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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the year ended December 31, 1997.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 0-19507
SubMicron Systems Corporation
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 13-3607944
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6330 Hedgewood Dr., #150, Allentown, PA 18106 18106
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code (610) 391-9200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. ( )
Based on the closing sale price of March 25, 1998, the aggregate market value
of the voting stock held by nonaffiliates of the Registrant was $31,006,417.
The number of shares outstanding of the Registrant's Common Stock was
18,747,117 at March 25, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the Registrant's definitive Proxy Statement with respect
to the Registrant's 1998 Annual Meeting of Stockholders, to be filed no later
than 120 days after the end of the Registrant's fiscal year.
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PART I
ITEM 1. BUSINESS
General
SubMicron Systems Corporation (the "Company" or "SMS") designs,
manufactures and markets a broad line of advanced wet surface preparation and
cleaning equipment used in the manufacture of microelectronic devices such as
semiconductors, integrated circuits (IC's), and also for the production of raw
silicon wafers on which such devices are manufactured. The automated products
utilize a robotic handling system and complex software to carry out numerous,
precisely controlled cleaning, etching, and stripping operations required
throughout the microelectronic and raw silicon fabrication process. The product
line also includes manual and semi-automated systems. The utilization of these
products has extended beyond the semiconductor sector to include such
applications as circuit boards, parts cleaning, plating systems, and substrate
cleaning of electronic memory devices such as computer disk drives. In recent
years, some of these systems have been used for more sophisticated applications
in the research and development environment, pilot line applications, and lower
volume IC manufacturing.
In addition to the Company's core "wet" technology, the Company's
PRIMAXX(TM) division was created to design, manufacture and market tools for dry
single-wafer processing. Using gas-phase chemistries to remove organics,
oxides and metals from wafer substrates, PRIMAXX provides the foundation for
the thin films necessary for high-yield production of advanced IC's. During
1997, the Company signed an agreement with AG Associates (Israel) to license the
Company's PRIMAXX technology in a specific field of use. The PRIMAXX2F(TM),
which is based on the PRIMAXX platform, has been designed to deposit
ferroelectric material on wafer surfaces. Management currently plans to sell the
PRIMAXX2F platform technology during 1998.
During 1997, to refocus the Company to its core business, wet wafer surface
preparation, SMS sold substantially all of the net assets of two of its
subsidiaries, Systems Chemistry Incorporation (SCI), a manufacturer of chemical
distribution systems and Imtec Acculine, Inc. (Imtec), a manufacturer of
temperature regulated baths and megasonic systems.
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, 1MB, 4MB and 16MB DRAMs, feature
sizes of the circuits have declined from a size greater than 2.0 microns to
0.35 micron for a 16MB DRAM. At the same time, the size of the wafers has
increased from six inches (150mm) in diameter to eight inches (200mm) in
diameter. The first wafer fabrication facility built specifically to process
12-inch wafers (300mm) is expected to begin production in 1999.
Wafer and Semiconductor Device Fabrication
The basic component in the manufacture of semiconductor devices is a thin,
circular crystalline wafer, typically 150mm to 200mm in diameter, composed of
silicon. Production occurs in a controlled environment known as a "clean
room" which is a manufacturing facility separated from the outside environment
and employing specialized filters to reduce the number of particulates in the
air within the facility. 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. 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.
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The number of process steps involved in the manufacture of DRAMs has
increased from approximately 60 for the 64KB (64 thousand bits) circuit to over
250 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.
Following are brief descriptions of the major operations in the
manufacture of ICs.
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 remove contaminants and particulates.
Cleaning is generally performed by exposing the wafer to a sequence of
liquid chemical baths or gas vapors. As many as 60 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.
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 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.
The above operations are repeated numerous times during the fabrication
process with the number of repetitions depending upon the type and complexity
of the semiconductor device. A finished integrated circuit consists of a
number of film layers which together form thousands of extremely small
electronic components that combine to perform the desired electrical functions.
Each step in the fabrication process requires precision and must be rigorously
controlled to attain commercially acceptable yields and cost performance.
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SMS Products
The following are brief descriptions of the Company's wet surface
preparation and cleaning products:
Automated Wet Stations. An automatic 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 to strip
photoresist from the wafer. Wafers are processed in the wet station primarily
by immersing the wafers in a chemical bath or by placing the wafers into a vapor
chamber. Other modules in a system are used to rinse and dry the wafers. A
robotic arm transports the wafers from module to module. 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.
SMS's 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.
GAMA-1(TM). This unit is an advanced product involving fully automated
acid/solvent wet stations used in cleaning, etching and stripping of both bare
silicon and patterned wafers. It targets the high-end integrated circuit and
raw silicon final clean market segments and offers a high level of process
flexibility. The GAMA-1 product line will be replaced in 1998 by GAMA98. The
GAMA98 product line has many of the same features as GAMA-1 plus several design
changes for improved manufacturability and reliability.
Rear-Mount. The rear-mount product is a more mature product that provides
automated cleaning, etching and stripping capabilities providing a less
expensive alternative to the GAMA product line.
Semi-Automatic and Manual. The semi-automatic and manual wet systems also
are used for the cleaning, etching and stripping of semiconductor wafers and
other electronic substrates. These systems focus on a low volume segment of
the market that values lower price, smaller footprint and simplicity of
operation.
Parts Cleaning and Filter Wetting. These products focus on two small niche
applications. They are the cleaning of etch and chemical vapor deposition parts
from other semiconductor equipment systems and the automated preparation of
hydrophilic filters used in all wet stations.
SMS's wet surface preparation systems incorporate the following components
and features, many of which are sold separately as additions to, or
replacements for, existing systems. The current silicon wafer and
semiconductor markets continue to search for unique product solutions as
provided by the Company's patented technologies, such as DIO3(TM) and the
In-Situ Chemical Efficiency System (ICE-1(TM)), which are described below.
DIO3. This technology eliminates the use of liquid sulfuric acid from the
photoresist and organic wet surface cleaning steps, replacing the sulfuric
acid with more "environmentally friendly" dionized water and ozone. The Company
believes DIO3 technology outperforms technology currently available in the
industry. This technology also enables systems to occupy less space, results in
less water consumption and reduces hazardous waste disposal costs.
The In-Situ Chemical Efficiency System (ICE-1.) This patented process is used
in the regulation of chemical concentration within a bath. The proper chemical
mixture within the bath is critical in order for proper processing to occur.
The mixture is adjusted by the addition of a specific amount of solution to
bring the bath back into compliance within the required tolerances. The use of
this technology reduces overall chemical consumption by enhancing the life of
the bath thereby reducing the need for full bath chemical replacement.
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Megasonic Cleaning System (Phaser). SMS'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.
Turbo DI Water Rinse. SMS's Turbo DI (Deionized) Water Rinse is a processing
tank utilized for combination quick-dump/spray/high-flow cascade rinsing and
gas injection. The Company 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.
Research and Development
The market for semiconductor manufacturing equipment is characterized by
rapid technological change and product innovation. SMS believes that continued
and timely technological advances in products and enhancements to existing
products are necessary to enhance its competitive position within the industry
as well as its financial performance. Accordingly, SMS is committed to
active research and development programs and regularly consults with customers,
industry groups and academic institutions to determine the changing needs of
the industry.
The Company'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. SMS believes
that evolving technological challenges in the manufacturing process of advanced
semiconductor devices present significant opportunities and challenges.
Although the Company has traditionally had a strong reputation for
technology leadership in the past, the Company's product development efforts
have not succeeded in fully delivering on the promise of this reputation.
Reliability has been less than desirable, warranty expense high, and gross
margins low.
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In order to strengthen the Company's product development activities, SMS
has implemented a program called Product And Cycle-time Excellence (PACE),
which is aimed at achieving:
- Reduced cycle-time from concept initiation through stability of new
products in the field
- Improved quality and reliability for new and existing products
- Improved manufacturability and serviceability of products
- Improved mix of features and functions, thereby better meeting
customer needs
PACE is a clearly defined process framework based on the industry's best
practices. SMS intends to use PACE in all substantial future development
projects. The PACE implementation consists of the following:
- Cross-function decision making and portfolio ownership by a senior
management team (known as the Product Approval Committee).
- Development projects driven by cross-functional teams to ensure rapid
execution as well as ownership and accountability for product success.
- Phase Reviews to ensure that decisions on new product development are
made in a fact-based and consistent manner, and that the resources of the
Company are aligned with the best opportunities.
- A structured development process to maximize best practices and
commonality across development projects, and to ensure the correct
level of project management discipline.
SMS 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 two GAMA-1 systems and a PRIMAXX
module. The Applications Lab also contains equipment for analysis of 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.
Marketing, Sales and Service
SMS markets and sells its products through a combination of a direct sales
force and manufacturer's representatives for markets in both new fabrication
lines and as replacement systems or components for existing fabrication lines.
Potential customers for SMS's products include advanced semiconductor
manufacturers in primarily four principal markets: Japan, the United States,
Europe and Asia. In 1997, 57%,32% and 11% of the Company's net sales were to
major semiconductor chip manufacturers in the United States, Asia and Europe,
respectively. The Company is increasing its marketing effort in Europe and Asia
and currently has a sales office in France and a subsidiary in Singapore.
The Company has experienced and expects to continue experiencing
variations in its customer mix. The timing of an order for SMS's products is
primarily dependent upon a 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, the Company believes that its ability to
provide prompt and effective field support is critical to its marketing
efforts. SMS employs an extensive technical staff to assist and train its
customers in performing preventative maintenance and to service the Company's
equipment. For the majority of its orders, the Company provides full-time
technical support, parts, and maintenance for the first year. After the first
year, SMS offers maintenance contracts whereby one or more employees of the
Company will work full-time at the customer's facility and provide service,
maintenance and training for customer's personnel on a fee basis.
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Manufacturing and Assembly
SMS conducts a performance and 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 SMS's specifications. Accordingly,
the Company's manufacturing activities consist primarily of assembling and
testing components and subassemblies, and integrating them into a finished
system. SMS believes that this method allows it to achieve relatively flexible
manufacturing capacity, while lowering overhead expenses.
SMS assembles its fully 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. This procedure is intended to reduce the
amount of particulate and other contaminants in its system, thereby improving
yield for its customers. Following assembly, the completed system is packaged
in a clean room environment to maintain clean room standards prior to shipment.
The Company attempts to maintain minimal inventory and to order component
part supplies only as needed to manufacture a system for which a purchase order
has been received. This approach subjects the Company to the risk that a
component part or supply will be unavailable. SMS has attempted to reduce this
risk by maintaining multiple approved vendors of component parts and supplies
necessary for the manufacture of its systems and attempting to forecast
requirements. To date, the Company has not experienced any material delay in
the manufacture of its products caused by the inability to obtain component
parts or supplies, although there can be no assurance that SMS will not
experience any such delays in the future.
Competition
The semiconductor equipment manufacturing industry is highly competitive.
The principal competitive factors in the industry are the quality, performance,
reliability, price and operating cost of the processing equipment. There can
be no assurance that levels of competition in SMS's particular product markets
will not intensify or that the Company'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 the Company's
competitors have greater financial and other resources than SMS.
The primary competition to SMS's automated wet station equipment is from
the following companies: DaiNippon Screen Manufacturing Co., Ltd. and Tokyo
Electron, Ltd., both based in Japan, Steag Microtech, a Germany based company,
and SCP Global Technologies and CFM Technologies, Inc., U.S. companies. In
addition, SMS faces competition from a number of domestic companies which
supply manual wet stations at prices significantly lower than the prices of the
Company's automated systems.
Protection of Technology
The Company holds eleven 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. SMS currently has six foreign patents and seven patent
applications pending outside of the United States. SMS believes that the
protection of its proprietary technologies and products is important and it
protects its proprietary information through non-disclosure agreements with its
customers, suppliers and key employees.
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ITEM 2. PROPERTIES
SMS's principal manufacturing and design facilities occupy approximately
90,000 square feet of two separate buildings in Allentown, Pennsylvania and
26,340 square feet in one building in Santa Clara, California. The current
monthly rentals, including expenses, are $58,125 and $18,916, respectively.
The lease for the Allentown facilities expire in 2000. The lease for
the California facility expires in November 2003.
The Company's Singapore subsidiary occupies 700 square feet of office
space in Singapore. SMS also leases three sales offices, one in Texas, one in
California and one in France. The Company's facilities are expected to be
adequate to support its operations.
In November 1996, the Company entered into a lease 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. As
part of the Company's restructuring during 1997, the Company vacated this
facility and is currently attempting to sub-let the property.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to lawsuits arising, from time to time, in the
ordinary course of its business. In the opinion of management, the ultimate
resolutions of such matters will not have a material impact on the Company's
financial position, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ITEM A. EXECUTIVE OFFICERS OF THE REGISTRANT
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Name Age Positions with the Company
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David J. Ferran 41 Interim Chairman of the Board, President and
Chief Executive Officer
John W. Kizer 56 Vice President Finance and Chief Financial Officer
David W. Dedman 44 Executive Vice President Global Business Development
Michael G. Gawarecki 49 Vice President Operations
James S. Molinaro 35 Vice President Technical Planning and Data Analysis
Richard E. Novak 52 Sr. Vice President Technology
Jack M. Gottschalk 52 Vice President Human Resources
</TABLE>
Mr. Ferran became President, Chief Executive Officer and a director of the
Company in May 1997. Prior thereto, Mr. Ferran served as President and Chief
Executive Officer of Tylan General Corporation and its predecessor from 1984 as
well as being Chairman of the Board of Directors from February 1994 until
February 1997, when Tylan General was acquired by Millipore Corp. Mr. Ferran
has a B.S. in Business Administration from the University of New Hampshire.
Mr. Kizer has been Vice President Finance and Chief Financial Officer of the
Company since July 1997, and served as a consultant to the Company from May
1997 until assuming such position. From June 1996 to May 1997 he was a Vice
President and Corporate Controller of Tylan General Corporation. Prior to
joining Tylan General, Mr. Kizer 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 experience in senior financial management positions. Mr.
Kizer holds a B.B.A. degree from the University of Toledo and is a Certified
Public Accountant.
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Mr. Dedman assumed his position with the Company in May 1997. He has 15
years experience in the international semiconductor equipment market and will
be responsible for the formation of strategic partnerships and equipment sales
and support. Previously, he worked with Tylan General as Senior Vice President
of Sales and Support and was also a member of the company's executive
committee. Prior work experience includes Emerson Electric and EI Dupont. Mr.
Dedman has been instrumental in securing mutually profitable strategic
partnerships with major worldwide semiconductor device manufacturers.
Mr. Gawarecki assumed his position with the Company in September 1997. He has
over 21 years experience in Senior Operational Management positions. Recently
he was Vice President, Operations (California) for Tylan General, a
semiconductor equipment manufacturer, and was a Director of Operations after
its acquisition by Millipore. Additional experience includes Senior
Operational positions at Nellcor, Inc., Telectronics Corp., and IVAC, Inc. Mr.
Gawarecki has a BA in business administration from National University in San
Diego and an AS in electronics technology.
Mr. Molinaro has over 14 years of experience in senior engineering positions. He
has a B.S. degree in Mechanical Engineering/Robotics from Pennsylvania State
University. He has also completed the "Executive Development Program" at the
Wharton School of Business at the University of Pennsylvania. Mr. Molinaro
served on the SMS Board of Directors from 1989 to 1997 and held various
positions in the Company, including President and COO. Of the 9 people who make
up the executive committee, Mr. Molinaro, is an original founder of the Company
and currently holds the position of Vice President, Technical Planning and Data
Analysis.
Dr. Novak has been with the Company since 1991 and has helped expand SMS's
product line. Dr. Novak earned his Ph.D. in ceramic engineering from the
University of Illinois. Previous work experience includes Honeywell, RCA, FSI
International and he was instrumental in basic research concerning the use of
Gallium-Arsenide in the manufacturing of integrated circuits.
Dr. Gottschalk joined SMS in January 1998 as Vice President, Human Resources.
He has over twenty years experience in Human Resources and has worked for four
Fortune 500 corporations including The Firestone Tire and Rubber Company, BF
Goodrich, The Carlisle Corporation, and, most recently, the Hershey Foods
Corporation as Director, Human Resources for Hershey Chocolate North America.
Jack holds a Ph.D. from Kent State University in Organization Behavior and
Quantitative Analysis.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "SUBM." The following table sets forth for the periods indicated the
closing price range of the Common stock as furnished by Nasdaq.
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Common Stock
Quarter Ended High Low
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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 3-1/16
June 30, 1997 3-1/2 2-5/16
September 30, 1997 4-5/8 2-11/16
December 31, 1997 4-1/16 2-1/16
</TABLE>
At March 25, 1998, there were 1,016 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 and long term debt agreements restrict the Company's
ability to pay dividends.
The Company has fallen below the minimum financial requirements for
continued listing on the Nasdaq National Market and is in communication with
Nasdaq regarding this matter.
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ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
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Year Ended December 31,
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1997 1 1996 1995 3 1994 3 1993 3
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $ 97,895 $171,484 $123,068 $86,119 $57,607
Cost of sales.................... 90,551 142,748 84,352 57,882 37,839
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Gross profit..................... 7,344 28,736 38,716 28,237 19,768
Selling, general and
administrative................. 32,230 41,337 29,109 21,465 12,860
Research and development......... 9,225 9,373 5,678 3,357 2,059
Restructuring/special charges.... 5,639 -- -- -- 787
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Operating (loss) income.......... (39,750) (21,974) 3,929 3,415 4,062
Other (expense) income, net...... (1,154) (4,701) 1,258 72 (259)
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(Loss) income before income
taxes, extraordinary charge and
cumulative effect of
accounting change.............. (40,904) (26,675) 5,187 3,487 3,803
Income tax expense (benefit)..... 5,480 (6,566) 1,498 1,454 1,049
-------- -------- -------- ------- ------
(Loss) income before
extraordinary charge and
cumulative effect of
accounting change.............. (46,384) (20,109) 3,689 2,033 2,754
-------- -------- -------- ------- ------
Extraordinary charge............. (1,169) -- -- -- --
Cumulative effect of
accounting change.............. -- -- -- -- 440
-------- -------- -------- ------- ------
Net (loss) income................ $(47,553) $(20,109) $ 3,689 $ 2,033 $3,194
======== ======== ======== ======= ======
Basic (loss) income per
Common share................... $ (2.77) $ (1.20) .23 $ .13 $ --
======== ======== ======== ======= ======
Diluted (loss) income per
Common share................... $ (2.77) $ (1.20) $ .19 $ .12 $ --
========= ======== ======== ======= ======
PRO FORMA INCOME DATA
(UNAUDITED):
Income before income taxes....... $ -- $ -- $ -- $ -- $ 3,803
Pro forma income tax
expense (benefit)............. -- -- -- -- 1,738 2
Cumulative effect of
accounting change............. -- -- -- -- 440
Pro forma net income............. $ -- $ -- $ -- $ -- $ 2,505
========= ======== ======== ======= =======
Pro forma net income per
Common share.................. $ -- $ -- $ -- $ -- $ 0.16
========= ======== ======== ======= =======
Pro forma net income per
Common share -- assuming
dilution...................... $ -- $ -- $ -- $ -- $ .15
========= ======== ======== ======= =======
</TABLE>
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<TABLE>
<CAPTION>
December 31,
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1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $59,708 $124,754 $119,948 $59,992 $48,309
Long-term debt $31,023 $ 24,015 $ 18,909 $ 2,390 $ 1,607
Working capital $ 9,025 $ 25,618 $ 47,100 $24,178 $28,128
Stockholders' equity
(deficit) $(2,590) $ 28,676 $ 46,023 $31,808 $28,783
</TABLE>
- ----------
1 In August and December 1997, the Company sold substantially all the net assets
of its Systems Chemistry and its Imtec Acculine subsidiaries, respectively. As
such, results of operations for the year ended 1997 reflect the results of
operations of Systems Chemistry through August 8, 1997 and results of operations
of IMTEC through December 31, 1997.
2 Effective January 1, 1990 and through the date of the merger, SMS was an S
Corporation under the Internal Revenue Code and was not subject to federal (and
some state) corporate income taxes. On August 31, 1993, SMS terminated its S
Corporation status as a result of the merger. The pro forma tax provisions for
1993 reflects the appropriate tax provisions as if the Company and its
subsidiaries had been a C Corporation for the period presented.
3 In February 1995, the Company acquired all of the outstanding stock of Systems
Chemistry in exchange for 3,400,000 shares of Common stock. In March 1996, the
Company acquired all of the outstanding Common stock of Imtec in exchange for
575,000 shares of Common stock. Each transaction was accounted for as a
pooling of interests and, accordingly, historical financial data has been
restated to include Systems Chemistry and Imtec.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Revenue related to systems sales consists of new systems and product
enhancements. Revenue related to these sales are recognized at the time of
shipment. Revenue related to service and other sales consists of construction
sales, sales of spare parts and service sales. Revenue related to service and
spare parts sales is recognized when the service has been performed or when the
parts are shipped. Revenue from construction services, which were performed
solely by Systems Chemistry, is recognized when the service has been completed
using a method similar to percentage-of-completion.
Cost of systems and product enhancements consists of materials, labor and
related expenses associated with the production of a system. Cost of service
and other sales consists primarily of construction costs, spare parts material
costs and labor, and related expenses associated with service contracts.
Revenue related to systems sales and service and other sales are charged to
expense when the revenue related to these items is recognized.
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. To concentrate on its core business, wet wafer surface preparation,
the Company sold substantially all of the assets of its Systems Chemistry and
its Imtec Acculine subsidiaries in August and December 1997, respectively. As
such, results of operations for the year ended 1997 reflect the results of
operations of Systems Chemistry through August 8, 1997 and results of operations
of Imtec for the entire year.
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,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Total net sales 100.0 % 100.0 % 100.0 %
Total cost of sales 92.5 83.2 68.5
-------- -------- --------
Gross Profit 7.5 16.8 31.5
Operating Expenses:
Selling, general and administrative expenses 32.9 24.1 23.7
Research and development expenses 9.4 5.5 4.6
Restructuring charges 5.8 - -
-------- -------- --------
Total operating expenses 48.1 29.6 28.3
-------- -------- --------
Operating (loss) income (40.6) (12.8) 3.2
Other (expense) income, net (1.2) (2.7) 1.0
-------- -------- --------
(Loss) income before income taxes
and extraordinary charge (41.8) (15.5) 4.2
Income tax expense (benefit) 5.6 (3.8) 1.2
-------- -------- --------
(Loss) income before extraordinary charge (47.4) (11.7) 3.0
Extraordinary charge (1.2) - -
-------- -------- --------
Net (loss) income (48.6)% (11.7)% 3.0 %
======== ======== ========
</TABLE>
13
<PAGE> 14
RESULTS OF OPERATIONS
Year ended December 31, 1997 compared to the year ended December 31, 1996
Net sales for 1997 were $97.9 million, a decrease of $73.6 million, or 43%,
from $171.5 million of net sales for 1996. System sales in 1997 were $71.8
million as compared to $140.8 million for 1996, a decrease of 49.0%. Service
and other sales were $26.1 million for 1997, a decrease of $4.6 million, or
14.9%, as compared to $30.7 million for 1996. The decrease in sales is primarily
attributable to three factors. First, sales for 1997 include sales of Systems
Chemistry through August 7, 1997 while 1996 sales include sales of Systems
Chemistry for the entire year. Second, the Company has experienced performance
problems with several of its systems in the field which has delayed repeat
orders from several of its key accounts. Third, the slowdown in the
semiconductor equipment industry decreased orders during the second half of
1997.
