall bear interest from and after
the date of Buyer's issuance of such documents at an annual
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<PAGE> 68
rate equal to the prime lending rate declared in effect by the Chase Manhattan
Bank plus four (4%) percent. In the event that the balance in the Escrow Account
at the time of issuance of the aforesaid settlement or judgment is greater than
seventy percent (70%) of Buyer's Patent Damages, Buyer shall authorize payment
of the entire excess balance to Seller, including any accumulated interest.
4. In the event that after the initial receipt of a Patent
Claim notice a period of six months elapses from the date that Buyer or its
representative responds to such claim with no activity to pursue such claim, the
Escrow Agent will be instructed to return the funds in the Escrow Account to
Seller. In the event that such claim is later pursued, Seller shall make monthly
payments pursuant to the provisions of 8.4 of the Asset Purchase Agreement.
5. Should the parties fail to agree concerning the
disbursement of the Escrow Payment within thirty (30) days of issuance by either
party of a written request for disbursement containing the reasons therefor,
either party may cause the dispute to be submitted to final and binding
arbitration by issuing a notice of arbitration in writing to the other party.
Arbitration of such a dispute shall commence within sixty (60) days
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<PAGE> 69
following the other party's receipt of such notice and shall be conducted before
a single arbitrator in New York City, New York in accordance with the rules of
the American Arbitration Association. For purposes of such arbitration
proceedings, the construction and interpretation of the Asset Purchase Agreement
and this Escrow Agreement shall be governed by the laws of the State of New
York.
6. The Escrow Agent shall, at the written direction of
SubMicron, invest and reinvest the Escrow Payment in either (1) direct
obligations of, or obligations the principal and interest on which are
unconditionally guaranteed by, the United States of America; or (ii) shares of
investment companies registered under the Investment Company Act of 1940 which
consist of the foregoing, including those for which the Escrow Agent or an
affiliate performs services for a fee, whether as custodian, transfer agent,
investment advisor or otherwise. it is acknowledged that such shares are not
obligations of, or endorsed by, the Escrow Agent.
7. The Escrow Agent shall not be held to take notice of any
terms of any agreement or any rights stated with respect to the deposited Escrow
Payment unless expressly stated in writing herein.
8. During the period of holding the Escrow Payment in escrow,
no transfer or any disposition of any
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<PAGE> 70
said Escrow Payment or of any interest therein shall be made, whether subject to
this Escrow Agreement or otherwise, but all of the Escrow Payment is to be held
intact and placed in escrow.
9. Except as set forth in paragraph 2 above, this Escrow
Agreement shall not be terminated, revoked, rescinded or modified in any respect
without the prior written approval of SubMicron, the Company and the Escrow
Agent.
10. The fee of the Escrow Agent for its services hereunder
shall be [to be provided] which shall be payable by SubMicron at the time of the
execution of the Escrow Agreement.
11. In performing any of its duties hereunder, the Escrow
Agent shall not incur any liability for its negligence, nor incur any such
liability with respect to (i) any action taken or omitted in good faith upon
advice of its counsel given with respect to any questions relating to the duties
and responsibilities of the Escrow Agent under this Escrow Agreement, or (ii)
any action taken or omitted in reliance upon any instrument, including the
written advice provided for herein, not only as to its due execution and the
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which the Escrow
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<PAGE> 71
Agent shall in good faith believe to be genuine, to be signed or presented by a
proper person or persons and to conform with the provisions of this Escrow
Agreement.
12. SubMicron and the Company, jointly and severally, hereby
agree to indemnify and hold harmless the Escrow Agent against any and al losses,
claims, damages, liabilities and expenses, including reasonable costs of
investigation and counsel fees and disbursements, which may be imposed upon the
Escrow Agent or incurred by the Escrow Agent in the performance of its duties
hereunder, including any litigation arising from this Escrow Agreement or
involving the subject matter hereof or from the Escrow Payment deposited
hereunder.