In 1997, 57%, 32% and 11% of the Company's net sales were to major chip
manufacturers in the United States, Asia and Europe, respectively. In 1996,
70%, 17% and 13% of the Company's net sales were to major chip manufacturers in
the United States, Asia and Europe, respectively. The economic crisis in Asia
did not materially impact the Company's sales in 1997.
Cost of sales for 1997 was $90.6 million, or 92.5% of sales, versus $142.7
million, or 83.2% of sales, for 1996. Included in 1997 cost of sales were $11.2
million of charges associated with increases in reserves for inventory and
warranty. The increase in cost of sales as a percentage of sales is primarily
attributable to decreased sales volume, increases in reserves as previously
mentioned and the under-absorption of labor due to the slowdown in equipment
shipments. Included in 1996 cost of sales were charges of approximately $11.0
million to write-off certain inventory and increase the Company's inventory and
warranty reserves. Excluding these 1997 charges of $11.2 million and 1996
charges of $11.0 million, cost of sales, as a percentage of sales, for 1997 and
1996 would have been 81.5% and 76.8%, respectively.
Selling, general and administrative expenses were $32.2 million, or 32.9% of
sales for 1997, compared to $41.3 million, or 24.1% of sales for 1996. The
reduction of expenses was primarily due to five months less SCI activity, cost
reduction programs and decreased commissions due to lower net sales.
Research and development expenses were $9.2 million, or 9.4% of sales, for 1997,
versus $9.4 million, or 5.5% of sales, for the comparable prior year period.
These expenses consist of costs associated with process support for systems in
the field, cost of enhancing existing products and the cost of new product
development. Research and development spending remained at 1996 levels despite
the Company's significant decrease in sales.
Results for 1997 include restructuring charges of $5.6 million related to the
reorganization of the Company, consisting primarily of severance costs and lease
termination costs.
Other expense was $1.2 million for 1997 as compared to $4.7 million for 1996, a
decrease of $3.5 million. Other expense for 1997 consists primarily of interest
expense on the Company's borrowings and capital lease obligations offset
partially by income associated with gains on the sale of the net assets of
Systems Chemistry and the PRIMAXX license and interest income on the Company's
short term investments. Other expense in 1996 consisted primarily of interest on
the Company's borrowings and capital lease obligations.
Income tax expense was $5.5 million for 1997 related to a non-cash charge to
increase the Company's valuation allowance for net deferred tax assets. Such
allowance will be available to offset future income tax expense when it becomes
more likely than not that such deferred assets will be realized.
Results for 1997 include an extraordinary loss for debt extinguishment of $1.2
million primarily related to the write-off of the original issue discount and
unamortized debt issuance costs related to the Company's 9% Convertible
Subordinated Notes that were exchanged for 8% Convertible Subordinated Notes
and Series A Convertible Non Redeemable Preferred Stock.
14
<PAGE> 15
Year ended December 31, 1996 compared to the year ended December 31, 1995
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 increased 54.4% to $140.8 million for the year ended
December 31, 1996 as compared to systems sales of $91.2 million for the year
ended December 31, 1995. The increase in systems sales is primarily attributed
to the ability of the Company to conform its systems to meet 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 as 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 for the year
ended December 31, 1995. The decrease in 1996 gross profit of $10 million is in
part attributed to a cyclical slowdown in the semiconductor industry which has
led to pricing pressures and an increase in the number of more costly customized
systems. During 1996 the Company recorded significant increases in its
inventory, warranty and installation reserves resulting from reliability
problems with systems in the field. 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 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 each of 1996 and 1995. These expenses were $41.3 million for the year
ended December 31, 1996 as compared to $29.1 million for the year ended December
31, 1995, representing a 42% increase. The increase in selling, general and
administrative expenses relates primarily to an increase in sales volume and
related sales and marketing expenses, professional fees incurred in connection
with the Company's financing activities, and an increase in the Company's
allowance for uncollectable accounts.
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. The increase in research and
development spending is due to increased product development activities and
spending on the Company's PRIMAXX products.
Other expense, net was $4.7 million, or 3% of net sales, for the year ended
December 31, 1996 as 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 consists primarily of interest charges associated with
borrowings on the Company's line of credit, 9% convertible subordinated notes,
and capital leases. Other income for 1995 primarily represents interest income
on investments and income recognized from the favorable outcome of a lawsuit
partially offset by interest expense on the Company's line of credit and
convertible notes.
The effective tax rate in 1996 of approximately 25%, less than the
statutory federal and state rates, is 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%,
is benefited principally from the implementation of a foreign sales corporation.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
In 1997 cash and cash equivalents increased $2.8 million to $8.2 million at
December 31, 1997 from $5.4 million at December 31, 1996. For the years ended
December 31, 1997, 1996 and 1995, SMS's operations used cash of $7.0 million,
$21.3 million and $20.7 million, respectively. Cash used in operating activities
during 1997 was primarily the result of the $47.6 million loss incurred during
1997 offset by a decrease in accounts receivable and inventory totaling $23.7
million. Operating activities in 1996 used cash of $21.3 million primarily to
fund the Company's $20.1 million loss. Operating activities in 1995 used cash
of $20.7 million primarily related to increases in accounts receivable and
inventory offset partially by an increase in accounts payable.
Investing activities in 1997 generated cash of approximately $14.0 million
primarily related to proceeds received from the sale of substantially all of the
assets of Systems Chemistry. Investing activities utilized cash of $6.9 million
and $5.9 million in 1996 and 1995, respectively, primarily due to the purchase
of equipment to increase production capacity.
Financing activities utilized $4.3 million of cash in 1997 and provided
cash of $17.6 and $30.0 million in 1996 and 1995, respectively. Financing
activities in 1997 include proceeds of $20.0 million from a private placement
of securities and a $5 million note relating to the sale of Systems Chemistry's
net assets. In 1997, the Company repaid $28.1 million of borrowings on its line
of credit and established a new credit facility with availability of up to $15
million based on eligible levels of accounts receivable and inventory. At
December 31, 1997 $3.0 million was outstanding of the borrowing capacity of $5.8
million. Financing activities in 1996 provided $17.6 million primarily from
borrowing on the Company's line of credit, proceeds from a sale-leaseback
transaction and exercises of options and warrants. In 1995, financing activities
provided $30 million principally due to $19.0 million from the issuance of
convertible notes with detachable warrants, $7.5 million from borrowings on the
Company's lines of credit, approximately $6.4 million from a sale of common
stock and $4 million in short term financing by the Company's principals. The
financing activities in 1995 were partially offset by principal payments on long
term debt and capital lease obligations of $6.2 million. The $4 million in short
term financing borrowed by the Company in October 1995 was repaid by the Company
in December 1995.
Working capital decreased $16.6 million to $9.0 million as of December 31,
1997, from $25.6 million as of December 31, 1996. The decrease is due primarily
to the sale of the net assets of Systems Chemistry and the lower volume of
business coupled with the slowdown in the semiconductor industry.
In December 1997, the Company sold substantially all of the assets of its
Imtec Acculine subsidiary in exchange for a note of $1.5 million payable through
December 2004. Interest is payable semiannually on June 30 and December 31 at
the lesser of 10% or the rate then paid by the Company's principal secured
lender (11.375% at December 31, 1997).
In November 1997, the Company completed a $20 million private placement of
securities consisting of $20 million principal amount of 12% Senior Subordinated
Notes due February 1, 2002, with associated warrants to purchase 6,616,367
shares of the Company's Common Stock at $2.25 per share, subject to customary
adjustment for changes in the capitalization and below market issuances. The
Company used the net proceeds to repay its bank debt, fund operations and fund
its restructuring activities. The Company is in default under the Senior
Subordinated Notes due to no longer meeting the requirements for continued
listing by Nasdaq at December 31, 1997, and due to not completing the
disposition of certain assets by March 31, 1998. Additionally, the Company,
based on its current projections, anticipates that it will not be in compliance
with certain requirements under the note agreement during 1998. The Company has
obtained waivers for the expected defaults through January 1, 1999. Upon certain
payment defaults by the Company, investors have the option to purchase
incremental Senior Subordinated Notes up to $4.0 million including up to
approximately 2.9 million additional warrants and to designate a majority of the
Board of Directors, subject in each case, to stockholder approval so long as
such applicable Nasdaq regulations would require such approval.
16
<PAGE> 17
Also in November 1997, the Company entered into a new credit facility in
the amount of up to $15 million with Greyrock Business Credit, a division of
Nations Credit Commercial Corporation (Greyrock). Borrowings under this facility
bear interest at "LIBOR" plus 5.375% (11.375% at December 31, 1997) and are
secured by the Company's assets. The facility contains a borrowing base related
to the Company's eligible receivables and inventory. The Company's borrowing
capacity at December 31, 1997, was approximately $5.8 million. Borrowings under
the credit facility were $3.0 million at December 31, 1997. The facility matures
on January 1, 1999, and is renewable upon agreement of both parties. The terms
of the facility limit certain actions of the Company, including the payment of
dividends, and permit Greyrock, in the event of a material adverse change in the
Company's business or financial condition in Greyrock's good faith judgment, to
exercise its rights under a default, including ceasing making additional funds
available under the facility, declaring all or part of the outstanding balance
immediately payable, and taking possession of the pledged collateral.
In September 1997, the Company signed a licensing agreement with AG
Associates (Israel) for its PRIMAXX dry cleaning technology in a specific field
of use. The agreement resulted in a gain of $1.1 million with additional
royalties of up to $2.5 million, based on number of units sold, over a multiyear
period. The Company recorded the gain on the licensing agreement in its
statement of operations for the year ended December 31, 1997.
In August 1997, the Company completed the sale of substantially all of the
net assets of its Systems Chemistry subsidiary to "The BOC Group" for $20.8
million, which amount includes a non-interest bearing loan of $5 million due in
three years. The Company applied the proceeds of $18.5 million, after
transaction costs and bank fees, to reduce the amount borrowed under the then
existing credit facility. The Company recorded a gain on the sale of $2.0
million in the third quarter of 1997. Results for 1997 reflect the results of
operations of Systems Chemistry through August 7, 1997.
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 the 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.
The Company schedules production of its systems based upon order backlog.
SMS 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 December 31, 1997 and 1996, the Company's continuing business' backlog was
$22.4 million and $43.4 million, respectively. Because of possible changes in
delivery schedules and cancellations of orders, SMS's backlog at any particular
date is not necessarily representative of actual sales for any succeeding
period.
The Company incurred operating losses during 1997 and 1996, and as of
December 31, 1997, had an accumulated deficit of $60.6 million. Consequently,
the Company has been substantially dependent upon borrowings to finance its
operations in recent years. In response to the significant losses from
operations, the Company hired a new management team in 1997 and implemented a
worldwide restructuring plan. The restructuring plan was developed based on an
evaluation of the Company's current products, its available technology, its
relationships with its customers and its financial position. A summary of
management's actions completed thus far, as well as actions initiated that will
continue into 1998, include the following:
- Divested two subsidiaries in 1997 with products inconsistent with the
Company's core business, using the proceeds from one of these
divestitures to significantly reduce its outstanding and maximized
line of credit;
- Refinanced in 1997 its remaining line of credit balance with term debt
and an additional credit facility;
- Reduced in 1997 the Company's cash usage through workforce reductions
and reductions in other spending;
- Initiated improvements in the cost structure and manufacturability
through engineering the Company's core product lines to use less
materials while maintaining process integrity and minimizing costly
product refinements and rework during production;
- Initiated processes to shorten installation time through improving
the quality controls on the product before it leaves the manufacturing
facility and through better coordination with the customer regarding
the timing and prerequisites of the installation which will reduce
installation delays, reduce costs to the Company, increase customer
satisfaction and accelerate payments of receivables;
- Initiated ongoing reviews of all sales contract bids by the Company's
Management to improve profitability;
- Initiated a program to fix system operating problems in the field
using a more focused approach toward customer requirements thereby
accelerating the collection of past due receivables and improving
customer satisfaction;
- Initiated a Product and Cycle Time Excellence program to refocus the
Company's new product development efforts and reduce the number of
development projects to those with strong market and margin potential;
- Initiated improvements in cash flow through negotiating customer
deposits and extended payment terms with vendors;
- Developed comprehensive and timely measures for ongoing monitoring of
cash flow to more effectively manage the Company's 1998 cash
requirements; and
- Established a detailed budget to manage 1998 operating activity with
defined timely reporting periods and ongoing monitoring of strict
adherence to budgeted amounts.
The Company also plans to sell its PRIMAXX subsidiary during 1998 to generate
additional liquidity and the solicitation process is underway. The Company also
is
17
<PAGE> 18
finalizing the purchase price adjustments relating to the sale of the net
assets of Systems Chemistry with the buyer.
Management believes the cash requirements in 1998 will be generated by
operations, borrowings on the Company's credit facility, customer deposits on
certain orders and the collection of several past due receivables, without
such, the Company is susceptible to severe cash shortages which may impact its
ability to operate. Management is confident that its 1998 plans and programs
will result in the successful funding of its 1998 working capital and cash
requirements. However, if financial results for 1998 do not meet management's
expectations, management plans to further reduce discretionary expenditures
(such as certain interest payments which are payable through the issuance
additional debt, research and development expenditures, and capital
expenditures, among others), accelerate collection of receivables, enter into
sales-leaseback transactions, and raise additional capital through potential
private placements of debt or equity securities or obtain an expanded or
replacement credit facility.
The Company believes that future results of operations will be influenced
by a number of factors, including general economic conditions, timely new
product introductions, the volume, mix and timing of orders received and
numerous other factors. Additionally, the semiconductor industry has
experienced a softening demand which could lead to reduced future sales and
increased pricing pressures. 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 LIBOR rate. No assurance
can be given that the LIBOR rate of interest will not fluctuate significantly,
which could have an adverse effect on operations.
YEAR 2000
Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
Thus the programs were unable to properly distinguish between the year 1900 and
the year 2000. This is frequently referred to as the "Year 2000 Problem." In
November 1997, the Company initiated a company-wide Year 2000 Project to address
this issue. Utilizing both internal and external resources, the Company is in
the process of defining, assessing and converting, or replacing, various
programs, hardware and instrumentation systems to make them Year 2000
compatible. The Company's Year 2000 project is well under way and the Company
expects to be fully Year 2000 compliant by the end of 1998. The Company
estimates that it has incurred costs of approximately $75,000 to address the
Year 2000 issue and it expects additional costs of approximately $40,000.
18
<PAGE> 19
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended, 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 the
Company's financing arrangements and liquidity and capital resources. 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 references in this Report. The forward-looking statements are made as of
the date of this Report, 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.
19
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Supplemental Schedule
<TABLE>
<CAPTION>
Page
-------
<S> <C>
Reports of Independent Auditors 21 - 23
Consolidated Balance Sheets as of December 31, 1997 and 1996 24
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 25
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 26
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 27
Notes to Consolidated Financial Statements 28 - 42
Supplemental Schedule 48
</TABLE>
20
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
SUBMICRON SYSTEMS CORPORATION
We have audited the accompanying consolidated balance sheets of SubMicron
Systems Corporation and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the two years in the period ended December 31, 1997.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a). 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 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 1997 and 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, 1997 and 1996
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1997, 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 statements of operations, stockholders' equity
(deficit), and cash flows of SubMicron Systems Corporation and subsidiaries for
the year ended December 31, 1995. We also have audited, as to combination only,
the accompanying financial statement schedule for the year ended December 31,
1995. As described in Note 1 to such statements, the 1995 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 have
been properly combined on the basis described in Note 1.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 31, 1998, except
Notes 2 and 8, as to which
the date is April 14, 1998
21
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SubMicron Systems Corporation:
We have audited the consolidated statements of operations, stockholders' equity
and cash flows of SubMicron Systems Corporation (a Delaware corporation) and
subsidiaries for the year ended December 31, 1995, prior to restatement for the
merger with Imtec Acculine, Inc. We have not audited any financial statements
of Imtec Acculine, Inc. Our audit also included the financial statement schedule
for 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 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 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 financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows for
the year ended December 31, 1995 of SubMicron Systems Corporation and
Subsidiaries, 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.
ARTHUR ANDERSEN LLP
Philadelphia, PA
March 6, 1996 (except with respect to the
matter discussed in Note 1 as to which
the date is March 26, 1996)
22
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
IMTEC ACCULINE, INC.
We have audited the statements of operations, shareholder's equity and cash
flows of Imtec Acculine, Inc. (a California Corporation) for the year ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles.
IRELAND SAN FILIPPO, LLP
Palo Alto, California
February 23, 1996
23
<PAGE> 24
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
ASSETS 1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,228 $ 5,426
Accounts receivable, net 16,632 47,574
Inventories 13,152 34,951
Prepaid expenses and other 2,288 7,307
Deferred income taxes - 2,423
-------- --------
Total current assets 40,300 97,681
Property and equipment, net 13,815 19,902
Goodwill, net 1,457 1,684
Intangibles and other assets, net 4,136 5,487
-------- --------
$ 59,708 $124,754
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit $ 3,024 $ 28,100
Current portion of long-term debt 1,849 2,294
Accounts payable 6,830 21,741
Accrued expenses and other 15,617 16,823
Deferred revenues 3,955 3,105
-------- --------
Total current liabilities 31,275 72,063
-------- --------
Long-term debt 31,023 24,015
-------- --------
Commitments and contingencies (Note 13)
Stockholders' equity (deficit):
Preferred stock $.01 par value
5,000 shares authorized - -
Series A Convertible Preferred Stock, stated value, 4,900 -
685 and 0 shares issued and outstanding
Common stock, $.0001 par value, 100,000,000
shares authorized, 18,338,949 and 16,890,014
shares issued and outstanding 2 2
Additional paid-in capital 53,067 41,680
Accumulated deficit (60,559) (13,006)
-------- --------
Total stockholders' equity (deficit) (2,590) 28,676
-------- --------
$59,708 $124,754
======== ========
</TABLE>
See accompanying notes.
24
<PAGE> 25
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- --------- --------
(Note 1)
<S> <C> <C> <C>
Systems sales........................... $ 71,809 $140,823 $ 91,198
Service and other sales................. 26,086 30,661 31,870
-------- -------- --------
Total net sales................. 97,895 171,484 123,068
Cost of systems sales................... 66,370 118,800 62,925
Cost of service and other sales......... 24,181 23,948 21,427
-------- -------- --------
Total cost of sales............. 90,551 142,748 84,352
Gross profit............ 7,344 28,736 38,716
Selling, general and administrative
expenses.............................. 32,230 41,337 29,109
Research and development expenses ...... 9,225 9,373 5,678
Restructuring charges................... 5,639 - -
-------- -------- --------
Total operating expenses ....... 47,094 50,710 34,787
-------- -------- --------
Operating (loss) income. (39,750) (21,974) 3,929
Other (expense) income:
Interest income..................... 190 383 400
Interest expense ................... (4,885) (5,244) (1,840)
Other income, net .................. 3,541 160 2,698
-------- -------- --------
Total other (expense) income.... (1,154) (4,701) 1,258
-------- -------- --------
(Loss) income before income taxes....... (40,904) (26,675) 5,187
Income tax expense (benefit)............ 5,480 (6,566) 1,498
-------- -------- --------
(Loss) income before extraordinary charge (46,384) (20,109) 3,689
Extraordinary charge.................... (1,169) - -
-------- -------- --------
Net (loss) income....................... $(47,553) $(20,109) $ 3,689
======== ======== ========
(Loss) income per Common share.......... $ (2.77) $ (1.20) $ .23
======== ======== ========
(Loss) income per Common share --
assuming dilution..................... $ (2.77) $ (1.20) $ .19
======== ======== ========
</TABLE>
See accompanying notes.
25
<PAGE> 26
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(IN THOUSANDS)
Retained
Additional Earnings
Preferred Stock Common Stock Paid-in (Accumulated Deferred Notes
Shares Amount Shares Amount Capital Deficit) Compensation Receivable Total
------ ------ ------ ------ ---------- ------------ ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 - $ - 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 non-qualified
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
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
Exercise of stock options - - 23 - 78 - - - 78
Issuance of Preferred stock 1 9,181 - - - - - - 9,181
Conversion of Preferred
stock to Common
stock - (4,281) 1,235 - 4,281 - - - -
Issuance of Common stock
under the employee
stock purchase plan - - 191 - 412 - - - 412
Value ascribed to warrants
issued with senior
subordinated notes - - - - 6,616 - - - 6,616
Net loss - - - - - (47,553) - - (47,553)
------ ------ ------ ------ ---------- --------- ------------ ---------- ------
BALANCE, DECEMBER 31, 1997 1 $4,900 18,339 $2 $53,067 $(60,559) $- $- $(2,590)
------ ------ ------ ------ ---------- --------- ------------ ---------- ------
</TABLE>
See accompanying notes.
26
<PAGE> 27
SUBMICRON SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Cash flows used in operating activities: (Note 1)
Net (loss) income.................................................... $(47,553) $(20,109) $3,689
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization........................................ 6,902 5,124 2,685
Extraordinary loss on debt extinguishment............................ 1,169 - -
Gain on sales of Systems Chemistry and
Primaxx license.................................................... (3,805) - -
Provision for valuation allowances................................... 7,746 2,831 77
Amortization of deferred compensation................................ - 224 336
Deferred tax provision............................................... 5,480 (4,222) 624
Accretion of note discount........................................... 532 1,179 127
Non cash compensation for services................................... - 851 -
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable........................... 17,125 (1,779) (26,008)
Decrease (Increase) in inventories................................... 6,588 (6,537) (20,552)
Decrease (Increase) in prepaid expenses and other.................... 4,266 (1,514) (1,772)
Decrease (Increase) in other assets.................................. 590 (1,294) (1,372)
(Decrease) increase in accounts payable.............................. (10,882) (4,348) 16,384
Increase in accrued expenses......................................... 2,024 7,889 3,454
Increase in deferred revenues........................................ 2,837 384 2,412
Decrease in accrued income taxes..................................... - - (770)
-------- --------- ---------
Net cash used in operating activities.................................. (6,981) (21,321) (20,686)
-------- --------- ---------
Cash flows provided by (used in) investing activities:
Capital expenditures................................................. (1,475) (6,724) (5,730)
Net proceeds from sale of Systems Chemistry assets, net of cash sold. 14,805 - -
Net proceeds from sale of license.................................... 1,062 - -
Purchase of intangible assets........................................ (352) (182) (181)
-------- --------- ---------
Net cash provided by (used in) investing activities.................... 14,040 (6,906) (5,911)
-------- --------- ---------
Cash flows (used in) provided by financing activities
Net (payments) borrowings on lines of credit......................... (25,076) 11,861 7,539
Proceeds from sales-leaseback........................................ - 5,287 -
Proceeds from issuance of convertible debt........................... 13,384 - 19,000
Value ascribed to warrants issued with
convertible debt................................................... 6,616 - -
Deferred debt issuance costs......................................... (1,877) - (1,594)
Proceeds from long-term debt......................................... 5,000 - 4,032
Collection on notes receivable....................................... - 81 358
Proceeds from exercise of stock options and
warrants and Employee Stock Purchase Plan.......................... 490 1,606 527
Net proceeds from sale of Common stock............................... - - 6,355
Principal payments on long-term debt and
capital lease obligations.......................................... (2,794) (1,192) (6,169)
-------- --------- --------
Net cash (used in) provided by financing activities.................... (4,257) 17,643 30,048
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.......................................................... 2,802 (10,584) 3,451
Cash and cash equivalents, beginning of year........................... 5,426 16,010 12,559
-------- --------- ---------
Cash and cash equivalents, end of year................................. $8,228 $5,426 $16,010
======== ========= =========
</TABLE>
See accompanying notes.
27
<PAGE> 28
SUBMICRON SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND:
SubMicron Systems Corporation (the "Company" or "SMS") designs,
manufactures and markets advanced chemical processing and distribution systems
used in the fabrication of semiconductors.
The Company was founded in November 1988, and became a public company in
August 1993. The Company acquired the assets of DiPiero, Inc. (d/b/a Universal
Plastics) in May 1994 by assuming its net liabilities of $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 were accounted for as poolings of interests. Accordingly,
1995 financial data has been restated to include Systems Chemistry and Imtec.
As described in Note 3, substantially all the net assets of Systems
Chemistry and Imtec were sold in August and December 1997, respectively.
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., Systems
Chemistry, SubMicron Wet Process Stations, Inc. (Universal Plastics), Imtec,
SubMicron Systems Investment Corporation, SMICRON(S) PTE., LTD. (a Singapore
Corporation), SubMicron Systems International Ltd., and PRIMAXX 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, purchased components, parts,
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.
28
<PAGE> 29
Goodwill and Other Intangible Assets
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 $814,000 and $586,000 at December 31,
1997 and 1996, 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.
Accounting for Long-Lived Assets
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 requires 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 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 exceed the
undiscounted future cash flows, an impairment loss would be recognized for the
excess of book over fair values.
Revenue recognition
Revenue related to systems sales consists of new systems and product
enhancements. Revenue related to these sales are recognized at the time of
shipment. Revenue related to service and other sales consists of construction
sales, sales of spare parts and service sales. Revenue related to service and
spare parts sales is recognized when the service has been performed or when the
parts are shipped. Revenue from construction services, which were performed
solely by Systems Chemistry, is recognized when the service has been completed
using a method similar to percentage-of-completion.
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 1997 and 1996, the Company revised its warranty and installation provision
estimate, increasing its net loss by approximately $2.4 million ($0.14 per
Common share) and $2.7 million, ($0.16 per Common share), respectively.
Research and development
Research and development costs are charged to expense as incurred.
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.
29
<PAGE> 30
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.
Earnings per share
The Company adopted Financial Accounting Standards Board Statement No. 128,
"Earnings per Share," on December 31, 1997. Primary earnings per share has been
replaced with basic earnings per share. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock options and
convertible securities have been excluded. Diluted earnings per share assumes
the conversion of all potentially dilutive securities. Prior period earnings
per share have been restated.
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 1997, 1996, and
1995, the Company's operating activities have required a net use of cash
totaling $7.0 million, $21.3 million, and $20.7 million, respectively. During
these years, sufficient debt and other credit arrangements were in place to fund
the net cash needs from operations. The Company incurred net losses of $47.6
million in 1997 and $20.1 million in 1996 and has an accumulated deficit of
$60.6 million at December 31, 1997.
The Company is in default under its $20 million 12% senior subordinated
notes due to no longer meeting the requirement for continued listing by Nasdaq
at December 31, 1997 and due to not completing the disposition of certain assets
by March 31, 1998. Additionally, the Company, based on its current projections,
anticipates that it will not be in compliance with certain other requirements
under these notes during 1998. However, the Company has obtained waivers from
its noteholders for the existing and expected defaults through January 1, 1999.
The Company's current credit facility which matures on January 1, 1999,
and is renewable upon agreement of both parties permits, the lender, in the
event of a material adverse change in the Company's business or financial
condition in the lender's good faith judgment, to exercise its rights under a
default, including ceasing making additional funds available under the
facility, declaring all or part of the outstanding balance immediately payable,
and taking possession of the pledged collateral.
The Company has been substantially dependent upon borrowings to finance its
operations in recent years, and in response to the significant losses from
operations, the Company hired a new management team in 1997 and implemented a
worldwide restructuring plan. The restructuring plan was developed based on an
evaluation of the Company's current products, its available technology, its
relationships with its customers and its financial position. A summary of
management's actions completed thus far, as well as actions initiated that will
continue into 1998, include the following:
- Divested two subsidiaries in 1997 with products inconsistent with the
Company's core business, using the proceeds from one of these
divestitures to significantly reduce its outstanding and maximized
line of credit;
- Refinanced in 1997 its remaining line of credit balance with term debt
and an additional credit facility;
- Reduced in 1997 the Company's cash usage through workforce reductions
and reductions in other spending;
- Initiated improvements in the cost structure and manufacturability
through engineering the Company's core product lines to use less
materials while maintaining process integrity and minimizing costly
product refinements and rework during production;
- Initiated processes to shorten installation time through improving
the quality controls on the product before it leaves the manufacturing
facility and through better coordination with the customer regarding
the timing and prerequisites of the installation which will reduce
installation delays, reduce costs to the Company, increase customer
satisfaction and accelerate payments of receivables;
- Initiated ongoing reviews of all sales contract bids by the Company's
Management to improve profitability;
- Initiated a program to fix system operating problems in the field
using a more focused approach toward customer requirements thereby
accelerating the collection of past due receivables and improving
customer satisfaction;
- Initiated a Product and Cycle Time Excellence program to refocus the
Company's new product development efforts and reduce the number of
development projects to those with strong market and margin potential;
- Initiated improvements in cash flow through negotiating customer
deposits and extended payment terms with vendors;
- Developed comprehensive and timely measures for ongoing monitoring of
cash flow to more effectively manage the Company's 1998 cash
requirements; and
- Established a detailed budget to manage 1998 operating activity with
defined timely reporting periods and ongoing monitoring of strict
adherence to budgeted amounts.
The Company also plans to sell its PRIMAXX subsidiary during 1998 to generate
additional liquidity and the solicitation process is underway. The Company also
is finalizing the purchase price adjustments relating to the sale of the net
assets of Systems Chemistry with the buyer.
Management believes the cash requirements in 1998 will be generated by
operations, borrowings on the Company's credit facility, customer deposits on
certain orders and the collection of several past due receivables, without
such, the Company is susceptible to severe cash shortages which may impact its
ability to operate. Management is confident that its 1998 plans and programs
will result in the successful funding of its 1998 working capital and cash
requirements. However, if financial results for 1998 do not meet management's
expectations, management plans to further reduce discretionary expenditures
(such as certain interest payments which are payable through the issuance of
additional debt, research and development expenditures, and capital
expenditures, among others), accelerate collection of receivables, enter into
sales-leaseback transactions, and raise additional capital through potential
private placements of debt or equity securities or obtain an expanded or
replacement credit facility.
The Company believes that future results of operations will be influenced
by a number of factors, including general economic conditions, timely new
product introductions, the volume, mix and timing of orders received and
numerous other factors. Additionally, the semiconductor industry has
experienced a softening demand which could lead to reduced future sales and
increased pricing pressures. 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.
30
<PAGE> 31
New Accounting Standard
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 "Disclosure About Segments of an Enterprise and Related Information," which
the Company will be required to adopt in 1998. Under Statement 131's "management
approach," the Company will report financial and descriptive information about
its "operating segments". Operating segments are revenue-producing components
for which separate financial information is produced internally and is subject
to evaluation by the chief operating decision maker in deciding how to allocate
resources to segments. The Company currently has two operating segments.
Statement No. 131 will not affect the Company's results of operations or
financial position but may affect the disclosures of segment information.
3. SALE OF CERTAIN ASSETS
On December 31, 1997, the Company completed the sale of certain net assets
of Imtec in exchange for a note of approximately $1.5 million payable to the
Company through December 2004. Interest is payable semiannually on June 30 and
December 31 at the lesser of 10% or the rate then paid to the Company's
principal secured lender (11.375% at December 31, 1997). The sales proceeds
approximated the net book value of the net assets sold.
On September 8, 1997, the Company signed a licensing agreement with AG
Associates (Israel) for its PRIMAXX dry cleaning technology in a specific field
of use. The agreement resulted in a gain of approximately $1.1 million with
additional royalties of up to $2.5 million, based on the number of units sold,
over a multiyear period. The Company recorded the $1.1 million gain on the
licensing agreement in its statement of operations for the year ended December
31, 1997.
On August 7, 1997, the Company sold substantially all of the net assets of
Systems Chemistry for $20.8 million, which amount includes a non-interest
bearing loan of $5 million due in three years. The Company applied the proceeds
of $18.5 million, after transaction costs and bank fees, to reduce the amount
borrowed under its credit facility. The Company recorded a gain on the sale of
$2.7 million in the third quarter of 1997. Results for the year ended December
31, 1997 reflect the results of operations of Systems Chemistry through August
7, 1997.
Pro forma results presented below reflect the results of operations of the
Company as if the sale of Systems Chemistry and Imtec 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>
Year ended December 31, 1997
----------------------------
<S> <C>
Net sales........................................ $65,293
=======
Loss before extraordinary charge................. ($47,280)
========
Basic and diluted loss before extraordinary
charge per Common share.......................... ($2.76)
======
</TABLE>
4. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1996
------- -------
<S> <C> <C>
(in thousands)
Billed ......................................... $17,577 $39,942
Unbilled ....................................... - 8,929
------- -------
17,577 48,871
Allowance for doubtful accounts................. (945) (1,297)
------- -------
$16,632 $47,574
======= =======
</TABLE>
31
<PAGE> 32
5. INVENTORIES:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1996
------- -------
<S> <C> <C>
(in thousands)
Raw materials, purchased
components and parts............... $11,856 $23,007
Work in progress and finished goods 4,810 14,669
------- -------
16,666 37,676
Excess and obsolescence reserve.... (3,514) (2,725)
------- -------
$13,152 $34,951
======= =======
</TABLE>
In 1997 and 1996, the Company wrote off certain inventory and increased
reserve provisions increasing its net loss by approximately $7.7 million ($.45
per Common share) and $2.0 million ($.07 per Common share), respectively.
6. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
-------- -------
<S> <C> <C>
(in thousands)
Production equipment..................... $ 7,555 $10,200
Office furniture equipment and leasehold
improvements........................... 8,595 8,415
Equipment under capital lease............ 10,101 9,591
------- ------
26,251 28,206
Less - Accumulated depreciation and
amortization........................... (12,436) (8,304)
------- ------
$13,815 $19,902
======= =======
</TABLE>
Accumulated amortization on equipment under capital leases was
approximately $2.0 million and $1.3 million at December 31, 1997 and 1996,
respectively.
7. INTANGIBLES AND OTHER ASSETS:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1996
------- -------
<S> <C> <C>
(in thousands)
Deferred income taxes............. $ - $3,057
Patent filing costs and trademarks 1,072 720
Deferred financing costs.......... 2,024 914
Security deposits................. 237 288
Note receivable................... 1,154 -
Other............................. 130 813
------- -------
4,617 5,792
Less - Accumulated amortization... (481) (305)
------- -------
$4,136 $5,487
======= =======
</TABLE>
8. CREDIT FACILITY:
In November 1997, the Company entered into a new credit facility in the
amount of up to $15 million with Greyrock Business Credit, a division of Nations
Credit Commercial Corporation (Greyrock). Borrowings under this facility bear
interest at "LIBOR" plus 5.375% (11.375% at December 31, 1997) and are secured
by the Company's assets. The facility contains a borrowing base related to the
Company's eligible receivables and inventory. The Company's borrowing capacity
at December 31, 1997, was approximately $5.8 million. Borrowings under the
credit facility were $3.0 million at December 31, 1997. The facility matures on
January 1, 1999, and is renewable upon agreement of both parties. The terms of
the facility limit certain actions of the Company, including the payment of
dividends, and permit Greyrock, in the event of a material adverse change in the
Company's business or financial condition in Greyrock's good faith judgment, to
exercise its rights under a default, including ceasing making additional funds
available under the facility, declaring all or part of the outstanding balance
immediately payable, and taking possession of the pledged collateral.
Consequently, the credit facility is classified as a current liability at
December 31, 1997.
32
<PAGE> 33
9. ACCRUED EXPENSES AND OTHER:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
-------- -------
(in thousands)
<S> <C> <C>
Warranty and installation costs...................... $ 5,691 $ 6,883
Commissions.......................................... 1,294 2,676
Restructuring charges................................ 2,675 -
Purchase commitments and other....................... 1,239 -
Professional fees.................................... 1,588 709
Other................................................ 3,130 6,555
-------- -------
$15,617 $16,823
======== =======
</TABLE>
10. LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
------- -------
(in thousands)
<S> <C> <C>
12% Senior Subordinated Notes, due February
2002, principal amount of $20,000,000 (net of
unamortized discount of $6,506,000 at
December 31, 1997) with warrants to
purchase 6,616,367 shares of Common
stock. Interest is payable monthly................. $13,494 $ -
9% convertible subordinated notes.................... - 17,798
8% convertible subordinated notes, principal amount
of $8,692,000, due March 2002. Interest
is payable quarterly............................... 8,692 -
$5,000,000 principal amount non-interest bearing
note, due August 2000 (net of unamortized
discount of $1,140,000)............................ 3,860 -
Various capital lease obligations with
interest from 5% to 14%, payable
monthly with varying maturities
through October 2001............................... 6,816 8,490
Other................................................ 10 21
------- -------
32,872 26,309
Less current portion................................. (1,849) (2,294)
------- -------
$31,023 $24,015
======= =======
</TABLE>
The following is a schedule of aggregate long-term debt maturities and future
minimum capital lease payments at December 31, 1997:
<TABLE>
<CAPTION>
Long-Term Capital
Debt Lease
---------- -------
<S> <C> <C>
1998.............................................. $ 10 $1,839
1999.............................................. - 1,926
2000.............................................. 5,000 1,881
2001.............................................. - 1,170
2002.............................................. 28,692 -
------- ------
$33,702 $6,816
======= ======
</TABLE>
33
<PAGE> 34
The Company's long-term debt arrangements below require the maintenance of
certain financial covenants and limit certain actions of the Company,
including the level of research and development and capital expenditures,
issuance of additional capital stock, and payment of dividends.
In November 1997, the Company completed a $20 million private placement of
securities consisting of $20 million principal amount of 12% Senior Subordinated
Notes due February 1, 2002 (Senior Subordinated Notes), with associated warrants
to purchase 6,616,367 shares of the Company's Common stock at $2.25 per share,
subject to customary adjustment for changes in the capitalization and below
market issuances. The Company used the net proceeds to repay its bank debt, fund
operations and fund its restructuring activities. At December 31, 1997, the
Company is in default under the Senior Subordinated Notes due to no longer
meeting the requirement for continued quotation by NASDAQ and, at March 31,
1998, due to not completing the disposition of certain assets by such date; in
addition, the Company, based on its current projections, anticipates that it
will not be in compliance with certain other requirements under the Senior
Subordinated Notes during 1998. However, the Company has obtained waivers from
the noteholders for the existing and expected defaults through January 1, 1999.
Upon certain payment defaults by the Company, investors have the option to
purchase $4.0 million of additional Senior Subordinated Notes with 2.9 million
additional warrants and to designate a majority of the Board of Directors,
subject in each case, to stockholder approval so long as such applicable NASDAQ
regulations would require such approval.
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 (Convertible Preferred stock) and approximately $8.7 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 into shares of Common stock
at $3.70 per share, subject to adjustment. Results for the year ended December
31, 1997 include an extraordinary charge for debt extinguishment of $1.2
million, or $0.07 per Common share, in connection with the Company's issuance of
its 8% Convertible Subordinated notes and Convertible Preferred stock.
The $5 million non-interest bearing note due in August 2000, received in
connection with the sale of substantially all the net assets of Systems
Chemistry, carries a discount based on imputed interest at 10% of $1,140,000 at
December 31, 1997. This Note is collateralized by foreign accounts receivable of
Submicron Systems Corporation.
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, resulting in no gain or loss.
The fair value of the Company's long term debt approximates its carrying
value.
11. RESTRUCTURING CHARGES
Results for 1997 include restructuring charges of approximately $5.6
million ($.33 per Common share) primarily related to severance costs and lease
termination cost associated with the vacancy of the Company's corporate office.
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. As
of December 31, 1997, the remaining accrued restructuring charge approximated
$2.7 million.
34
<PAGE> 35
12. EARNINGS PER SHARE
The following table set forth the reconciliation of weighted shares outstanding
for purposes of computing basic and diluted earnings per share:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Numerator (in thousands):
Net (loss) income......................... $ (47,553) $(20,109) $3,689
Numerator for basic earnings per share -
income available to Common stockholders (47,553) (20,109) 3,689
---------- ---------- ----------
Effect of dilutive securities
convertible debentures.................. 70
---------- ---------- ----------
Numerator for diluted earnings per share -
income available to Common stockholders
after assumed conversion................ $ (47,553) $(20,109) $3,759
Denominator:
Denominator for basic earnings per share -
weighted average shares................. 17,152,839 16,712,610 16,159,687
Effect of dilutive securities:
Employee stock options.................... -- -- 1,374,418
Warrants.................................. -- -- 210,000
Convertible debentures.................... -- -- 1,561,702
---------- ---------- ----------
Dilutive potential Common shares.......... -- -- 3,146,120
---------- ---------- ----------
Adjusted weighted average shares
and assumed conversions - Diluted....... 17,152,839 16,712,610 19,305,807
========== ========== ==========
Basic earnings per share.................. $ (2.77) $(1.20) $0.23
========== ========== ==========
Diluted earnings per share................ $ (2.77) $(1.20) $0.19
========== ========== ==========
</TABLE>
Approximately 14.2 million potentially dilutive securities are outstanding
as of December 31, 1997.
13. COMMITMENTS AND CONTINGENCIES:
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 $1.3 million, $1.4 million
and $1.1 million in 1997, 1996 and 1995, respectively. Minimum annual operating
lease payments for each of the next five years and in the aggregate are as
follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
1998............................ $1,337
1999............................ 1,270
2000............................ 1,272
2001............................ 545
2002............................ 545
Thereafter...................... 498
------
$5,467
======
</TABLE>
At December 31, 1997, the Company had inventory purchase commitments of
$1.9 million. These commitments exceed the inventory's net realizable value by
approximately $1.1 million. This amount has been reserved for at December 31,
1997.
35
<PAGE> 36
On July 14, 1992, an action was commenced against the Company for patent
infringement. The complaint alleged that SMS infringed on three of the
plaintiff's patents embodying its 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 prepaid licensing fee of $2.0
million. During 1997, the Company expensed the remaining licensing fee of
$680,000 as management determined it had no future economic benefit. Charges
of approximately $142,000 and $107,000 were recorded in the 1996 and 1995
statements of operations, respectively, based on the units shipped through
December 31, 1996 and 1995, respectively.
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.
14. 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 with foreign sales
(Europe and Asia) representing 43%, 30% and 45% of net sales in 1997, 1996 and
1995, 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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Customer A...................... 12% 11%
Customer B...................... 13%
-- -- --
12% 13% 11%
== == ==
</TABLE>
At December 31, 1997, approximately 53% of the Company's accounts
receivable were due from three customers.
15. OTHER INCOME:
Other income in 1997 consists primarily of gains recognized on the sale of
substantially all of the net assets of Systems Chemistry and the PRIMAXX
license. Other income in 1995 consists of a settlement of litigation of
approximately $2.7 million, which is net of legal fees incurred.
36
<PAGE> 37
16. INCOME TAXES:
The Company's income tax expense (benefit) for 1997, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
------ -------- ------
<S> <C> <C> <C>
(in thousands)
Federal
Current.......... $ - $ (2,344) $ 650
Deferred......... 4,270 (3,012) 464
------ -------- ------
Total......... 4,270 (5,356) 1,114
------ -------- ------
State
Current.......... - - 182
Deferred......... 1,210 (1,210) 202
------ -------- ------
Total......... 1,210 (1,210) 384
------ -------- ------
$5,480 $ (6,566) $1,498
------ -------- ------
------ -------- ------
</TABLE>
The following is a reconciliation of the statutory federal income tax
expense (benefit) to the effective tax expense (benefit) for 1997, 1996 and 1995
(dollars in thousands):
<TABLE>
<CAPTION>
% of % of % of
Pretax Pretax Pretax
1997 Loss 1996 Income 1995 Income
--------- ------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Statutory income tax...... $ (14,726) (35.0)% $ (9,336) (35.0)% $1,764 34.0%
State income taxes, net of
federal benefit.......... (2,299) (5.5) (577) (2.2) 386 7.4
Effect of foreign sales
corp..................... - - - - (402) (7.7)
Other nondeductible costs. 205 .5 222 0.8 172 3.3
Research and development
credit................... - - - - (100) (1.9)
Valuation allowance....... 22,300 53.0 2,600 9.7 - -
Other..................... - - 525 2.1 (322) (6.2)
--------- ------ -------- ------ ------ -----
$ 5,480 13.0% $ (6,566) (24.6)% $1,498 28.9%
--------- ------ -------- ------ ------ -----
--------- ------ -------- ------ ------ -----
</TABLE>
37
<PAGE> 38
The net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
-------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets
Warranty and installation reserve............ $ 2,325 $ 2,730
Allowance for doubtful accounts.............. 357 531
Allowance for excess and obsolete inventories 2,048 1,114
Accrued licensing fees....................... 102 102
Deferred compensation........................ 410 412
Uniform inventory capitalization............. 166 484
Salary and benefit accruals.................. 59 225
Net operating loss carryforwards............. 17,374 3,625
Federal credit carryforward.................. 320 320
Amortization................................. 189 48
Commissions.................................. 529 260
Restructuring expenses....................... 1,093 -
Other........................................ 1,360 165
-------- -------
Total deferred tax assets................ 26,332 10,016
Valuation allowance for deferred tax assets.. (24,900) (2,600)
-------- -------
$ 1,432 $ 7,416
-------- -------
Deferred tax liabilities
Depreciation................................. (320) (238)
Gain on litigation settlement................ (1,097) (1,097)
Other........................................ (15) (601)
-------- -------
Total deferred tax liabilities............. 1,432 (1,936)
-------- -------
Net deferred tax assets........................ $ - $ 5,480
======== =======
</TABLE>
At December 31, 1997, the Company had approximately $45 million of federal
and $17 million of state net operating loss carryforwards available. These
carryforwards generally expire in 2012.
The Company's valuation allowance for deferred tax assets will be available
to offset future income tax expense when it becomes more likely than not that
such deferred tax assets will be realized. The valuation allowance was increased
$22.3 million and $2.6 million in 1997 and 1996, respectively.