13. All notices, demands, requests and advice required or
permitted to be given hereunder shall be deemed duly given when mailed by
certified mail, return receipt requested, postage prepaid, or sent by a
confirmed facsimile copy, and addressed as follows:
If to the Escrow Agent:
Bank
Attn: Corporate Trust Group
7
<PAGE> 72
If to the Company:
SubMicron Systems Corporation
6330 Hedgewood Drive
Allentown, Pennsylvania 18106
Attn: President
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: Joseph A. Coco, Esq.
If to the Company:
The BOC Group, Inc.
575 Mountain Avenue
Murray Hill, NJ 07974
Attn: Noel Lesson
with a copy to:
The BOC Group, Inc.
575 Mountain Avenue
Murray Hill, NJ 07974
Attn: Law Department
8
<PAGE> 73
IN WITNESS WHEREOF, the parties have executed this Escrow
Agreement as of the day and year first above written.
[BANK] THE BOC GROUP, INC.
By ___________________ By ________________________
Title ________________ Title _____________________
SUBMICRON SYSTEMS
CORPORATION
By ________________________
Title _____________________
9
<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 Amendment No. 1 to the Registration Statement (Form
S-4 No. 333-38741) and related Prospectus of SubMicron Systems Corporation for
the registration of $8,692,028 in aggregate principal amount of 8% Convertible
Subordinated Notes.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 7, 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
November 7, 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. 333-38741.
Draft
IRELAND SAN FILIPPO, LLP
November 7, 1997
<PAGE> 1
EXHIBIT 25
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) / /
------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
------------------
Submicron Systems Corporation
(Exact name of obligor as specified in its charter)
Delaware 13-3607944
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
6330 Hedgewood Drive - #150
Allentown, Pennsylvania 18106
(Address of principal executive offices) (Zip Code)
------------------
8% Convertible Subordinated Notes Due 2002
(Title of the indenture securities)
==============================================
<PAGE> 2
- 2 -
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Submicron Systems Corporation Inc. currently is not in default under any of
its outstanding securities for which United States Trust Company of New
York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10,
11, 12, 13, 14 and 15 of Form T-1 are not required under General
Instruction B.
16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by
the State of New York Banking Department to transact
business as a Trust Company, is incorporated by
reference to Exhibit T-1.1 to Form T-1 filed on
September 15, 1995 with the Commission pursuant to
the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE> 3
- 3 -
16. LIST OF EXHIBITS
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New
York, as amended, is incorporated by reference to
Exhibit T-1.4 to Form T-1 filed on September 15, 1995
with the Commission pursuant to the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform
Act of 1990 (Registration No. 33-97056).
T-1.6 -- The consent of the trustee required by Section
321(b) of the Trust Indenture Act of 1939, as amended
by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the
trustee pursuant to law or the requirements of its
supervising or examining authority.
NOTE
As of November 10, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 10th day
of November, 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /S/Gerard F. Ganey
-------------------------
<PAGE> 4
EXHIBIT T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/S/Gerard F. Ganey
---------------------
By: /S/Gerard F. Ganey
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
<TABLE>
<CAPTION>
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1997
(IN THOUSANDS)
ASSETS
<S> <C>
Cash and Due from Banks $ 83,529
Short-Term Investments 259,746
Securities, Available for Sale 924,165
Loans 1,437,342
Less: Allowance for Credit Losses 13,779
----------
Net Loans 1,423,563
Premises and Equipment 61,515
Other Assets 122,696
----------
TOTAL ASSETS $2,875,214
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 763,075
Interest Bearing 1,409,017
----------
Total Deposits 2,172,092
Short-Term Credit Facilities 404,212
Accounts Payable and Accrued Liabilities 132,213
----------
TOTAL LIABILITIES $2,708,517
==========
STOCKHOLDER'S EQUITY
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 100,930
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 1,231
----------
TOTAL STOCKHOLDER'S EQUITY 166,697
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,875,214
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
August 7, 1997