17. STOCK OPTIONS AND WARRANTS:
The Company has stock options outstanding to participants under four stock
option plans which are the 1995 Stock Option Plan for Non-Employee Directors,
the 1997 Stock Option Plan for Non-Employee Directors, the Amended and Restated
1991 Stock Option Plan and the 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 from 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,
1997, 31,000 options have been granted under the 1995 Stock Option Plan for
Non-Employee Directors. Exercise prices range from $3.38 to $10.13. In
connection with the adoption of the 1997 Stock Option Plan for Non-Employee
Directors, the Board of Directors has discontinued use of this plan.
38
<PAGE> 39
In 1997, the Company adopted the 1997 Stock Option Plan for Non-Employee
Directors subject to approval of the Company's stockholders at the 1998 annual
meeting. Under the plan, non-employee directors of the Company are granted
options to purchase 75,000 shares of the Common stock upon appointment to the
Board of Directors. The aggregate number of options that may be issued under the
plan is 500,000, subject to adjustment for stock dividends, stock splits,
recapitalization or certain other adjustments. At December 31, 1997, 300,000
options have been granted (at $3.125 per share) under the 1997 Stock Option Plan
for Non-Employee Directors subject to approval of the plan noted previously.
The Company's Amended and Restated 1991 Stock Option Plan (1991 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 4,000,000 shares of Common stock, subject to
adjustments for stock dividends, stock splits, recapitalization or certain other
adjustments. The number of options to be granted and the option prices are
determined by the Board of Directors or the stock option plan committee in
accordance with the terms of the plan. The exercise price of incentive stock
options granted under the plan must be 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 (Executive Plan) that
provides for the issuance of up to 588,495 shares of Common stock. At December
31, 1997 592,302 options are available for grant under the 1991 Plan.
39
<PAGE> 40
Summary information with respect to options under the 1991 Plan and Executive
Plan, is as follows:
<TABLE>
<CAPTION>
Amended and Restated Executive
1991 Stock Option Plan Stock Option Plan
-------------------------- -----------------------
Outstanding Option Outstanding Option
Options Prices Options Prices
----------- ------------- ----------- ----------
Outstanding Options
- --------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995.... 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
Granted.................... 2,856,766 2.63-4.38 - -
Exercised.................. (22,934) (3.02-4.44) - -
Cancelled.................. (1,341,772) (2.39-11.13) - -
----------- ------------- ----------- ----------
Balance, December 31, 1997.. 3,087,217 $2.39-$11.00 536,250 $6.00
=========== ============= =========== ==========
</TABLE>
At December 31, 1997, there were 840,300 exercisable options under the
Amended and Restated 1991 Stock Option Plan, 536,250 exercisable options under
the Executive Stock Option Plan and 16,000 exercisable options under the 1995
Stock Option Plan for Non-Employee Directors.
In 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 expire in August 1998.
The Company applies the measurement principles of 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 basic and diluted loss per share purposes
for 1997 and 1996 would have been increased by $3.8 million, or .23 per Common
share and $2.9 million, or $0.17 per Common share, respectively. 1995 pro forma
net income for earnings per share basic and diluted purposes would have
decreased by $2.2 million or $0.14 per Common share (basic) and $.11 per share
(diluted).
In November 1997, 6,616,367 warrants, exercisable at $2.25 per share, were
issued in connection with the Company's $20 million private placement. These
warrants expire in November 2007.
40
<PAGE> 41
Activity in the 1991 Plan and Executive 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
Options granted 2,856,766 3.24
Options exercised (22,934) 3.40
Options canceled (1,341,772) 6.14
---------- -----
Balance, December 31, 1997 3,623,467 $4.29
========== =====
</TABLE>
Stock options outstanding at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Range of Weighted Average Weighted
Exercise Number Remaining Average
Prices Outstanding Contractual Life Exercise Price
<S> <C> <C> <C>
$2.39- 5.50 2,642,717 9.0 years $3.25
5.51-11.00 980,750 8.2 years 7.09
----------- --------- --------- -----
$2.39-11.00 3,623,467 8.9 years $4.29
=========== ========= ========= =====
</TABLE>
The weighted average fair value of options granted during 1997, 1996 and
1995 were $1.35, $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 1997, 1996 and 1995: dividend yield
of 0%; expected volatility of 45%; risk-free interest rates of 5.3% in 1997,
6.5% in 1996 and 5.4% in 1995; and expected lives of four years.
18. 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 1,303 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 $3.70 per Common share.
During 1997, 617.7 shares of Series A stock were converted into 1,235,400
common shares. Each remaining share of Series A stock is convertible into 2,000
shares of the Company's common stock.
41
<PAGE> 42
19. BENEFIT PLANS:
The Company maintains a defined contribution savings and investment
retirement plan under section 401(k) of the Internal Revenue Code in which all
employees are eligible to participate after completing three 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.
The Company maintains an employee stock purchase plan whereby up to 500,000
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 1997
and 1996, a total of 191,601 and 145,730 shares, respectively, were purchased
under the plan. 93,487 shares remain available for purchase under this plan.
20. SUPPLEMENTAL CASH FLOWS DISCLOSURES:
Interest paid was $4.1 million, $5.2 million and $2.0 million in 1997,
1996 and 1995, respectively. Income tax paid was $23,000 in 1997, $364,000 in
1996 and $1.7 million in 1995.
During 1997, 1996 and 1995, capital lease obligations of $601,000, $6.5
million and $2.1 million were incurred when the Company entered into a financing
lease for equipment purchases.
42
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company previously filed a Form 8-K and a Form 8-K/A on December 24,
1996 and January 9, 1997, respectively, regarding the above matters.
43
<PAGE> 44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information with respect to the Company's directors will be contained
in the Company's definitive proxy statement with respect to the Company's 1998
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission within 120 days following the end of the Company's fiscal year, and
is hereby incorporated by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1998 Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year and is hereby incorporated by reference
thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1998 Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year and is hereby incorporated by reference
thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's 1998 Annual Meeting of Stockholders, to
be filed with the Securities and Exchange Commission within 120 days following
the end of the Company's fiscal year and is hereby incorporated by reference
thereto.
44
<PAGE> 45
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------
(a)(1) The following financial statements are included in Part II, Item 8:
Reports of Independent Auditors
Financial Statements:
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) The following financial schedule is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
(3) Exhibits included herein:
2.1 Agreement and Plan of Merger dated 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 (8)
4.1 Form of Warrant to Purchase Common stock (6)
4.2 Indenture dated January 29, 1998 between Submicron Systems
Corporation, a Delaware Corporation, and United States Trust
Company of New York, a New York Corporation (10)
4.3 Purchase Agreement dated November 26, 1997, regarding 12%
Senior Subordinated Notes due February 2002 and Warrants,
including Form of Note (9)
4.4 Warrant Agreement dated November 26, 1997, including Form of
Warrant (9)
45
<PAGE> 46
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 Stockholder Agreement dated November 26, 1997(9)
10.6 Employment Agreement between the Company and James S. Molinaro (1)(3)
10.7 Employment Agreement between the Company and David J. Ferran.
10.8 Employment Agreement between the Company and John W. Kizer.
10.9 Employment Agreement between the Company and David W. Dedman.
10.10 Lease Agreement, as amended, dated as of January 16, 1992, between
Rouse and Associates ("Rouse") and SSC, as amended by Letter Agreement
dated February 13, 1992, between Realprop Management, Inc.,
(an affiliate of Rouse) and SubMicron (1)
10.11 Loan and Security Agreement among Greyrock Business Credit, a division
of Nations Credit Commercial Corporation, Submicron Systems, Inc. and
Submicron Wet Process Systems, Inc. dated November 25, 1997.
10.12 Tax Indemnification Agreement dated May 22, 1992, among SubMicron,
David F. Levy and James S. Molinaro (1)
10.13 Indemnity Agreement, dated April 1992, by and among SubMicron, David
Levy and James Molinaro (1)
10.14 Agreements of Sale and Purchase, dated February 23, 1996, between
D&M Properties and the Company (6)
10.15 Form of Subordinated Note and Preferred Stock Purchase Agreement(8)
10.16 Asset Purchase Agreement among Submicron Systems Corporation, Systems
Chemistry Incorporated and The BOC Group, Inc.
21 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Ireland, Sanfilippo & Company
27 Financial Data Schedule
- -----------------
(1) Incorporated by reference to an Exhibit filed as part of the Company's
Registration Statement on Form S-4, File No. 33-64500.
(2) Incorporated by reference to an Exhibit filed as part of the Company's
Current Report on Form 8- K and dated February 28, 1995.
(3) Constitutes a compensatory plan or arrangement required to be filed as an
exhibit to this Form.
46
<PAGE> 47
(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, 1995.
(7) Incorporated by reference to an Exhibit filed as part of the Company's
Current Report on Form 8-K/A and dated January 9, 1997.
(8) 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, 1996.
(9) Incorporated by reference to an Exhibit filed as part of the Company's
Current Report on Form 8-K and dated November 26, 1997.
(10) Incorporated by reference to an Exhibit filed as part of the Company's
Registration Statement on Form S-4, File No. 333-38741.
(b) Reports on Form 8-K:
8-K filed November 26, 1997
47
<PAGE> 48
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, 1997:
Allowances for doubtful
accounts receivable $1,297,000 $813,000 $(90,000) $(1,075,000) $ 945,000
================ ================ ======== =========== =============
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
================ ================ ======== =========== ==============
</TABLE>
48
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SUBMICRON SYSTEMS CORPORATION
By: /s/David J. Ferran
---------------------------------
David J. Ferran, President
Date: April 15, 1998
Pursuant to the requirements to the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/David J. Ferran President and Director April 15, 1998
----------------------
David J. Ferran (Principal Executive Officer)
/s/John W. Kizer Chief Financial Officer April 15, 1998
----------------------
John W. Kizer (Principal Financial and
Accounting Officer)
/s/Mark R. Benham Director April 15, 1998
----------------------
Mark R. Benham
/s/Ronald B. Booth Director April 15, 1998
----------------------
Ronald B. Booth
/s/Michael H. Khougaz Director April 15, 1998
----------------------
Michael H. Khougaz
/s/Barry W. Ridings Director April 15, 1998
----------------------
Barry W. Ridings
/s/Leonard R. Weisberg Director April 15, 1998
----------------------
Leonard R. Weisberg
/s/Donald Zito Director April 15, 1998
----------------------
Donald Zito
</TABLE>
49
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is made as of the 6th day of May
1997, by and between SUBMLCRON SYSTEMS CORPORATION, a Delaware corporation (the
"Company"), and DAV1D J. FERRAN ("EXECUTIVE"). THE Company and Executive are
hereinafter collectively referred to as the "Parties," and individually
referred to, as a "Party."
RECITALS
A. The Company desires assurance of the association and services of
Executive in order to retain Executive's experience, skills, abilities,
background and knowledge, and is willing to engage Executive's services on the
terms and conditions set forth in this Agreement.
B. Executive desires to be in the employ of the Company, and is willing to
accept such employment on the terms and conditions set forth in this Agreement.
AGREEMENT
In consideration of the foregoing premises and the mutual covenants herein
contained, and for other good and valuable consideration, the Parties,
intending to be legally bound, agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive hereby
accepts employment by the Company, upon the terms and conditions set forth in
this Agreement.
2. POSITION AND RESPONSIBILITIES.
(a) DUTIES. The Company shall employ Executive in the capacities of
President and Chief Executive Officer and such other mutually acceptable
executive positions as the Board of Directors of the Company (the "Board") and
Executive may determine, and Executive shall serve as such for the term and
under other conditions hereinafter set forth, in addition, on or before the
Effective Date (as defined below) the Company shall appoint Executive as a
director of the Company, and so long as Executive holds the position of Chief
Executive Officer, the Company shall nominate Executive for election as a
director at all meetings of the Company's stockholders at which directors of
Executive's class of director are to be elected and shall use reasonable
efforts to cause Executive to be elected as a director of the Company at such
meetings; provided, however, Executive agrees to tender his resignation as a
director of the Company upon his termination of employment with the Company.
Executive shall devote his full business time and attention to the performance
of such services as are customary for a president and chief executive officer
of a company and of such other services as may be necessarily requested by the
Board that are consistent with those required of a president and chief
executive officer of a company.
<PAGE> 2
(b) COMPANY PROPERTY. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, or any other materials or data of any kind furnished to
Executive by the Company or developed by Executive on behalf of the Company or
at the Company's direction or for the Company's use or otherwise in connection
with Executive's employment hereunder, are and shall remain the sole and
confidential property of the Company; if the Company requests the return of
such materials at any time during or at or after the termination of Executive's
employment, Executive shall immediately deliver the same to the Company.
(e) NONCOMPETITION, TRADE SECRETS, ETC.
(i) During the term of this Agreement and for a period after the
termination of his employment with Company for any reason equal to the greater
of (x.) one year or (y) the period of time Executive is receiving payments or
benefits pursuant to this Agreement (but in any event not to exceed 18 months
or in the event such termination of employment 'follows, or is deemed to
follow, a Change of Control (as defined below), 12 months), Executive shall
not, directly or indirectly. solicit, induce, encourage or attempt to influence
any client, customer, employee, consultant, independent contractor, salesman or
supplier of the Company to cease to do business or terminate his employment
with the Company, and shall not engage in (as a principal, partner, director,
officer, agent, employee, consultant or otherwise) or be financially interested
in any business operating anywhere in the world which is involved in business
activities which are the same as or in competition with business activities
carried on by the Company, or being definitively planned by the Company at the
time of the termination of Executive's employment. However, nothing contained
in this Section 2(c) shall prevent Executive from (A) holding for investment
(no more than 5% of any class of equity securities of a company whose
securities are publicly traded or (B) hiring an employee of the Company who
approached Executive of the employee's own accord without Executive violating
any of the above provisions of this Section 2(c)(i). The covenant in this
Section 2(c)(i) is not limited geographically because the Company's business is
international, and Executive acknowledges that he will be performing duties
that are international in scope.
(ii) During the term of this Agreement and at all times thereafter,
Executive shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Section 2(b) above or any confidential and/or proprietary information regarding
the business methods, business policies and procedures, techniques, research or
development projects or results, trade Secrets, or Other knowledge or processes
of or developed by the Company or any names and addresses of customers or
clients or any data on or relating to past, present or prospective customers or
clients or any other confidential information relating to or dealing with the
business operations or activities of the Company, made known to Executive or
<PAGE> 3
learned or acquired by Executive while in the employ of the. Company.
Notwithstanding the foregoing, it is understood that this Section 2(c)(ii) is
not intended to cover information that is generally known in the trade or
industry (other than through a breach of this Agreement) or information that is
not gained as a result of a breach of this Agreement, and his own skill and
experience.
(iii) Any and all writings, inventions, improvements processes and/or
techniques which Executive may make, conceive, discover or develop, either
solely or jointly with any other person or persons, at any time during the term
of this Agreement, whether during working hours or at any other time and
whether at the request or upon the suggestion of the Company or otherwise,
which relate to or are useful in connection with any business now or hereafter
carried on or contemplated by the Company, including developments or expansions
of its present fields of operations, shall be the sole and exclusive property
of the Company. Executive shall make full disclosure to the Company of all such
writings, inventions, improvements, processes, procedures and techniques, and
shall do everything necessary or desirable to vest the absolute title thereto
in the Company. Executive shall write and prepare all specifications and
procedures regarding such inventions, improvements, processes, procedures and
techniques and otherwise aid and assist the Company so that the Company can
prepare and present applications for copyright or Letters Patent therefor and
can secure such copyright or Letters Patent wherever possible, as well as
reissues, renewals, and extensions thereof, and can obtain the record title to
such copyright or patents so that the Company shall be the sole and absolute
owner thereof in all countries in which it may desire to have copyright or
patent protection. Executive shall not be entitled to any additional or special
compensation or reimbursement regarding any and all such writings, inventions,
improvements, processes, procedures and techniques.
(iv) Executive acknowledges that the restrictions contained in the
foregoing subsections (i), (ii) and (iii), in view of the international nature
of the business in which Company is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Company, and that any
violation thereof. would result in irreparable injuries to the Company, and
Executive therefore acknowledges that, in the event of his violation of any of
these restrictions, the Company shall be entitled to obtain & from any court of
competent jurisdiction preliminary and permanent injunctive relief as well as
damages and an equitable accounting of a11 earnings, profits and other benefits
arising & from such violation, which rights shall be cumulative and in addition
to any other rights or remedies to which the Company may be entitled. Executive
further acknowledges and represents that he possesses skill and ability which
can be applied in business areas which do not compete with the Company, and
therefore the restrictions contained in this Agreement will not prevent him
from securing gainful employment after termination of this Agreement.
<PAGE> 4
(v) If the period of time or the area specified in subsection (i) above
should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such number of months or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjudged to be reasonable. If
Executive violates any of the restrictions contained in the foregoing
subsection (i), the restrictive period shall not run in favor of Executive from
the time of the commencement of any such violation until such time as such
violation shall be cured by Executive to the satisfaction of Company.
(vi) For purposes of Sections 2(b) and 2(c) of this Agreement, the term
"Company" shall mean SubMicron Systems Corporation and its direct and indirect
subsidiaries.
3. TERM OF EMPLOYMENT. This Agreement shall become effective as of May 6, 1997
(the "Effective Date") and shall remain in effect until Executive's employment
is terminated in accordance with Section 6; provided, however, that the
provisions of Sections 2(b), 2(c), 6(d)(iii), 7, 8 and 9 shall survive such
termination.
4. PLACE OF PERFORMANCE. In connection with this Agreement, Executive shall
maintain an office at the Company's current principal executive offices in
Allentown, Pennsy1vania.
5. SALARY, BONUS, EXPENSES AND BENEFITS.
(A) SALARY. While employed by the Company, the Company shall pay Executive
a salary of $333,333 per year, payable in regular periodic payments in
accordance with the Company policy. Such salary shall be prorated for any
partial year of employment on the basis of a 365-day fiscal year, Executive's
salary shall be reviewed (if appropriate) at least annually by the Compensation
Committee of the Board (the "Committee") and may, at the Committee's sole
discretion, be adjusted based upon Executive's job performance, the Company's
financial condition and performance and the salary and compensation levels of
executives in similar companies with similar responsibilities but in any event
not less than $333,333 per year without Executive's prior written consent.
(B) BONUSES.
(i) The Company shall pay Executive a cash bonus of $30,000 on the
Effective Date in consideration of Executive's time and expenses incurred with
respect to the Company prior to the Effective Date.
(ii) The Committee may, in its sole discretion and without the vote of
Executive (if Executive is a member of the Committee), award bonus or other
performance-based compensation to Executive.
<PAGE> 5
(C) OPTIONS. The Company shall grant Executive no later than the Effective Date
an option to purchase 1,000,000 shares of the Company's Common Stock (the
"Stock Option") at an exercise price equal to the fair market value of the
Common Stock on the date of grant in the form attached hereto as Exhibit A. The
Company shall promptly file with the Securities and Exchange Commission, and
during the term of the Stock Option maintain the effectiveness of, a Form S-8
registration statement (or another form of registration statement if such form
is not available) covering all of the shares of Common Stock subject to the
Stock Option.
(D) RELOCATION ASSISTANCE. The Company will provide Executive with the
following relocation assistance: (i) the Company shall reimburse Executive for
all reasonable expenses associated with the sale of Executive's residence in
Del Mar, California, including the Realtor's commission. any attorneys' fees
and expenses and any transfer or stamp taxes; (ii) the Company shall reimburse
Executive for the cost of round- trip airfare for up to three return trips for
Executive's spouse and one trip for Executive's children &from Del Mar,
California to Allentown, Pennsylvania; (iii) the Company shall reimburse
Executive for all reasonable expenses incurred by Executive in acquiring a
residence in or near Allentown, Pennsylvania, including any fees or "points"
paid to the lender for a loan to fund such acquisition, all costs associated
with any inspection or reports on such residence and any attorneys' fees and
expenses; (iv) the Company shall reimburse Executive for a]1 reasonable
expenses incurred by Executive in connection with packing and moving his
personal property from Del Mar, California to Allentown, Pennsylvania,
including the costs of transporting his automobiles and horses; (v) the Company
shall reimburse Executive for his and his immediate fami1y's reasonable travel
expenses in connection with their relocation to Pennsylvania; and (vi) the
Company shall reimburse Executive for any reasonable temporary housing in or
about Allentown, Pennsylvania (for up to 90 days) or storage of personal
property pending Executive's occupancy of a permanent residence. In addition,
the Company shall gross-up any reimbursement payments to or on behalf of
Executive pursuant to this Section 5(d) so as to hold Executive harmless & from
any adverse federal, state or local tax effect.
(E) PARTICIPATE IN WELFARE AND BENEFIT PLANS. Executive shall be entitled
to participate in, personally and/or for the benefit of his family or other
beneficiaries, any welfare, insurance, pension or other employment benefit
plans as are at the time made generally available to other executives of the
Company to the same extent as generally made available to such executives,
Executive shall be eligible to receive during the term hereof all benefits for
which executives of the Company are eligible under every such plan or program
to the extent permissible under the general terms and provisions of such plans
or programs and in accordance with the provisions thereof.
(F) VACATION. Executive shall be entitled to six weeks' vacation time each
year, during which time his compensation shall be paid in full. Unless
otherwise directed by the Committee, Executive shall have the discretion to
take vacation time on the dates he determines to be appropriate and not
detrimental to the Company.
<PAGE> 6
(G) HOLIDAYS, LEAVE DAYS, ETC. Executive shall be entitled to such
holidays, sick leave, leaves of absence and other absences as are at the time
made generally available to other executives of the Company of comparable
tenure and positions.
(H) AUTOMOBILE. During the term of this Agreement, the Company shall make
an automobile available to Executive under such terms and conditions as are
presently applied or may be applied from time to time to other executives of
the Company of comparable tenure and position. In connection therewith, the
Company shall bear all reasonable expenses relating to such automobile,
including insurance, maintenance and repair, gas and oil. Upon termination of
this Agreement (other than by the Company without cause or by Executive for
good reason, in which case Section 7(c) shall govern). The Company shall offer
Executive the right to purchase the automobile then being operated by Executive
at the depreciated value of such automobile or to assume the Company's lease of
such automobile and shall execute and deliver to Executive all documentation
necessary to establish Executive's ownership or leasing of such automobile upon
proper payment or assumption thereof.
(I) LIFE INSURANCE. If the Company maintains group life insurance, the
Company shall pay for and provide life insurance for each year of this
Agreement for the benefit of Executive under the Company's group life insurance
plan to the same extent as other executives of the Company.
(J) HEALTH INSURANCE. The Company shall provide medical, dental and vision
insurance for Executive under the Company's insurance plan(s).
(K) DISABILITY INSURANCE. The Company shall provide disability insurance
for Executive pursuant to the Company's directors' and officers' disability
policy according to the Company's policy established by the Committee, if the
Company maintains such insurance.
(I) PROFESSIONAL SOCIETY DUES AND SUBSCRIPTIONS. The Company shall pay for
Executive's membership in professional societies and similar organizations and
subscriptions that Executive reasonably determines are necessary or customary
for his position, including membership in airline clubs and the Young
Presidents Organization ("YPO"). Such amounts to be paid for by the Company
include all membership fees and all reasonable out-of-pocket expenses
associated with Executive's attendance at YPO chapter meetings, retreats and
universities during the term of this Agreement.
(M) REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse
Executive, on a monthly basis, for reasonable travel entertainment, promotional
and other expenses incurred by Executive in the performance of his obligations
under this Agreement. Executive must submit timely detailed expense reports for
appropriate review prior to reimbursement.
(N) OTHER FRINGE BENEFITS. Executive shall be entitled to any and all
other &fringe benefits according to the Company's policy as set by the
Committee.
<PAGE> 7
(O) INDEMNITY AGREEMENT, On or before the Effective Date, the Company and
Executive shall enter into an Indemnity Agreement in the form attached hereto
as Exhibit B. In addition, the Company shall maintain a policy of directors'
and officers' liability insurance covering Executive in accordance with policy
limits and other terms to be determined by the Board.
(P) COMPENSATION COMMITTEE If & from time to time there is no committee of
the Board designated as the "Compensation Committee," the references to the
"Committee" herein shall be deemed to be references to the Board (or other
committee established by the Board for purposes of administering this
Agreement) for purposes of interpretation of provisions of this Agreement
applicable during such times.
6. TERMINATION OF EMPLOYMENT. Executive's employment under this Agreement may
be terminated by the Company or Executive as herein provided, without further
obligation or liability except as expressly provided in this Agreement.
(A) RESIGNATION, DEATH OR DISABILITY. Executive's employment hereunder
shall be terminated at any time by Executive's resignation. (other than a
resignation for good reason as provided in Section 6(d)), or by Executive's
death or disability. In the event Executive wishes to resign, he shall give the
Board not less than 30 days prior notice of such resignation, which notice
shall indicate the proposed resignation date. Following receipt of such notice,
the Company, through an action by its Board, shall have the right to accelerate
6e date of Executive's resignation and to cause his resignation to become
effective at any time prior to the resignation date set & forth in Executive's
original notice; provided, however, that such acceleration or changed effective
date of resignation shall not affect in any manner the delivery of any benefits
or payments to which Executive may be entitled under Section 7 of this
Agreement. For purposes of this Agreement, disability shall be deemed to have
occurred only after the following procedure has been satisfied. If within 30
days after notice of proposed termination for disability is given to Executive
by the Company, Executive has not returned to the performance of substantially
all his duties, the Company may terminate Executive's employment by giving
notice of termination for disability. The notice of proposed termination may
only be given by the Company following Executive's substantial and material
absence & from Executive's duties by reason of physical or mental disability for
a period of 180 calendar days.
(B) TERMINATION FOR CAUSE. Executive's employment hereunder may be
terminated by the Company for cause. For purposes of this Agreement, "cause"
shall mean any of the following:
(i) Executive's willful breach or habitual neglect of his material duties
and responsibilities as an employee and officer of the Company; provided,
however, that merely unsatisfactory performance by Executive of such duties and
responsibilities shall not constitute "cause" for purposes of this Agreement;
and provided further that Executive has received written notice of such breach
or neglect from the Board, has had an opportunity to respond to the notice in a
meeting with the Board or a duly appointed committee thereof, and has failed to
substantially cure such breach or neglect within 30 days of such notice;
<PAGE> 8
(ii) a material violation by Executive of Section 2(b) or 2(c) of this
Agreement; provided that Executive has received written notice of such event
from the Board, has had an opportunity to respond to the notice in a meeting
with the Board or a duly appointed committee thereof and bas not cured such
violation within 30 days following notice thereof;
(iii) conviction of Executive of any felony materially and negatively
affecting the Company's business; or
(iv) fraud, breach of trust or other act of dishonesty materially and
negatively affecting the Company's business; provided that Executive has
received written notice of such event Q-from the Board, and has had an
opportunity to respond to the notice in a meeting with the Board or a duly
appointed committee thereof. Any notice of termination given pursuant to this
Section 6(b) shall effect termination as of the date specified in such notice
or, in the event no such date is specified, on the last day of the month in
which such notice is delivered or deemed delivered as provided in Section 9 (j)
below.
(C) TERMINATION WITHOUT CAUSE. The Company shall have the right,
exercisable at any time during the term of this Agreement on a written notice
to Executive, to terminate Executive's Employment without cause upon 30 days
prior notice. If Executive's employment is terminated without cause, he shall
be entitled to receive the severance benefits pursuant to Section 7(c).
(D) RESIGNATION FOR GOOD REASON.
(i) During the term hereof, Executive may regard Executive's Employment as
being constructively terminated and may, therefore, resign within 30 days of
Executive's discovery of the occurrence of one or more of the following events,
any of which will constitute "good reason" for such resignation:
(1) a change in Executive's status, title, position or responsibilities
(including reporting responsibilities) which, in Executive's reasonable
judgment, represents a material adverse change from his status, title, position
or responsibility as provided for in this Agreement; the assignment to
Executive of any duties or responsibilities which, in Executive's reasonable
judgment, are inconsistent with his status, title, position or responsibilities
as provided for in this Agreement; or any removal of Executive from or failure
to reappoint or re-elect him to any of such offices or positions, except in
connection with the termination of his employment for cause or as a result of
his resignation, death or disability in accordance with the other provisions of
this Section 6;
(2) the Company's requiring Executive to be based at any place outside a
25-mile radius from Executive's primary place of employment, except for
reasonably required travel on the Company's business;
<PAGE> 9
(3) any material breach by the Company of my material provision
of this Agreement;
(4) a material breach by the Company of any material provision of
the Stock Option; or
(5) the failure of the Company to obtain an agreement,
satisfactory to Executive, from any Successors and Assigns to assume and agree
to perform this Agreement, as contemplated in Section 9(d) hereof.
(ii) In the event of the occurrence of any of the events or conditions
described in clauses (l) through (5) of Section 6(d)(i) and in the event
Executive wishes to resign on the basis of occurrence of such event, Executive
shall give the Company notice of his proposed resignation within 30 days of the
discovery of such event, and, except as provided in Section 8(a)(ix), the
Company shall have 30 days following its receipt of such notice to remedy the
breach or occurrence giving rise to such proposed resignation, following which,
if the Company fails to so remedy said breach or occurrence, Executive &all be
deemed to have resigned &from his employment with the Company for good reason
pursuant to this Section 6(d).
(iii) Any event or condition described in clauses (l) through (5) of
Section 6(d)(i) which occurs prior to a Change in Control but which Executive
reasonably demonstrates was at the request of a Third Party (as defined below),
or otherwise arose in connection with, or in anticipation of, a Change in
Control which actually occurs, shall be deemed to have occurred after the Change
in Control for purposes of Section 8,
(iv) Executives right to terminate his employment pursuant to this
Section 6(d) shall not be affected by his incapacity due to disability.
(E) TERMINATION OBLIGATIONS. Executive here acknowledges and agrees that
all personal property of the Company, including>, without limitation. all books,
manuals, records, reports, notes, contracts, lists, and other documents,
proprietary information, copies of any of the foregoing, and equipment furnished
to or prepared by Executive in the course of or incident to his employment,
belong to the Company and shall be promptly returned to the Company upon.
termination of his employment for any reason. Executive shall retain the rights
to remove all of his personal property from the premises of the Company and any
personal property of the Company as may be mutually agreed upon between the
Company and Executive,
<PAGE> 10
7. PAYMENTS TO EXECUTIVE UPON TERMINATION.
(A) DISABILITY OR DEATH. In the event of termination of Executive's
employment because of disability or death, the Company shall pay Executive or
Executive's estate, as applicable, all accrued salary and a pro rata position
of the maximum potential annual bonus (if Executive is a participant in a plan
or other arrangement that provides for a maximum or a target bonus), and all
benefits generally available to the Company's executives as of the date of such
an event as determined by the Committee shall be payable to Executive or
Executive's estate, without reduction, in accordance with the terms of any
plan, contract, understanding or arrangement forming the basis for such
payment, including but not limited to, payments under the plans identified in
Section 5(c). Executive shall be entitled to such other payments as might arise
&from any plan, contract, understanding or arrangement between Executive and
the Company at the time of any such event pursuant to Section 5(e), (i), or (k)
hereof.
(B) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. In the event
Executive's employment is terminated by the Company for cause as provided in
Section 6(b) or Executive resigns for other than good reason as defined in
Section 6(d), the Company shall have no further obligation or liability of any
nature to Executive under this Agreement or otherwise, except to the extent
provided in any plan identified in Section S(e), or in Section 8 or as may be
expressly required by law.
(C) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. In the event
Executive's employment is terminated by the Company without cause, or Executive
resigns for good reason as defined in. Section 6(d), the Company shall pay to
Executive in a lump-sum payment the greater of (x) the amount, if any, by which
$1 million exceeds the total amount paid to Executive in salary under this
Agreement and (y) the sum of (A) Executive's salary for 18 months at the rate
paid to Executive immediately prior to such event and (B) an amount equal to
the bonus actually paid to Executive by the Company for the preceding fiscal
year. The Company shall also continue to provide to Executive, at the Company's
expense, those benefits to which Executive was entitled immediately prior to
such event pursuant to Section 5(j) for 18 months following such event. In
addition, subject to more favorable provisions such as that required by Section
S(c), any options to purchase the capital stock of the Company held by
Executive, including the Stock Option, which would vest in the 18 months
following termination of Executive's employment shall vest immediately as of
the date of such termination.
(D) PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL. In the event that
Executive is entitled to receive payments upon termination of employment
pursuant to Section 8 hereof, the provisions of Section 8 shall determine all
amounts and other rights of Executive upon termination of employment, and the
provisions of Section 7(a)-(c) shall not be applicable.
<PAGE> 11
S. CHANGE IN CONTROL.
(a) DEFINITIONS.
(i) Accrued Compensation. For purposes of this Section 8, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" as defined below but not paid as of the
Termination Date including (A) base salary, (B) reimbursement for reasonable
and necessary expenses incurred by Executive on behalf of the Company ending on
the Termination Date, (C) vacation and sick leave pay (to the extent provided
by the Company policy or applicable law), and (D) bonuses and incentive
compensation (other than the "Pro Rata Bonus" (as defined below)3.
(ii) Base Amount. For purposes of this Section 8, "Base Amount" shall mean
the greater of (A) Executive's annual base salary at the rate in effect
immediately prior to the Change in Control and (B) Executive's annual base
salary at the rate in effect on the Termination Date, and shall include all
amounts of his base salary that are deferred under the qualified and
non-qualified employee benefit plans of the Company or any other agreement or
arrangement.
(iii) Bonus Amount. For purposes of this Section 8, "Bonus Amount" shall
mean the greater of (A) Executive's maximum potential annual bonus without
giving effect to any pro ration) for the fiscal year in which a Change in
Control has occurred (if Executive is a participant in a plan or other
arrangement that provides for a maximum or a target bonus), (B) Executive's
maximum potential annual bonus (without giving effect to any pro ration) for
the fiscal year in which the Termination Date occurs (if Executive is a
participant in a plan or other arrangement that provides for a maximum or a
target bonus), and (C) the actual annual bonus paid to Executive in the fiscal
year immediately preceding the change of control.
(iv) Change in Control. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (as the
term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of thirty percent or more of the combined voting power of
the Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as defined below) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (1) an employee benefit plan (or a
trust forming a part thereof) maintained by (x) the Company or (y) any
corporation or other Person of which a majority of its voting power or its
equity securities or equity interest is owned directly or indirectly by the
Company (a "Subsidiary"), (2) the Company or any Subsidiary, or (3) any Person
in connection with a "Non-Control Transaction."
<PAGE> 12
(2) The individuals who, as of the date hereof, are members of the Board
(the "Incumbent Board"), cease for any reason to constitute at least two-thirds
of the Board; provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director was approved by a
vote of at least two-thirds of the then Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; provided further, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") including by reason of any agreement intended to avoid
or settle any Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
a. A merger, consolidation or reorganization involving the Company,
unless
i. the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly,
immediately following such merger, consolidation or reorganization, at least
seventy percent of the combined voting power of the outstanding Voting
Securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization. and
ii. the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing far such merger,
consolidation or reorganization constitute at least two-thirds of the members of
the board of directors of the Surviving Corporation or a corporation
beneficially owning directly or indirectly, a majority of the Voting Securities
of the Surviving Corporation, and
iii. no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of fifteen percent or more of the then outstanding Voting Securities)
owns, directly or indirectly, fifteen percent or more of the combined voting
power of the Surviving Corporation's then outstanding voting securities, and
iv. a transaction described in clauses i through iii shall
herein be referred to as a "Non-Control Transaction";
b. A complete liquidation or dissolution of the Company; or
<PAGE> 13
c. A sale or other liquidation of all or substantially all of the assets of
the Company to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by reducing
the number of Voting Securities outstanding, increases the proportional number
of shares Beneficially Owned by the Subject Person, provided that if a Change in
Control would occur (but for the operation of this sentence) as a result of the
acquisition of Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
(4) Notwithstanding anything contained in this Agreement to the contrary,
if Executive's employment is terminated prior to a Change in Control and
Executive reasonably demonstrates that such termination (i) was at the request
of a third party who has indicated an intention or takes steps reasonably
calculated to effect a Change in Control and who effectuates a Change in Control
(a "Third Party") or (ii) otherwise occurred in connection with, or in
anticipation of, a Change in Control which actually occurs, then for all
purposes of this Agreement, the date of a Change in Control with respect to
Executive shall mean the date immediately prior to the date of such termination
of Executive's employment.
(v) COMPANY. The "Company" shall include the Company's "Successors and
Assigns" (as defined below).
(vi) NOTICE OF TERMINATION. "Notice of Termination" shall mean a written
notice of termination of Executive's employment from the Company which indicates
the specific termination provision in this Agreement relied upon and which, if
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the provision
so indicated.
(vii) Pro Rata Bonus. "Pro Rata Bonus" shall have the meaning ascribed to
such term in any agreement between Executive and the Company or any of its
affiliates, or if no such agreement with respect to such term exists, shall mean
an amount equal to (a) the Bonus Amount, if any, multiplied by a fraction, (i)
the numerator of which is the number of days from the first day of the Company's
fiscal year in which Executive ceases to be employed by the Company until the
Termination Date, and (ii) the denominator of which is 365, less (b) any bonus
included in the Bonus Amount in respect of such fiscal year and previously paid.
(viii) SUCCESSORS AND ASSIGNS. "Successors and Assigns" shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Company whether by operation of law or otherwise.
<PAGE> 14
(ix) TERMINATION DATE. For purposes of this Section 8, "Termination Date"
shall mean (a) in the case of Executive's death, his date of death, (b) in the
case of good reason, the last day of his employment, and (c) in all other
cases, the date specified in the Notice of Termination; provided. however, that
if Executive's employment is terminated by the Company due to disability, the
date specified in the Notice of Termination shall be at least 30 days from the
date the Notice of Termination is given to Executive, provided that in the case
of disability Executive shall not have returned to the full-time performance of
his duties during such period of AT least 30 days.
(B) TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL.
(i) SEVERANCE PAY AND BENEFITS. If, during the term of this Section 8,
Executive shall cease to be employed by the Company prior to the expiration of
15 months after the occurrence of a Change in Control, in lieu of the payments
and benefits described in Section 7, Executive shall be entitled to the
following compensation and benefits:
(1) During the period commencing on the date of the Change in Control and
ending on the 90th day thereafter (the "Window Period"), if Executive's
employment with the Company shall be terminated, whether by means of
Executive's death or for his disability, or at the instigation of Executive or
the Company, with or without cause, for good reason or not, Executive shall be
entitled to the following:
A. The Company shall pay Executive all Accrued Compensation and a Pro-Rata
Bonus, provided, that if Executive's employment is terminated prior to the
third anniversary of the Effective Date, the Company shall also pay Executive
in a single payment the amount, if any, by which $1 million exceeds the total
amount paid to Executive in salary under this Agreement (including salary paid
as part of Accrued Compensation pursuant to this paragraph a, but excluding all
other components of Accrued Compensation and all other amounts to be paid to
Executive pursuant to this Section 8(b)(i)(l));
B. The Company shall pay Executive as severance pay and in lieu of any
further compensation for periods subsequent to the Termination Date, in a
single payment an amount in cash equal to two and one-half times the sum of (A)
The Base Amount and (B) the Bonus Amount; and
C. For a number of months equal to 30 (the "Continuation Period"), the
Company shall at its expense continue on behalf of Executive and his dependents
and beneficiaries the benefits described 1n Section 5(j) provided (x) to
Executive at any time during the 90-day period prior to the Change in Control
or at any time thereafter or (y) to other senior executives who continue in the
employ of the Company during the Continuation Period. The coverage and benefits
(including deductibles and costs) provided in this paragraph c during the
Continuation Period shall be no less favorable to Executive and his dependents
and beneficiaries, than the most favorable of such coverages and benefits
described in clauses (x) and
<PAGE> 15
(y) herein. The Company's obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that Executive obtains any such
benefits pursuant to a subsequent employer's benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to provide
Executive hereunder as long as the aggregate coverages and benefits of the
combined benefit plans is no less favorable to Executive than the coverages and
benefits required to be provided hereunder. This paragraph c shall not be
interpreted so as to limit any benefits to which Executive, his dependents or
beneficiaries may be otherwise entitled under any of the Company's employee
benefit plans, programs or practices following termination of Executive's
employment, including without limitation, retiree medical and life insurance
benefits, if any.
(2) After the expiration of the Window Period and prior to the expiration
of 15 months after the occurrence of the Change in Control, if Executive's
employment with the Company shall be terminated (other than by reason of
Executive's death and other than for disability) (x) by the Company for any
reason other than for cause or (y) by Executive as a result of resignation for
good reason, Executive shall be entitled to the compensation and benefits
described in paragraphs a through c of Section 8(b)(i)(l) above.
(3) After the expiration of the Window Period and prior to the expiration
of 15 months after the occurrence of the Change of Control, if Executive's
employment with the Company shall be terminated (x) by reason of Executive's
death or (y) for disability or (z) by Executive by resignation other than for
good reason, the Company shall pay to Executive the Accrued Compensation plus
the Pro Rata Bonus.
(4) After the expiration of the Window Period and prior to the expiration
of 15 months after the occurrence of the Change of Control, if Executive's
employment with the Company shall be terminated by the Company for cause, the
Company shall pay to Executive the Accrued Compensation.
(II) PAYMENT FORM. The amounts provided for in Sections 8(b)(i) and
paragraphs a and b of Section 8(b)(i)(1) shall be paid in a single lump sum
cash payment within five days after Executive's Termination Date (or earlier,
if required by applicable law).
(III) NO MITIGATION. Executive Shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to Executive in any subsequent
employment.
(IV) OTHER SEVERANCE ARRANGEMENTS. Whether or not any Change in Control
shall occur, the following shall apply:
(1) This Agreement shall continue in full force and effect in accordance
with its terms.
<PAGE> 16
(2) Executive's entitlement to any other compensation or benefits or any
indemnification shall be determined in accordance with the Company's employee
benefit plans, bonus plan and other applicable programs, policies and practices
or any indemnification agreement then in effect.
(C) NOTICE OF TERMINATION. Following a Change in Control, any purported
termination of Executive's employment by either party shall be communicated by
Notice of Termination to the other party. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
(D) EXCISE TAX LIMITATION.
(i) Notwithstanding anything contained in this Agreement to the contrary,
to the extent that any payment or distribution of any type to or for the
benefit of Executive (the "Severance Benefit") would be subject to the excise
tax (the "Excise Tax") imposed under Section 4999 of the Code, the Severance
Benefit shall be reduced (but not below zero) if and to the extent that a
reduction in the Severance Benefit would result in Executive retaining a larger
amount, on an after-tax basis (taking into account federal, state and local
income taxes and the Excise Tax), than if Executive received the entire amount
of such Severance Benefit. Unless Executive shall have given prior written
notice specifying a different order to the Company to effect the foregoing, the
Company shall reduce or eliminate the Severance Benefit, by first reducing or
eliminating the portion of the Severance Benefit which is not payable in cash
and then by reducing or eliminating cash payments, in each case in reverse
order beginning with payments or benefits which arc to be paid the farthest in
time & from the Determination (as defined below).
(ii) The initial determination of whether the Severance Benefit shall be
reduced as provided in Section 8(d)(i) and the amount of such reduction shall
be made at the Company's expense by an accounting firm selected by the Company
from among the six largest accounting firms in the United States (the
"Accounting Firm"). The Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation to the Company and Executive Within ten days of the Termination
Date. If the Accounting Firm determines that no Excise Tax is payable by
Executive with respect to a Severance Benefit, it shall furnish Executive with
an opinion reasonably acceptable to Executive that no Excise Tax will be
imposed with respect to any such Severance Benefit, and such Determination
shall be binding, final and conclusive upon the Company and Executive. If the
Accounting Firm determines that an Excise Tax Would be payable, Executive shall
have the right to accept the Determination of the Accounting Firm to the
extent of the reduction, if any, pursuant to Section 8(d)(i), or to have such
Determination reviewed by an accounting firm selected by Executive, at the
expense of the Company, in which case the determination of such second
accounting firm shall be binding, final and conclusive upon the Company and
Executive.
<PAGE> 17
(E) NON-EXCLUSIVITY OF RIGHTS. Nothing in this Section 8 Shall prevent or
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices (other than
such policies, plans, programs or practices set forth in this Agreement, which
in accordance with Section 8(b)(iv)(1) and subject to Section 9(a), shall
continue in full force and effect)) and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive may have under
any other agreements with the Company (except for any severance or termination
agreement). Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan or program of the Company shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement.
9. GENERAL PROVISIONS.
(A) ENTIRE AGREEMENT. The terms and provisions of this Agreement shall
constitute the entire understanding between Executive and the Company with
respect to the subject matter hereof, and shall supersede any and all prior
agreements or understandings between Executive and the Company, whether written
or oral.
(B) AMENDMENTS. This Agreement may be amended or modified only by a
written instrument executed by Executive and the Company.
(C) ASSIGNMENT. The rights or obligations contained in this Agreement
shall not be assigned, transferred, or divided in any manner by Executive or
the Company, without the prior written consent of the other; provided, however,
that nothing in this Section 9(c) shall preclude Executive from designating a
beneficiary to receive any benefits hereunder upon his death, or the executors,
administrators or other legal representatives of Executive or his estate from
assigning any rights hereunder to the person(s) entitled hereto.
(D) SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of the Company, its Successors and Assigns, and the Company shall
require any Successors and Assigns to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession or assignment had taken place.
(E) FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses reasonably incurred by Executive as they become due in connection with
the preparation, negotiation and execution of this Agreement.
(F) GOVERNING LAW. This Agreement shall be governed by, interpreted and
enforced in accordance with Pennsylvania law as such laws are applied to
agreements between Pennsylvania residents entered into and to be performed in
Pennsylvania.
<PAGE> 18
(G) SEVERABILITY. In the event that any terms or provisions of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining terms and provisions hereof.
(H) WAIVER OF BREACH. Any waiver of any breach of employment terms set
forth herein shall not be construed to be a continuing waiver of consent to any
subsequent breach on the part of either Executive or the Company.
(I) HEADINGS. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation and
performance of any of the provisions of this Agreement.
(J) NOTICES. All notices, requests, demands and other communications
hereunder (including any Notice of Termination) shall be in writing and shall
be deemed to have been duly given if personally delivered or if mailed by
United States certified or registered mail, prepaid, to the parties or their
permitted assignees at the following addresses (or at such other address as
shall be given in writing by either party to the other):
To: SubMicron Systems Corporation
6620 Grant Way
Allentown, PA 18106
To: David J, Ferran
14910 Rancho Nuevo
Del Mar, CA 92014
<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 28th day of July
1997, by and between SUBMICRON SYSTEMS CORPORATION, a Delaware corporation (the
"Company"), and JOHN W. KIZER ("Executive"). The Company and Executive are
hereinafter collectively referred to as the "Parties," and individually
referred to as a "Party."
RECITALS
A. The Company desires assurance of the association and services of
Executive in order to retain Executive's experience, skills, abilities,
background and knowledge, and is willing to engage Executive's services on the
terms and conditions set forth in this Agreement.
B. Executive desires to be in the employ of the Company, and is willing to
accept such employment on the terms and conditions set forth in this Agreement.
AGREEMENT
In consideration of the foregoing premises and the mutual covenants herein
contained, and for other good and valuable consideration, the Parties,
intending to be legally bound, agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive hereby
accepts employment by the Company, upon the terms and conditions set forth in
this Agreement.
2. POSITION AND RESPONSIBILITIES.
(A) DUTIES. The Company shall employ Executive in the capacity of VP
Finance and CFO, and Executive shall serve as such for the term and under other
conditions hereinafter set forth. Executive shall devote his full business
time and attention to the performance of such services as are customary for
such a position and of such other services as may be necessarily requested by
the Board of Directors of the Company (the "Board") that are consistent with
those required of such a position. In the event that, without his consent,
Executive is assigned to a position involving a different title or materially
lesser authority and responsibility, then Executive shall have the option,
exercisable for 30 days following notice to Executive of such assignment or new
title, to consider that this Agreement has been terminated without cause in
which case Executive shall be entitled to the benefits set forth in Section
7(c) hereof.
(B) COMPANY PROPERTY. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, or any other materials or data of any kind
1.
<PAGE> 2
furnished to Executive by the Company or developed by Executive on behalf of
the Company or at the Company's direction or for the Company's use or otherwise
in connection with Executive's employment hereunder, are and shall remain the
sole and confidential property of the Company; if the Company requests the
return of such materials at any time during or at or after the termination of
Executive's employment, Executive shall immediately deliver the same to the
Company.
(C) NONCOMPETITION, TRADE SECRETS, ETC.
(I) During the term of this Agreement and, only in the event that
Executive's employment is terminated for cause (as defined below) or Executive
resigns without good reason (as defined below), for one year after the
termination of his employment with Company, Executive shall not, directly or
indirectly, solicit, induce, encourage or attempt to influence any client,
customer, employee, consultant, independent contractor, salesman or supplier of
the Company to cease to do business or terminate his employment with the
Company, and shall not engage in (as a principal, partner, director, officer,
agent, employee, consultant or otherwise) or be financially interested in any
business operating anywhere in the world which is involved in business
activities which are the same as or in competition with business activities
carried on by the Company, or being definitively planned by the Company, at the
time of the termination of Executive's employment. However, nothing contained
in this Section 2(c) shall prevent Executive from (A) holding for investment no
more than 5% of any class of equity securities of a company whose securities
are publicly traded or (B) hiring an employee of the Company who approached
Executive of the employee's own accord without Executive violating any of the
above provisions of this Section 2(c)(i). The covenant in this Section 2(c)(i)
is not limited geographically because the Company's business is international,
and Executive acknowledges that he will be performing duties that are
international in scope.
(II) During the term of this Agreement and at all times thereafter,
Executive shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Section 2(b) above or any confidential and/or proprietary information regarding
the business methods, business policies, procedures, techniques, research or
development projects or results, trade secrets, or other knowledge or processes
of or developed by the Company or any names and addresses of customers or
clients or any data on or relating to past, present or prospective customers or
clients or any other confidential information relating to or dealing with the
business operations or activities of the Company, made known to Executive or
learned or acquired by Executive while in the employ of the Company.
Notwithstanding the foregoing, it is understood that this Section 2(c)(ii) is
not intended to cover information that is generally known in the trade or
industry (other than through a breach of this Agreement) or information that is
not gained as a result of a breach of this Agreement, and his own skill and
experience.
2.
<PAGE> 3
(iii) Any and all writings, inventions, improvements, processes and/or
techniques which Executive may make, conceive, discover or develop, either
solely or jointly with any other person or persons, at any time during the term
of this Agreement, whether during working hours or at any other time and
whether at the request or upon the suggestion of the Company or otherwise,
which relate to or are useful in connection with any business now or hereafter
carried on or contemplated by the Company, including developments or expansions
of its present fields of operations, shall be the sole and exclusive property
of the Company. Executive shall make full disclosure to the Company of all
such writings, inventions, improvements, processes, procedures and techniques,
and shall do everything necessary or desirable to vest the absolute title
thereto in the Company. Executive shall write and prepare all specifications
and procedures regarding such inventions, improvements, processes, procedures
and techniques and otherwise aid and assist the Company so that the Company can
prepare and present applications for copyright or Letters Patent therefor and
can secure such copyright or Letters Patent wherever possible, as well as
reissues, renewals, and extensions thereof, and can obtain the record title to
such copyright or patents so that the Company shall be the sole and absolute
owner thereof in all countries in which it may desire to have copyright or
patent protection. Executive shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques.
(iv) Executive acknowledges that the restrictions contained in the
foregoing subsections (i), (ii) and (iii), in view of the international nature
of the business in which Company is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Company, and that any
violation thereof would result in irreparable injuries to the Company, and
Executive therefore acknowledges that, in the event of his violation of any of
these restrictions, the Company shall be entitled to obtain from any court of
competent jurisdiction preliminary and permanent injunctive relief as well as
damages and an equitable accounting of all earnings, profits and other benefits
arising from such violation, which rights shall be cumulative and in addition
to any other rights or remedies to which the Company may be entitled.
Executive further acknowledges and represents that he possesses skill and
ability which can be applied in business areas which do not compete with the
Company, and therefore the restrictions contained in this Agreement will not
prevent him from securing gainful employment after termination of this
Agreement.
(v) If the period of time or the area specified in subsection (i) above
should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such number of months or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjudged to be reasonable. If
Executive violates any of the restrictions contained in the foregoing
subsection (i), the restrictive period shall not run in favor of Executive from
the time of the commencement of any such
3.
<PAGE> 4
violation until such time as such violation shall be cured by Executive to the
satisfaction of Company.
(vi) For purposes of Sections 2(b) and 2(c) of this Agreement, the term
"Company" shall mean SubMicron Systems Corporation and its direct and indirect
subsidiaries.
3. TERM OF EMPLOYMENT. This Agreement shall become effective as of July 28,
1997, (the "Effective Date") and shall remain in effect until Executive's
employment is terminated in accordance with Section 6; provided, however, that
the provisions of Sections 2(b), 2(c), 6(d)(iii), 7, 8 and 9 shall survive such
termination.
4. PLACE OF PERFORMANCE. In connection with this Agreement, Executive shall
maintain an office at the Company's current principal executive offices in
Allentown, Pennsylvania.
5. SALARY, BONUS, EXPENSES AND BENEFITS.
(a) SALARY. While employed by the Company, the Company shall pay
Executive a salary of $150,000 per year, payable in regular periodic payments
in accordance with the Company policy. Such salary shall be prorated for any
partial year of employment on the basis of a 365-day fiscal year. Executive's
salary shall be reviewed and revised (if appropriate) at least annually by the
Compensation Committee of the Board (the "Committee") and may, at the
Committee's sole discretion, be adjusted based upon Executive's job
performance, the Company's financial condition and performance and the salary
and compensation levels of executives in similar companies with similar
responsibilities but in any event not less than $150,000 per year without
Executive's prior written consent.
(b) BONUSES. In consideration of this Employment Agreement superseding
the Executive's four month contract agreement, the Executive will receive a
signing bonus of $21,250. The Committee may, in its sole discretion and
without the vote of Executive (if Executive is a member of the Committee),
award bonus or other performance-based compensation to Executive.
(c) OPTIONS. The Company shall grant Executive no later than the
Effective Date an option to purchase 100,000 shares (inclusive of currently
outstanding shares) of the Company's Common Stock (the "Stock Option") at an
exercise price equal to the fair market value of the Common Stock on the date
of grant in the form attached hereto as Exhibit A. The Company shall promptly
file with the Securities and Exchange Commission, and during the term of the
Stock Option maintain the effectiveness of, a Form S-8 registration statement
(or another form of registration statement if such form is not available)
covering all of the shares of Common Stock subject to the Stock Option.
4.
<PAGE> 5
(D) RELOCATION ASSISTANCE. The Company will provide Executive with the
following relocation assistance: (i) the Company shall reimburse Executive for
all reasonable expenses associated with the sale of Executive's residence in
Midlothian, Virginia, including the realtor's commission, any attorneys' fees
and expenses and any transfer or stamp taxes; (ii) the Company shall reimburse
Executive for all expenses incurred by Executive in acquiring a residence in or
near Allentown, Pennsylvania, including any fees or "points" paid to the lender
for a loan to fund such acquisition, all costs associated with any inspection or
reports on such residence and any attorneys' fees and expenses; (iii) the
Company shall reimburse Executive for all reasonable expenses incurred by
Executive in connection with packing and moving his personal property from
Midlothian, Virginia, to Allentown, Pennsylvania, including the costs of
transporting his automobiles; (iv) the Company shall reimburse Executive for his
and his immediate family's reasonable travel expenses in connection with their
relocation to Pennsylvania; and (v) the Company shall reimburse Executive for
any reasonable temporary housing in or about Allentown, Pennsylvania (for up to
180 days) or storage of personal property pending Executive's occupancy of a
permanent residence. In addition, the Company shall gross-up any reimbursement
payments to or on behalf of Executive pursuant to this Section 5(d) so as to
hold Executive harmless from any adverse federal, state or local tax effect.
After 180 days, the Company shall review all circumstances, and an extension
will be granted if deemed appropriate.
(E) PARTICIPATION IN WELFARE AND BENEFIT PLANS. Executive shall be
entitled to participate in, personally and/or for the benefit of his family or
other beneficiaries, any welfare, insurance, pension or other employment benefit
plans as are at the time made generally available to other executives of the
Company to the same extent as generally made available to such executives.
Executive shall be eligible to receive during the term hereof all benefits for
which executives of the Company are eligible under every such plan or program to
the extent permissible under the general terms and provisions of such plans or
programs and in accordance with the provisions thereof.
(F) BENEFIT TIME. Executive shall be entitled to six weeks' benefit time
each year, during which time his compensation shall be paid in full. Unless
otherwise directed by the Committee, Executive shall have the discretion to take
benefit time on the dates he determines to be appropriate and not detrimental to
the Company.
(G) HOLIDAYS, LEAVE DAYS, ETC. Executive shall be entitled to such
holidays, sick leave, leaves of absence and other absences as are at the time
made generally available to other executives of the Company of comparable tenure
and positions.
(H) AUTOMOBILE. During the term of this Agreement, the Company shall make
an automobile available to Executive under such terms and conditions as are
presently applied or may be applied from time to time to other executives of the
Company of comparable tenure and position. In connection therewith, the Company
shall bear all reasonable expenses relating to such
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automobile, including insurance, maintenance and repair, gas and oil. Upon
termination of this Agreement (other than by the Company without cause or by
Executive for good reason, in which case Section 7(c) shall govern), the
Company shall offer Executive the right to purchase the automobile then being
operated by Executive at the depreciated value of such automobile or to assume
the Company's lease of such automobile and shall execute and deliver to
Executive all documentation necessary to establish Executive's ownership or
leasing of such automobile upon proper payment or assumption thereof.
(I) LIFE INSURANCE. If the Company maintains group life insurance, the
Company shall pay for and provide life insurance for each year of this
Agreement for the benefit of Executive under the Company's group life insurance
plan to the same extent as other executives of the Company.
(J) HEALTH INSURANCE. The Company shall provide medical, dental and
vision insurance for Executive under the Company's insurance plan(s).
(K) DISABILITY INSURANCE. The Company shall provide disability insurance
for Executive pursuant to the Company's directors' and officers' disability
policy according to the Company's policy established by the Committee, if the
Company maintains such insurance.
(L) REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse
Executive, in accordance with Company's standard practices, for reasonable
travel, entertainment, promotional and other expenses incurred by Executive in
the performance of his obligations under this Agreement. Executive must submit
timely detailed expense reports for appropriate review prior to reimbursement.
(M) OTHER FRINGE BENEFITS. Executive shall be entitled to any and all
other fringe benefits according to the Company's policy as set by the
Committee.
(N) INDEMNITY AGREEMENT. On or before the Effective Date, the Company and
Executive shall enter into an Indemnity Agreement in the form attached hereto
as Exhibit B. In addition, the Company shall maintain a policy of directors'
and officers' liability insurance covering Executive in accordance with policy
limits and other terms to be determined by the Board.
(O) COMPENSATION COMMITTEE. If from time to time there is no committee
of the Board designated as the "Compensation Committee," the references to the
"Committee" herein shall be deemed to be references to the Board (or other
committee established by the Board for purposes of administering this
Agreement) for purposes of interpretation of provisions of this Agreement
applicable during such times.
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6. TERMINATION OF EMPLOYMENT. Executive's employment under this Agreement may
be terminated by the Company or Executive as herein provided, without further
obligation or liability except as expressly provided in this Agreement.
(A) RESIGNATION, DEATH OR DISABILITY. Executive's employment hereunder
shall be terminated at any time by Executive's resignation (other than a
resignation for good reason as provided in Section 6(d)), or by Executive's
death or disability. In the event Executive wishes to resign, he shall give the
Board not less than 30 days prior notice of such resignation, which notice shall
indicate the proposed resignation date. Following receipt of such notice, the
Company, through an action by its Board, shall have the right to accelerate the
date of Executive's resignation and to cause his resignation to become effective
at any time prior to the resignation date set forth in Executive's original
notice; provided, however, that such acceleration or changed effective date of
resignation shall not affect in any manner the delivery of any benefits or
payments to which Executive may be entitled under Section 7 of this Agreement.
For purposes of this Agreement, disability shall be deemed to have occurred only
after the following procedure has been satisfied. If within 30 days after notice
of proposed termination for disability is given to Executive by the Company,
Executive has not returned to the performance of substantially all his duties,
the Company may terminate Executive's employment by giving notice of termination
for disability. The notice of proposed termination may only be given by the
Company following Executive's substantial and material absence from Executive's
duties by reason of physical or mental disability for a period of 180 calendar
days.
(B) TERMINATION FOR CAUSE. Executive's employment hereunder may be
terminated by the Company for cause. For purposes of this Agreement, "cause"
shall mean any of the following:
(i) Executive's willful breach or habitual neglect of his material
duties and responsibilities as an employee and officer of the Company; provided,
however, that merely unsatisfactory performance by Executive of such duties and
responsibilities shall not constitute "cause" for purposes of this Agreement;
and provided further that Executive has received written notice of such breach
or neglect from the Board, has had an opportunity to respond to the notice in a
meeting with the Board or a duly appointed committee thereof, and has failed to
substantially cure such breach or neglect within 30 days of such notice;
(ii) a material violation by Executive of Section 2(b) or 2(c) of this
Agreement; provided that Executive has received written notice of such event
from the Board, has had an opportunity to respond to the notice in a meeting
with the Board or a duly appointed committee thereof and has not cured such
violation within 30 days following notice thereof;
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(iii) conviction of Executive of any felony materially and negatively
affecting the Company's business; or
(iv) fraud, breach of trust or other act of dishonesty materially and
negatively affecting the Company's business; provided that Executive has
received written notice of such event from the Board, and has had an
opportunity to respond to the notice in a meeting with the Board or a duly
appointed committee thereof.
Any notice of termination given pursuant to this Section 6(b) shall effect
termination as of the date specified in such notice or, in the event no such
date is specified, on the last day of the month in which such notice is
delivered or deemed delivered as provided in Section 9(j) below.
(C) TERMINATION WITHOUT CAUSE. The Company shall have the right,
exercisable at any time during the term of this Agreement on a written notice
to Executive, to terminate Executive's employment without cause upon 30 days
prior notice. If Executive's employment is terminated without cause, he shall
be entitled to receive the severance benefits pursuant to Section 7(c).
(D) RESIGNATION FOR GOOD REASON.
(i) During the term hereof, Executive may regard Executive's employment as
being constructively terminated and may, therefore, resign within 30 days of
Executive's discovery of the occurrence of one or more of the following events,
any of which will constitute "good reason" for such resignation:
(1) a change in Executive's status, title, position or responsibilities
(including reporting responsibilities) which, in Executive's reasonable
judgment, represents a material adverse change from his status, title, position
or responsibility as provided for in this Agreement; the assignment to
Executive of any duties or responsibilities which, in Executive's reasonable
judgment, are inconsistent with his status, title, position or responsibilities
as provided for in this Agreement; or any removal of Executive from or failure
to reappoint or re-elect him to any of such offices or positions, except in
connection with the termination of his employment for cause or as a result of
his resignation, death or disability in accordance with the other provisions of
this Section 6;
(2) a reduction in Executive's base salary or any failure to pay Executive
any compensation or benefits to which he is entitled within five days of notice
thereof;
(3) the Company's requiring Executive to be based at any place outside a
25-mile radius from Executive's primary place of employment, except for
reasonably required travel on the Company's business;
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(4) any material breach by the Company of any material provision of this
Agreement;
(5) a material breach by the Company of any material provision of the
Stock Option; or
(6) the failure of the Company to obtain an agreement, satisfactory to
Executive, from any Successors and Assigns to assume and agree to perform this
Agreement, as contemplated in Section 9(d) hereof.
(ii) In the event of the occurrence of any of the events or conditions
described in clauses (1) through (5) of Section 6(d)(i) and in the event
Executive wishes to resign on the basis of occurrence of such event, Executive
shall give the Company notice of his proposed resignation within 30 days of the
discovery of such event, and, except as provided in Section 8(a)(ix), the
Company shall have 30 days following its receipt of such notice to remedy the
breach or occurrence giving rise to such proposed resignation, following which,
if the Company fails to so remedy said breach or occurrence, Executive shall be
deemed to have resigned from his employment with the Company for good reason
pursuant to this Section 6(d).
(iii) Any event or condition described in clauses (1) through (5) of
Section 6(d)(i) which occurs prior to a Change in Control but which Executive
reasonably demonstrates was at the request of a Third Party (as defined below),
or otherwise arose in connection with, or in anticipation of, a Change in
Control which actually occurs, shall be deemed to have occurred after the
Change in Control for purposes of Section 8.
(iv) Executive's right to terminate his employment pursuant to this
Section 6(d) shall not be affected by his incapacity due to disability.
(E) TERMINATION OBLIGATIONS. Executive here acknowledges and agrees that
all personal property of the Company, including, without limitation, all books,
manuals, records, reports, notes, contracts, lists, and other documents,
proprietary information, copies of any of the foregoing, and equipment
furnished to or prepared by Executive in the course of or incident to his
employment, belong to the Company and shall be promptly returned to the Company
upon termination of his employment for any reason. Executive shall retain the
rights to remove all of his personal property from the premises of the Company
and any personal property of the Company as may be mutually agreed upon between
the Company and Executive.
7. PAYMENTS TO EXECUTIVE UPON TERMINATION.
(A) DISABILITY OR DEATH. In the event of termination of Executive's
employment because of disability or death, the Company shall pay Executive or
Executive's estate, as
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applicable, all accrued salary and a pro rata portion of the maximum potential
annual bonus (if Executive is a participant in a plan or other arrangement that
provides for a maximum or a target bonus), and all benefits generally available
to the Company's executives as of the date of such an event as determined by
the Committee shall be payable to Executive or Executive's estate, without
reduction, in accordance with the terms of any plan, contract, understanding or
arrangement forming the basis for such payment, including but not limited to,
payments under the plans identified in Section 5(e). Executive shall be
entitled to such other payments as might arise from any plan, contract,
understanding or arrangement between Executive and the Company at the time of
any such event pursuant to Section 5(e), (i), or (k) hereof.
(B) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. In the
event Executive's employment is terminated by the Company for cause as provided
in Section 6(b) or Executive resigns for other than good reason as defined in
Section 6(d), the Company shall have no further obligation or liability of any
nature to Executive under this Agreement or otherwise, except to the extent
provided in any plan identified in Section 5(e), or in Section 8 or as may be
expressly required by law.
(C) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. In the
event Executive's employment is terminated by the Company without cause, or
Executive resigns for good reason as defined in Section 6(d), the Company shall
pay promptly to Executive a lump-sum equal to Executive's salary for 12 months
at the rate paid to Executive immediately prior to such event and an amount
equal to the greater of (x) the total bonus compensation paid to Executive for
the preceding fiscal year and (y) 25% of Executive's base salary at the rate
paid to Executive immediately prior to such event; provided, however, upon the
written request of Executive, the Company shall pay such amounts to Executive
in equal installments no more frequently than the Company's standard pay cycle,
for a period not to exceed 12 months, beginning one pay period from the date
Executive ceases working for the Company. In the event Executive elects to
continue his coverages under Section 5(j) hereof pursuant to COBRA, the Company
make the required payments for such coverages under COBRA for 12 months
following Executive's termination of employment. The Company's obligation
hereunder with respect to making payments for the benefits under Section 5(j)
shall terminate upon Executive's ceasing to be eligible for continuation of
such benefits from SubMicron under COBRA. Executive shall promptly notify the
Company in the event Executive becomes covered by another benefit plan during
such 12-month period. In addition, subject to more favorable provisions such
as those included in the Stock Option, any options to purchase the capital
stock of the Company held by Executive, including the Stock Option, which would
vest in the 12 months following termination of Executive's employment shall
vest immediately as of the date of such termination.
(D) PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL. In the event that
Executive is entitled to receive payments upon termination of employment
pursuant to Section 8 hereof, the
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provisions of Section 8 shall determine all amounts and other rights of
Executive upon termination of employment, and the provisions of
Section 7(a)-(c) shall not be applicable.
8. CHANGE IN CONTROL.
(A) DEFINITIONS.
(i) ACCRUED COMPENSATION. For purposes of this Section 8, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" as defined below but not paid as of the
Termination Date including (A) base salary, (B) reimbursement for reasonable
and necessary expenses incurred by Executive on behalf of the Company ending on
the Termination Date, (C) benefit time pay (to the extent provided by the
Company policy or applicable law), and (D) bonuses and incentive compensation
(other than the "Pro Rata Bonus" (as defined below)).
(ii) BASE AMOUNT. For purposes of this Section 8, "Base Amount" shall
mean the greater of (A) Executive's annual base salary at the rate in effect
immediately prior to the Change in Control and (B) Executive's annual base
salary at the rate in effect on the Termination Date, and shall include all
amounts of his base salary that are deferred under the qualified and
non-qualified employee benefit plans of the Company or any other agreement or
arrangement.
(iii) BONUS AMOUNT. For purposes of this Section 8, "Bonus Amount" shall
mean the greater of (A) Executive's maximum potential annual bonus (without
giving effect to any pro ration) for the fiscal year in which a Change in
Control has occurred (if Executive is a participant in a plan or other
arrangement that provides for a maximum or a target bonus), (B) Executive's
maximum potential annual bonus (without giving effect to any pro ration) for
the fiscal year in which the Termination Date occurs (if Executive is a
participant in a plan or other arrangement that provides for a maximum or a
target bonus), and (C) the actual annual bonus paid to Executive in the fiscal
year immediately preceding the Change in Control.
(iv) CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of any voting
securities of the Company (the "Voting Securities") by any "Person" (as the
term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the "1934 Act")) immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of thirty percent or more of the combined voting power of
the Company's then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a "Non-Control Acquisition" (as defined below) shall not
constitute an acquisition
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which would cause a Change in Control. A "Non-Control Acquisition" shall mean
an acquisition by (1) an employee benefit plan (or a trust forming a part
thereof) maintained by (x) the Company or (y) any corporation or other Person
of which a majority of its voting power or its equity securities or equity
interest is owned directly or indirectly by the Company (a "Subsidiary"), (2)
the Company or any Subsidiary, or (3) any Person in connection with a
"Non-Control Transaction."
(2) The individuals who, as of the date hereof, are members of the Board
(the "Incumbent Board"), cease for any reason to constitute at least two-thirds
of the Board; provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director was approved by a
vote of at least two-thirds of the then Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; provided further, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
a. A merger, consolidation or reorganization involving the Company,
unless
i. the stockholders of the Company, immediately before such merger,
consolidation or reorganization, own, directly or indirectly, immediately
following such merger, consolidation or reorganization, at least seventy percent
of the combined voting power of the outstanding Voting Securities of the
corporation resulting from such merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization, and
ii. the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds of the members of
the board of directors of the Surviving Corporation or a corporation
beneficially owning, directly or indirectly, a majority of the Voting Securities
of the Surviving Corporation, and
iii. no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the
12.
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Surviving Corporation or any Subsidiary, or any Person who, immediately prior
to such merger, consolidation or reorganization had Beneficial Ownership of
fifteen percent or more of the then outstanding Voting Securities) owns,
directly or indirectly, fifteen percent or more of the combined voting power of
the Surviving Corporation's then outstanding voting securities, and
iv. a transaction described in clauses i through iii shall
herein be referred to as a "Non-Control Transaction";
b. A complete liquidation or dissolution of the Company; or
c. A sale or other disposition of all or substantially all of
the assets of the Company to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
(4) Notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated prior to a Change in Control
and Executive reasonably demonstrates that such termination (i) was at the
request of a third party who has indicated an intention or taken steps
reasonably calculated to effect a Change in Control and who effectuates a Change
in Control (a "Third Party") or (ii) otherwise occurred in connection with, or
in anticipation of, a Change in Control which actually occurs, then for all
purposes of this Agreement, the date of a Change in Control with respect to
Executive shall mean the date immediately prior to the date of such termination
of Executive's employment.
(v) COMPANY. The "Company" shall include the Company's
"Successors and Assigns" (as defined below).
(vi) NOTICE OF TERMINATION. "Notice of Termination" shall
mean a written notice of termination of Executive's employment from the Company
which indicates the specific termination provision in this Agreement relied upon
and which, if applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
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(vii) PRO RATA BONUS. "Pro Rata Bonus" shall have the meaning ascribed to
such term in any agreement between Executive and the Company or any of its
affiliates, or if no such agreement with respect to such term exists, shall mean
an amount equal to (a) the Bonus Amount, if any, multiplied by a fraction, (i)
the numerator of which is the number of days from the first day of the Company's
fiscal year in which Executive ceases to be employed by the Company until the
Termination Date, and (ii) the denominator of which is 365, less (b) any bonus
included in the Bonus Amount in respect of such fiscal year and previously paid.
(viii) SUCCESSORS AND ASSIGNS. "Successors and Assigns" shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Company whether by operation of law or otherwise.
(ix) TERMINATION DATE. For purposes of this Section 8, "Termination Date"
shall mean (a) in the case of Executive's death, his date of death, (b) in the
case of good reason, the last day of his employment, and (c) in all other cases,
the date specified in the Notice of Termination; provided, however, that if
Executive's employment is terminated by the Company due to disability, the date
specified in the Notice of Termination shall be at least 30 days from the date
the Notice of Termination is given to Executive, provided that in the case of
disability Executive shall not have returned to the full-time performance of his
duties during such period of at least 30 days.
(B) TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL.
(i) SEVERANCE PAY AND BENEFITS. If Executive shall cease to be employed by
the Company prior to the expiration of 15 months after the occurrence of a
Change in Control, in lieu of the payments and benefits described in Section 7,
Executive shall be entitled to the following compensation and benefits:
(1) If Executive's employment with the Company shall be terminated
(other than by reason of Executive's death and other than for disability) (x) by
the Company for any reason other than for cause or (y) by Executive as a result
of resignation for good reason, Executive shall be entitled to the following:
A. The Company shall pay Executive all Accrued Compensation and a
Pro-Rata Bonus;
B. The Company shall pay Executive as severance pay and in lieu
of any further compensation for periods subsequent to the Termination Date, in a
single payment an amount in cash equal to one times the sum of (A) the Base
Amount and (B) the Bonus Amount; and
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C. In the event Executive elects to continue his coverages
under Section 5(j) hereof pursuant to COBRA, the Company make the required
payments for such coverages on behalf of Executive and his dependents and
beneficiaries under COBRA for 12 months following Executive's termination of
employment (the "Continuation Period"). The Company's obligation hereunder
with respect to making payments for the foregoing benefits shall terminate upon
Executive's ceasing to be eligible for continuation of such benefits from
SubMicron under COBRA. Executive shall promptly notify the Company in the
event Executive becomes covered by another benefit plan during the Continuation
Period. This paragraph c shall not be interpreted so as to limit any benefits
to which Executive, his dependents or beneficiaries may be otherwise entitled
under any of the Company's employee benefit plans, programs or practices
following termination of Executive's employment, including without limitation,
retiree medical and life insurance benefits, if any.
(2) If Executive's employment with the Company shall be terminated
(x) by reason of Executive's death or (y) for disability or (z) by Executive by
resignation other than for good reason, the Company shall pay to Executive the
Accrued Compensation plus the Pro Rata Bonus.
(3) If Executive's employment with the Company shall be terminated by
the Company for cause, the Company shall pay to Executive the Accrued
Compensation.
(II) PAYMENT FORM. The amounts provided for in paragraphs a and b of
Sections 8(b)(i) and Sections 8(b)(i)(2) and 8(b)(i)(3) shall be paid in a
single lump sum cash payment within five days after Executive's Termination
Date (or earlier, if required by applicable law); provided, however, upon the
written request of Executive, the Company shall pay such amounts to Executive
in equal installments no more frequently than the Company's standard pay cycle,
for a period not to exceed 12 months, beginning one pay period from Executive's
Termination Date.
(III) NO MITIGATION. Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to Executive in any subsequent
employment.
(IV) OTHER SEVERANCE ARRANGEMENTS. Whether or not any Change in Control
shall occur, the following shall apply:
(1) This Agreement shall continue in full force and effect in
accordance with its terms.
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(2) Executive's entitlement to any other compensation or benefits or
any indemnification shall be determined in accordance with the Company's
employee benefit plans, bonus plan and other applicable programs, policies and
practices or any indemnification agreement then in effect.
(C) NOTICE OF TERMINATION. Following a Change in Control, any purported
termination of Executive's employment by either party shall be communicated by
Notice of Termination to the other party. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
(D) EXCISE TAX LIMITATION.
(i) Notwithstanding anything contained in this Agreement to the
contrary, to the extent that the payments and benefits provided under this
Agreement and benefits provided to, or for the benefit of, the Executive under
any other Company plan or agreement (such payments or benefits are collectively
referred to as the "Payments") would be subject to the excise tax (the "Excise
Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended, the Payments shall be reduced (but not below zero) if and to the
extent necessary so that no Payment to be made or benefit to be provided to the
Executive shall be subject to the Excise Tax (such reduced amount is
hereinafter referred to as the "Limited Payment Amount"). Unless Executive
shall have given prior written notice specifying a different order to the
Company to effectuate the foregoing, the Company shall reduce or eliminate
Payments, by first reducing or eliminating the portion of Payments which is not
payable in cash and then by reducing or eliminating cash payments, in each case
in reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as defined below). Any notice given
by Executive pursuant to the preceding sentence shall take precedence over the
provisions of any other plan, arrangement or agreement governing Executive's
rights and entitlements to any benefits or compensation.
(ii) The determination of whether Payments shall be reduced to the
Limited Payment Amount pursuant to this Agreement and the amount of such
Limited Payment Amount shall be made, at the Company's expense, by an
accounting firm selected by the Company from among the six largest accounting
firms in the United States (the "Accounting Firm"). The Accounting Firm shall
provide its determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and Executive within
ten days of the Termination Date, if applicable, or such other time as
requested by Company or by Executive (provided Executive reasonably believes
that any of the Payments may be subject to the Excise Tax) and if the
Accounting Firm determines that no Excise Tax is payable by Executive with
respect to the Payments, it shall furnish Executive with an opinion reasonably
acceptable to Executive that no
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Excise Tax will be imposed with respect to any such Payments. The
Determination shall be binding, final and conclusive upon the Company and
Executive.
(E) NON-EXCLUSIVITY OF RIGHTS. Nothing in this Section 8 shall prevent or
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices (other than
such policies, plans, programs or practices set forth in this Agreement, which
in accordance with Section 8(b)(iv)(1) and subject to Section 9(a), shall
continue in full force and effect)) and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive may have under
any other agreements with the Company (except for any severance or termination
agreement). Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan or program of the Company shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement. Notwithstanding anything in this Agreement to the contrary, upon
the occurrence of a Change in Control, any options to purchase shares of the
Company's Common Stock granted by the Company to Executive shall be governed by
the respective option documents granting such options.
9. GENERAL PROVISIONS.
(A) ENTIRE AGREEMENT. The terms and provisions of this Agreement shall
constitute the entire understanding between Executive and the Company with
respect to the subject matter hereof, and shall supersede any and all prior
agreements or understandings between Executive and the Company, whether written
or oral.
(B) AMENDMENTS. This Agreement may be amended or modified only by a
written instrument executed by Executive and the Company.
(C) ASSIGNMENT. The rights or obligations contained in this Agreement
shall not be assigned, transferred, or divided in any manner by Executive or
the Company, without the prior written consent of the other; provided, however,
that nothing in this Section 9(c) shall preclude Executive from designating a
beneficiary to receive any benefits hereunder upon his death, or the executors,
administrators or other legal representatives of Executive or his estate from
assigning any rights hereunder to the person(s) entitled hereto.
(D) SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of the Company, its Successors and Assigns, and the Company shall
require any Successors and Assigns to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession or assignment had taken place.
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(e) FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses reasonably incurred by Executive as they become due in connection with
the preparation, negotiation and execution of this Agreement.
(f) GOVERNING LAW. This Agreement shall be governed by, interpreted and
enforced in accordance with Pennsylvania law as such laws are applied to
agreements between Pennsylvania residents entered into and to be performed in
Pennsylvania.
(g) SEVERABILITY. In the event that any terms or provisions of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining terms and provisions hereof.
(h) WAIVER OF BREACH. Any waiver of any breach of employment terms set
forth herein shall not be construed to be a continuing waiver of consent to any
subsequent breach on the part of either Executive or the Company.
(i) HEADINGS. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
and performance of any of the provisions of this Agreement.
(j) NOTICES. All notices, requests, demands and other communications
hereunder (including any Notice of Termination) shall be in writing and shall
be deemed to have been duly given if personally delivered or if mailed by
United States certified or registered mail, prepaid, to the parties or their
permitted assignees at the following addresses (or at such other address as
shall be given in writing by either party to the other):
To: SubMicron Systems Corporation
6330 Hedgewood Dr., #150
Allentown, PA 18106
To: John W. Kizer
6330 Hedgewood Drive #150
Allentown, PA 18106
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the day and year first written above.
SUBMICRON SYSTEMS CORPORATION
By: _____________________________________ __________________________________
David J. Ferran John W. Kizer
President and Chief Executive Officer
18.
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Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 8th day of
September 1997, by and between SUBMICRON SYSTEMS CORPORATION, a Delaware
corporation (the "Company"), and DAVID W. DEDMAN ("Executive"). The Company and
Executive are hereinafter collectively referred to as the "Parties," and
individually referred to as a "Party."
RECITALS
A. The Company desires assurance of the association and services of
Executive in order to retain Executive's experience, skills, abilities,
background and knowledge, and is willing to engage Executive's services on the
terms and conditions set forth in this Agreement.
B. Executive desires to be in the employ of the Company, and is willing
to accept such employment on the terms and conditions set forth in this
Agreement.
AGREEMENT
In consideration of the foregoing premises and the mutual covenants herein
contained, and for other good and valuable consideration, the Parties, intending
to be legally bound, agree as follows:
1. EMPLOYMENT. The Company hereby employs Executive, and Executive hereby
accepts employment by the Company, upon the terms and conditions set forth in
this Agreement.
2. POSITION AND RESPONSIBILITIES.
(A) DUTIES. The Company shall employ Executive in the capacity of Senior
Vice President-Global Business and Development, and Executive shall serve as
such for the term and under other conditions hereinafter set forth. Executive
shall devote his full business time and attention to the performance of such
services as are customary for such a position and of such other services as may
be necessarily requested by the Board of Directors of the Company (the "Board")
that are consistent with those required of such a position. In the event that,
without his consent, Executive is assigned to a position involving a different
title or materially lesser authority and responsibility, then Executive shall
have the option, exercisable for 30 days following notice to Executive of such
assignment or new title, to consider that this Agreement has been terminated
without cause in which case Executive shall be entitled to the benefits set
forth in Section 7(c) hereof.
(B) COMPANY PROPERTY. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales
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analyses, invoices, price lists or information, samples, or any other materials
or data of any kind furnished to Executive by the Company or developed by
Executive on behalf of the Company or at the Company's direction or for the
Company's use or otherwise in connection with Executive's employment hereunder,
are and shall remain the sole and confidential property of the Company; if the
Company requests the return of such materials at any time during or at or after
the termination of Executive's employment, Executive shall immediately deliver
the same to the Company.
(C) NONCOMPETITION, TRADE SECRETS, ETC.
(I) During the term of this Agreement and, only in the event that
Executive's employment is terminated for cause (as defined below) or Executive
resigns without good reason (as defined below), for one year after the
termination of his employment with Company, Executive shall not, directly or
indirectly, solicit, induce, encourage or attempt to influence any client,
customer, employee, consultant, independent contractor, salesman or supplier of
the Company to cease to do business or terminate his employment with the
Company, and shall not engage in (as a principal, partner, director, officer,
agent, employee, consultant or otherwise) or be financially interested in any
business operating anywhere in the world which is involved in business
activities which are the same as or in competition with business activities
carried on by the Company, or being definitively planned by the Company, at the
time of the termination of Executive's employment. However, nothing contained
in this Section 2(c) shall prevent Executive from (A) holding for investment no
more than 5% of any class of equity securities of a company whose securities
are publicly traded or (B) hiring an employee of the Company who approached
Executive of the employee's own accord without Executive violating any of the
above provisions of this Section 2(c)(i). The covenant in this Section 2(c)(i)
is not limited geographically because the Company's business is international,
and Executive acknowledges that he will be performing duties that are
international in scope.
(II) During the term of this Agreement and at all times thereafter,
Executive shall not use for his personal benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of any person, firm,
association or company other than the Company, any material referred to in
Section 2(b) above or any confidential and/or proprietary information regarding
the business methods, business policies, procedures, techniques, research or
development projects or results, trade secrets, or other knowledge or processes
of or developed by the Company or any names and addresses of customers or
clients or any data on or relating to past, present or prospective customers or
clients or any other confidential information relating to or dealing with the
business operations or activities of the Company, made known to Executive or
learned or acquired by Executive while in the employ of the Company.
Notwithstanding the foregoing, it is understood that this Section 2(c)(ii) is
not intended to cover information that is generally known in the trade or
industry (other than through a breach of this Agreement) or information that is
not gained as a result of a breach of this Agreement, and his own skill and
experience.
2.
<PAGE> 3
(iii) Any and all writings, inventions, improvements, processes and/or
techniques which Executive may make, conceive, discover or develop, either
solely or jointly with any other person or persons, at any time during the term
of this Agreement, whether during working hours or at any other time and
whether at the request or upon the suggestion of the Company or otherwise,
which relate to or are useful in connection with any business now or hereafter
carried on or contemplated by the Company, including developments or expansions
of its present fields of operations, shall be the sole and exclusive property
of the Company. Executive shall make full disclosure to the Company of all
such writings, inventions, improvements, processes, procedures and techniques,
and shall do everything necessary or desirable to vest the absolute title
thereto in the Company. Executive shall write and prepare all specifications
and procedures regarding such inventions, improvements, processes, procedures
and techniques and otherwise aid and assist the Company so that the Company can
prepare and present applications for copyright or Letters Patent therefor and
can secure such copyright or Letters Patent wherever possible, as well as
reissues, renewals, and extensions thereof, and can obtain the record title to
such copyright or patents so that the Company shall be the sole and absolute
owner thereof in all countries in which it may desire to have copyright or
patent protection. Executive shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques.
(iv) Executive acknowledges that the restrictions contained in the
foregoing subsections (i), (ii) and (iii), in view of the international nature
of the business in which Company is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Company, and that any
violation thereof would result in irreparable injuries to the Company, and
Executive therefore acknowledges that, in the event of his violation of any of
these restrictions, the Company shall be entitled to obtain from any court of
competent jurisdiction preliminary and permanent injunctive relief as well as
damages and an equitable accounting of all earnings, profits and other benefits
arising from such violation, which rights shall be cumulative and in addition
to any other rights or remedies to which the Company may be entitled.
Executive further acknowledges and represents that he possesses skill and
ability which can be applied in business areas which do not compete with the
Company, and therefore the restrictions contained in this Agreement will not
prevent him from securing gainful employment after termination of this
Agreement.
(v) If the period of time or the area specified in subsection (i) above
should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such number of months or the area shall be reduced by the
elimination of such portion thereof or both so that such restrictions may be
enforced in such area and for such time as is adjudged to be reasonable. If
Executive violates any of the restrictions contained in the foregoing
subsection (i), the restrictive period shall not run in favor of Executive from
the time of the commencement of any such
3.
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violation until such time as such violation shall be cured by Executive to the
satisfaction of Company.
(VI) For purposes of Sections 2(b) and 2(c) of this Agreement, the term
"Company" shall mean SubMicron Systems Corporation and its direct and indirect
subsidiaries.
3. TERM OF EMPLOYMENT. This Agreement shall become effective as of September
8, 1997, (the "Effective Date") and shall remain in effect until Executive's
employment is terminated in accordance with Section 6; provided, however, that
the provisions of Sections 2(b), 2(c), 6(d)(iii), 7, 8 and 9 shall survive such
termination.
4. PLACE OF PERFORMANCE. In connection with this Agreement, Executive shall
maintain an office at the Company's current principal executive offices in
Allentown, Pennsylvania.
5. SALARY, BONUS, EXPENSES AND BENEFITS.
(A) SALARY. While employed by the Company, the Company shall pay
Executive a salary of $200,000 per year, payable in regular periodic payments
in accordance with the Company policy. Such salary shall be prorated for any
partial year of employment on the basis of a 365-day fiscal year. Executive's
salary shall be reviewed and revised (if appropriate) at least annually by the
Compensation Committee of the Board (the "Committee") and may, at the
Committee's sole discretion, be adjusted based upon Executive's job
performance, the Company's financial condition and performance and the salary
and compensation levels of executives in similar companies with similar
responsibilities but in any event not less than $200,000 per year without
Executive's prior written consent.
(B) BONUSES. The Committee may, in its sole discretion and without the
vote of Executive (if Executive is a member of the Committee), award bonus or
other performance-based compensation to Executive.
(C) OPTIONS. The Company shall grant Executive no later than the
Effective Date an option to purchase 125,000 shares (inclusive of currently
outstanding shares) of the Company's Common Stock (the "Stock Option") at an
exercise price equal to the fair market value of the Common Stock on the date
of grant in the form attached hereto as Exhibit A. The Company shall promptly
file with the Securities and Exchange Commission, and during the term of the
Stock Option maintain the effectiveness of, a Form S-8 registration statement
(or another form of registration statement if such form is not available)
covering all of the shares of Common Stock subject to the Stock Option.
(D) RELOCATION ASSISTANCE. The Company will provide Executive with the
following relocation assistance: (i) the Company shall reimburse Executive for
all reasonable expenses
4.
<PAGE> 5
associated with the sale of Executive's residence in Danville, California,
including the realtor's commission, any attorneys' fees and expenses and any
transfer or stamp taxes; (ii) the Company shall reimburse Executive for all
expenses incurred by Executive in acquiring a residence in or near Allentown,
Pennsylvania, including any fees or "points" paid to the lender for a loan to
fund such acquisition, all costs associated with any inspection or reports on
such residence and any attorneys' fees and expenses; (iii) the Company shall
reimburse Executive for all reasonable expenses incurred by Executive in
connection with packing and moving his personal property from Danville,
California to Allentown, Pennsylvania, including the costs of transporting his
automobiles; (iv) the Company shall reimburse Executive for his and his
immediate family's reasonable travel expenses in connection with their
relocation to Pennsylvania; and (v) the Company shall reimburse Executive for
any reasonable temporary housing in or about Allentown, Pennsylvania (for up to
90 days) or storage of personal property pending Executive's occupancy of a
permanent residence. In addition, the Company shall gross-up any reimbursement
payments to or on behalf of Executive pursuant to this Section 5(d) so as to
hold Executive harmless from any adverse federal, state or local tax effect.
(E) PARTICIPATION IN WELFARE AND BENEFIT PLANS. Executive shall be
entitled to participate in, personally and/or for the benefit of his family or
other beneficiaries, any welfare, insurance, pension or other employment
benefit plans as are at the time made generally available to other executives
of the Company to the same extent as generally made available to such
executives. Executive shall be eligible to receive during the term hereof all
benefits for which executives of the Company are eligible under every such plan
or program to the extent permissible under the general terms and provisions of
such plans or programs and in accordance with the provisions thereof.
(F) BENEFIT TIME. Executive shall be entitled to six weeks' benefit time
each year, during which time his compensation shall be paid in full. Unless
otherwise directed by the Committee, Executive shall have the discretion to
take benefit time on the dates he determines to be appropriate and not
detrimental to the Company.
(G) HOLIDAYS, LEAVE DAYS, ETC. Executive shall be entitled to such
holidays, sick leave, leaves of absence and other absences as are at the time
made generally available to other executives of the Company of comparable
tenure and positions.
(H) AUTOMOBILE. During the term of this Agreement, the Company shall make
an automobile available to Executive under such terms and conditions as are
presently applied or may be applied from time to time to other executives of
the Company of comparable tenure and position. In connection therewith, the
Company shall bear all reasonable expenses relating to such automobile,
including insurance, maintenance and repair, gas and oil. Upon termination of
this Agreement (other than by the Company without cause or by Executive for
good reason, in which case Section 7(c) shall govern), the Company shall offer
Executive the right to purchase the
5.
<PAGE> 6
automobile then being operated by Executive at the depreciated value of such
automobile or to assume the Company's lease of such automobile and shall
execute and deliver to Executive all documentation necessary to establish
Executive's ownership or leasing of such automobile upon proper payment or
assumption thereof.
(I) LIFE INSURANCE. If the Company maintains group life insurance, the
Company shall pay for and provide life insurance for each year of this
Agreement for the benefit of Executive under the Company's group life insurance
plan to the same extent as other executives of the Company.
(J) HEALTH INSURANCE. The Company shall provide medical, dental and
vision insurance for Executive under the Company's insurance plan(s).
(K) DISABILITY INSURANCE. The Company shall provide disability insurance
for Executive pursuant to the Company's directors' and officers' disability
policy according to the Company's policy established by the Committee, if the
Company maintains such insurance.
(L) REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse
Executive, in accordance with Company's standard practices, for reasonable
travel, entertainment, promotional and other expenses incurred by Executive in
the performance of his obligations under this Agreement. Executive must submit
timely detailed expense reports for appropriate review prior to reimbursement.
(M) OTHER FRINGE BENEFITS. Executive shall be entitled to any and all
other fringe benefits according to the Company's policy as set by the
Committee.
(N) INDEMNITY AGREEMENT. On or before the Effective Date, the Company and
Executive shall enter into an Indemnity Agreement in the form attached hereto
as Exhibit B. In addition, the Company shall maintain a policy of directors'
and officers' liability insurance covering Executive in accordance with policy
limits and other terms to be determined by the Board.
(O) COMPENSATION COMMITTEE. If from time to time there is no committee
of the Board designated as the "Compensation Committee," the references to the
"Committee" herein shall be deemed to be references to the Board (or other
committee established by the Board for purposes of administering this
Agreement) for purposes of interpretation of provisions of this Agreement
applicable during such times.
6. TERMINATION OF EMPLOYMENT. Executive's employment under this Agreement may
be terminated by the Company or Executive as herein provided, without further
obligation or liability except as expressly provided in this Agreement.
6.
<PAGE> 7
(A) RESIGNATION, DEATH OR DISABILITY. Executive's employment hereunder
shall be terminated at any time by Executive's resignation (other than a
resignation for good reason as provided in Section 6(d)), or by Executive's
death or disability. In the event Executive wishes to resign, he shall give
the Board not less than 30 days prior notice of such resignation, which notice
shall indicate the proposed resignation date. Following receipt of such
notice, the Company, through an action by its Board, shall have the right to
accelerate the date of Executive's resignation and to cause his resignation to
become effective at any time prior to the resignation date set forth in
Executive's original notice; provided, however, that such acceleration or
changed effective date of resignation shall not affect in any manner the
delivery of any benefits or payments to which Executive may be entitled under
Section 7 of this Agreement. For purposes of this Agreement, disability shall
be deemed to have occurred only after the following procedure has been
satisfied. If within 30 days after notice of proposed termination for
disability is given to Executive by the Company, Executive has not returned to
the performance of substantially all his duties, the Company may terminate
Executive's employment by giving notice of termination for disability. The
notice of proposed termination may only be given by the Company following
Executive's substantial and material absence from Executive's duties by reason
of physical or mental disability for a period of 180 calendar days.
(B) TERMINATION FOR CAUSE. Executive's employment hereunder may be
terminated by the Company for cause. For purposes of this Agreement, "cause"
shall mean any of the following:
(i) Executive's willful breach or habitual neglect of his material
duties and responsibilities as an employee and officer of the Company; provided,
however, that merely unsatisfactory performance by Executive of such duties and
responsibilities shall not constitute "cause" for purposes of this Agreement;
and provided further that Executive has received written notice of such breach
or neglect from the Board, has had an opportunity to respond to the notice in a
meeting with the Board or a duly appointed committee thereof, and has failed to
substantially cure such breach or neglect within 30 days of such notice;
(ii) a material violation by Executive of Section 2(b) or 2(c) of this
Agreement; provided that Executive has received written notice of such event
from the Board, has had an opportunity to respond to the notice in a meeting
with the Board or a duly appointed committee thereof and has not cured such
violation within 30 days following notice thereof;
(iii) conviction of Executive of any felony materially and negatively
affecting the Company's business; or
(iv) fraud, breach of trust or other act of dishonesty materially and
negatively affecting the Company's business; provided that Executive has
received written notice of such event
7.
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from the Board, and has had an opportunity to respond to the notice in a
meeting with the Board or a duly appointed committee thereof.
Any notice of termination given pursuant to this Section 6(b) shall effect
termination as of the date specified in such notice or, in the event no such
date is specified, on the last day of the month in which such notice is
delivered or deemed delivered as provided in Section 9(j) below.
(C) TERMINATION WITHOUT CAUSE. The Company shall have the right,
exercisable at any time during the term of this Agreement on a written notice
to Executive, to terminate Executive's employment without cause upon 30 days
prior notice. If Executive's employment is terminated without cause, he shall
be entitled to receive the severance benefits pursuant to Section 7(c).
(D) RESIGNATION FOR GOOD REASON.
(i) During the term hereof, Executive may regard Executive's
employment as being constructively terminated and may, therefore, resign within
30 days of Executive's discovery of the occurrence of one or more of the
following events, any of which will constitute "good reason" for such
resignation:
(1) a change in Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in Executive's
reasonable judgment, represents a material adverse change from his status,
title, position or responsibility as provided for in this Agreement; the
assignment to Executive of any duties or responsibilities which, in Executive's
reasonable judgment, are inconsistent with his status, title, position or
responsibilities as provided for in this Agreement; or any removal of Executive
from or failure to reappoint or re-elect him to any of such offices or
positions, except in connection with the termination of his employment for cause
or as a result of his resignation, death or disability in accordance with the
other provisions of this Section 6;
(2) a reduction in Executive's base salary or any failure to pay
Executive any compensation or benefits to which he is entitled within five days
of notice thereof;
(3) the Company's requiring Executive to be based at any place
outside a 25-mile radius from Executive's primary place of employment, except
for reasonably required travel on the Company's business;
(4) any material breach by the Company of any material provision
of this Agreement;
8.
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(5) a material breach by the Company of any material provision of
the Stock Option; or
(6) the failure of the Company to obtain an agreement,
satisfactory to Executive, from any Successors and Assigns to assume and agree
to perform this Agreement, as contemplated in Section 9(d) hereof.
(ii) In the event of the occurrence of any of the events or conditions
described in clauses (1) through (5) of Section 6(d)(i) and in the event
Executive wishes to resign on the basis of occurrence of such event, Executive
shall give the Company notice of his proposed resignation within 30 days of the
discovery of such event, and, except as provided in Section 8(a)(ix), the
Company shall have 30 days following its receipt of such notice to remedy the
breach or occurrence giving rise to such proposed resignation, following which,
if the Company fails to so remedy said breach or occurrence, Executive shall be
deemed to have resigned from his employment with the Company for good reason
pursuant to this Section 6(d).
(iii) Any event or condition described in clauses (1) through (5) of
Section 6(d)(i) which occurs prior to a Change in Control but which Executive
reasonably demonstrates was at the request of a Third Party (as defined below),
or otherwise arose in connection with, or in anticipation of, a Change in
Control which actually occurs, shall be deemed to have occurred after the Change
in Control for purposes of Section 8.
(iv) Executive's right to terminate his employment pursuant to this
Section 6(d) shall not be affected by his incapacity due to disability.
(e) TERMINATION OBLIGATIONS. Executive here acknowledges and agrees that
all personal property of the Company, including, without limitation, all books,
manuals, records, reports, notes, contracts, lists, and other documents,
proprietary information, copies of any of the foregoing, and equipment furnished
to or prepared by Executive in the course of or incident to his employment,
belong to the Company and shall be promptly returned to the Company upon
termination of his employment for any reason. Executive shall retain the rights
to remove all of his personal property from the premises of the Company and any
personal property of the Company as may be mutually agreed upon between the
Company and Executive.
9.
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7. PAYMENTS TO EXECUTIVE UPON TERMINATION.
(A) DISABILITY OR DEATH. In the event of termination of Executive's
employment because of disability or death, the Company shall pay Executive or
Executive's estate, as applicable, all accrued salary and a pro rata portion of
the maximum potential annual bonus (if Executive is a participant in a plan or
other arrangement that provides for a maximum or a target bonus), and all
benefits generally available to the Company's executives as of the date of such
an event as determined by the Committee shall be payable to Executive or
Executive's estate, without reduction, in accordance with the terms of any plan,
contract, understanding or arrangement forming the basis for such payment,
including but not limited to, payments under the plans identified in Section
5(e). Executive shall be entitled to such other payments as might arise from any
plan, contract, understanding or arrangement between Executive and the Company
at the time of any such event pursuant to Section 5(e), (i), or (k) hereof.
(B) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. In the
event Executive's employment is terminated by the Company for cause as provided
in Section 6(b) or Executive resigns for other than good reason as defined in
Section 6(d), the Company shall have no further obligation or liability of any
nature to Executive under this Agreement or otherwise, except to the extent
provided in any plan identified in Section 5(e), or in Section 8 or as may be
expressly required by law.
(C) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. In the
event Executive's employment is terminated by the Company without cause, or
Executive resigns for good reason as defined in Section 6(d), the Company shall
pay promptly to Executive a lump-sum equal to Executive's salary for 12 months
at the rate paid to Executive immediately prior to such event and an amount
equal to the greater of (x) the total bonus compensation paid to Executive for
the preceding fiscal year and (y) 25% of Executive's base salary at the rate
paid to Executive immediately prior to such event; provided, however, upon the
written request of Executive, the Company shall pay such amounts to Executive in
equal installments no more frequently than the Company's standard pay cycle, for
a period not to exceed 12 months, beginning one pay period from the date
Executive ceases working for the Company. In the event Executive elects to
continue his coverages under Section 5(j) hereof pursuant to COBRA, the Company
make the required payments for such coverages under COBRA for 12 months
following Executive's termination of employment. The Company's obligation
hereunder with respect to making payments for the benefits under Section 5(j)
shall terminate upon Executive's ceasing to be eligible for continuation of such
benefits from SubMicron under COBRA. Executive shall promptly notify the Company
in the event Executive becomes covered by another benefit plan during such
12-month period. In addition, subject to more favorable provisions such as those
included in the Stock Option, any options to purchase the capital stock of the
Company held by Executive, including the Stock
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Option, which would vest in the 12 months following termination of Executive's
employment shall vest immediately as of the date of such termination.
(D) PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL. In the event that
Executive is entitled to receive payments upon termination of employment
pursuant to Section 8 hereof, the provisions of Section 8 shall determine all
amounts and other rights of Executive upon termination of employment, and the
provisions of Section 7(a)-(c) shall not be applicable.
8. CHANGE IN CONTROL.
(a) DEFINITIONS.
(i) ACCRUED COMPENSATION. For purposes of this Section 8, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" as defined below but not paid as of the
Termination Date including (A) base salary, (B) reimbursement for reasonable and
necessary expenses incurred by Executive on behalf of the Company ending on the
Termination Date, (C) benefit time pay (to the extent provided by the Company
policy or applicable law), and (D) bonuses and incentive compensation (other
than the "Pro Rata Bonus" (as defined below)).
(ii) BASE AMOUNT. For purposes of this Section 8, "Base Amount" shall
mean the greater of (A) Executive's annual base salary at the rate in effect
immediately prior to the Change in Control and (B) Executive's annual base
salary at the rate in effect on the Termination Date, and shall include all
amounts of his base salary that are deferred under the qualified and
non-qualified employee benefit plans of the Company or any other agreement or
arrangement.
(iii) BONUS AMOUNT. For purposes of this Section 8, "Bonus Amount"
shall mean the greater of (A) Executive's maximum potential annual bonus
(without giving effect to any pro ration) for the fiscal year in which a Change
in Control has occurred (if Executive is a participant in a plan or other
arrangement that provides for a maximum or a target bonus), (B) Executive's
maximum potential annual bonus (without giving effect to any pro ration) for the
fiscal year in which the Termination Date occurs (if Executive is a participant
in a plan or other arrangement that provides for a maximum or a target bonus),
and (C) the actual annual bonus paid to Executive in the fiscal year immediately
preceding the Change in Control.
(iv) CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended
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(the "1934 Act")) immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the 1934 Act) of thirty
percent or more of the combined voting power of the Company's then outstanding
Voting Securities; provided, however, that in determining whether a Change in
Control has occurred, Voting Securities which are acquired in a "Non-Control
Acquisition" (as defined below) shall not constitute an acquisition which would
cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition
by (1) an employee benefit plan (or a trust forming a part thereof) maintained
by (x) the Company or (y) any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is owned directly
or indirectly by the Company (a "Subsidiary"), (2) the Company or any
Subsidiary, or (3) any Person in connection with a "Non-Control Transaction."
(2) The individuals who, as of the date hereof, are members of the Board
(the "Incumbent Board"), cease for any reason to constitute at least two-thirds
of the Board; provided, however, that if the election, or nomination for
election by the Company's stockholders, of any new director was approved by a
vote of at least two-thirds of the then Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; provided further, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") including by reason of any agreement intended to avoid
or settle any Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
A. A merger, consolidation or reorganization involving the Company,
unless
i. the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly,
immediately following such merger, consolidation or reorganization, at least
seventy percent of the combined voting power of the outstanding Voting
Securities of the corporation resulting from such merger or consolidation or
reorganization (the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization, and
ii. the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least two-thirds of the members of
the board of
12.
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directors of the Surviving Corporation or a corporation beneficially owning,
directly or indirectly, a majority of the Voting Securities of the Surviving
Corporation, and
III. no Person (other than the Company, any Subsidiary, any employee
benefit plan (or any trust forming a part thereof) maintained by the Company,
the Surviving Corporation or any Subsidiary, or any Person who, immediately
prior to such merger, consolidation or reorganization had Beneficial Ownership
of fifteen percent or more of the then outstanding Voting Securities) owns,
directly or indirectly, fifteen percent or more of the combined voting power of
the Surviving Corporation's then outstanding voting securities, and
IV. a transaction described in clauses i through iii shall herein be
referred to as a "Non-Control Transaction";
B. A complete liquidation or dissolution of the Company; or
C. A sale or other disposition of all or substantially all of the assets
of the Company to any Person (other than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by
reducing the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by the Subject Person,
provided that if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company,
and after such share acquisition by the Company, the Subject Person becomes the
Beneficial Owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities Beneficially Owned by the
Subject Person, then a Change in Control shall occur.
(4) Notwithstanding anything contained in this Agreement to the contrary,
if Executive's employment is terminated prior to a Change in Control and
Executive reasonably demonstrates that such termination (i) was at the request
of a third party who has indicated an intention or taken steps reasonably
calculated to effect a Change in Control and who effectuates a Change in
Control (a "Third Party") or (ii) otherwise occurred in connection with, or in
anticipation of, a Change in Control which actually occurs, then for all
purposes of this Agreement, the date of a Change in Control with respect to
Executive shall mean the date immediately prior to the date of such termination
of Executive's employment.
(V) COMPANY. The "Company" shall include the Company's "Successors and
Assigns" (as defined below).
13.
<PAGE> 14
(VI) NOTICE OF TERMINATION. "Notice of Termination" shall mean a written
notice of termination of Executive's employment from the Company which
indicates the specific termination provision in this Agreement relied upon and
which, if applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
(VII) PRO RATA BONUS. "Pro Rata Bonus" shall have the meaning ascribed to
such term in any agreement between Executive and the Company or any of its
affiliates, or if no such agreement with respect to such term exists, shall
mean an amount equal to (a) the Bonus Amount, if any, multiplied by a fraction,
(i) the numerator of which is the number of days from the first day of the
Company's fiscal year in which Executive ceases to be employed by the Company
until the Termination Date, and (ii) the denominator of which is 365, less (b)
any bonus included in the Bonus Amount in respect of such fiscal year and
previously paid.
(VIII) SUCCESSORS AND ASSIGNS. "Successors and Assigns" shall mean a
corporation or other entity acquiring all or substantially all the assets and
business of the Company whether by operation of law or otherwise.
(IX) TERMINATION DATE. For purposes of this Section 8, "Termination Date"
shall mean (a) in the case of Executive's death, his date of death, (b) in the
case of good reason, the last day of his employment, and (c) in all other
cases, the date specified in the Notice of Termination; provided, however, that
if Executive's employment is terminated by the Company due to disability, the
date specified in the Notice of Termination shall be at least 30 days from the
date the Notice of Termination is given to Executive, provided that in the case
of disability Executive shall not have returned to the full-time performance of
his duties during such period of at least 30 days.
(B) TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL.
(I) SEVERANCE PAY AND BENEFITS. If Executive shall cease to be employed
by the Company prior to the expiration of 15 months after the occurrence of a
Change in Control, in lieu of the payments and benefits described in Section 7,
Executive shall be entitled to the following compensation and benefits:
(1) If Executive's employment with the Company shall be terminated (other
than by reason of Executive's death and other than for disability) (x) by the
Company for any reason other than for cause or (y) by Executive as a result of
resignation for good reason, Executive shall be entitled to the following:
A. The Company shall pay Executive all Accrued Compensation and a Pro-Rata
Bonus;
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b. The Company shall pay Executive as severance pay and in lieu of any
further compensation for periods subsequent to the Termination Date, in a
single payment an amount in cash equal to one times the sum of (A) the Base
Amount and (B) the Bonus Amount; and
c. In the event Executive elects to continue his coverages under Section
5(j) hereof pursuant to COBRA, the Company make the required payments for such
coverages on behalf of Executive and his dependents and beneficiaries under
COBRA for 12 months following Executive's termination of employment (the
"Continuation Period"). The Company's obligation hereunder with respect to
making payments for the foregoing benefits shall terminate upon Executive's
ceasing to be eligible for continuation of such benefits from SubMicron under
COBRA. Executive shall promptly notify the Company in the event Executive
becomes covered by another benefit plan during the Continuation Period. This
paragraph c shall not be interpreted so as to limit any benefits to which
Executive, his dependents or beneficiaries may be otherwise entitled under any
of the Company's employee benefit plans, programs or practices following
termination of Executive's employment, including without limitation, retiree
medical and life insurance benefits, if any.
(2) If Executive's employment with the Company shall be terminated (x) by
reason of Executive's death or (y) for disability or (z) by Executive by
resignation other than for good reason, the Company shall pay to Executive the
Accrued Compensation plus the Pro Rata Bonus.
(3) If Executive's employment with the Company shall be terminated by the
Company for cause, the Company shall pay to Executive the Accrued Compensation.
(ii) PAYMENT FORM. The amounts provided for in paragraphs a and b of
Sections 8(b)(i) and Sections 8(b)(i)(2) and 8(b)(i)(3) shall be paid in a
single lump sum cash payment within five days after Executive's Termination
Date (or earlier, if required by applicable law); provided, however, upon the
written request of Executive, the Company shall pay such amounts to Executive
in equal installments no more frequently than the Company's standard pay cycle,
for a period not to exceed 12 months, beginning one pay period from Executive's
Termination Date.
(iii) NO MITIGATION. Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to Executive in any subsequent
employment.
15.
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(IV) OTHER SEVERANCE ARRANGEMENTS. Whether or not any Change in Control
shall occur, the following shall apply:
(1) This Agreement shall continue in full force and effect in accordance
with its terms.
(2) Executive's entitlement to any other compensation or benefits or any
indemnification shall be determined in accordance with the Company's employee
benefit plans, bonus plan and other applicable programs, policies and practices
or any indemnification agreement then in effect.
(C) NOTICE OF TERMINATION. Following a Change in Control, any purported
termination of Executive's employment by either party shall be communicated by
Notice of Termination to the other party. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
(D) EXCISE TAX LIMITATION.
(I) Notwithstanding anything contained in this Agreement to the contrary,
to the extent that the payments and benefits provided under this Agreement and
benefits provided to, or for the benefit of, the Executive under any other
Company plan or agreement (such payments or benefits are collectively referred
to as the "Payments") would be subject to the excise tax (the "Excise Tax")
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended,
the Payments shall be reduced (but not below zero) if and to the extent
necessary so that no Payment to be made or benefit to be provided to the
Executive shall be subject to the Excise Tax (such reduced amount is
hereinafter referred to as the "Limited Payment Amount"). Unless Executive
shall have given prior written notice specifying a different order to the
Company to effectuate the foregoing, the Company shall reduce or eliminate
Payments, by first reducing or eliminating the portion of Payments which is not
payable in cash and then by reducing or eliminating cash payments, in each case
in reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as defined below). Any notice given
by Executive pursuant to the preceding sentence shall take precedence over the
provisions of any other plan, arrangement or agreement governing Executive's
rights and entitlements to any benefits or compensation.
(II) The determination of whether Payments shall be reduced to the Limited
Payment Amount pursuant to this Agreement and the amount of such Limited
Payment Amount shall be made, at the Company's expense, by an accounting firm
selected by the Company from among the six largest accounting firms in the
United States (the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed
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<PAGE> 17
supporting calculations and documentation to the Company and Executive within
ten days of the Termination Date, if applicable, or such other time as
requested by Company or by Executive (provided Executive reasonably believes
that any of the Payments may be subject to the Excise Tax) and if the
Accounting Firm determines that no Excise Tax is payable by Executive with
respect to the Payments, it shall furnish Executive with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with respect to any
such Payments. The Determination shall be binding, final and conclusive upon
the Company and Executive.
(E) NON-EXCLUSIVITY OF RIGHTS. Nothing in this Section 8 shall prevent or
limit Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices (other than
such policies, plans, programs or practices set forth in this Agreement, which
in accordance with Section 8(b)(iv)(1) and subject to Section 9(a), shall
continue in full force and effect)) and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive may have under
any other agreements with the Company (except for any severance or termination
agreement). Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan or program of the Company shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement. Notwithstanding anything in this Agreement to the contrary, upon
the occurrence of a Change in Control, any options to purchase shares of the
Company's Common Stock granted by the Company to Executive shall be governed by
the respective option documents granting such options.
9. GENERAL PROVISIONS.
(A) ENTIRE AGREEMENT. The terms and provisions of this Agreement shall
constitute the entire understanding between Executive and the Company with
respect to the subject matter hereof, and shall supersede any and all prior
agreements or understandings between Executive and the Company, whether written
or oral.
(B) AMENDMENTS. This Agreement may be amended or modified only by a
written instrument executed by Executive and the Company.
(C) ASSIGNMENT. The rights or obligations contained in this Agreement
shall not be assigned, transferred, or divided in any manner by Executive or
the Company, without the prior written consent of the other; provided, however,
that nothing in this Section 9(c) shall preclude Executive from designating a
beneficiary to receive any benefits hereunder upon his death, or the executors,
administrators or other legal representatives of Executive or his estate from
assigning any rights hereunder to the person(s) entitled hereto.
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<PAGE> 18
(D) SUCCESSORS. This Agreement shall be binding upon and shall inure to
the benefit of the Company, its Successors and Assigns, and the Company shall
require any Successors and Assigns to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place.
(E) FEES AND EXPENSES. The Company shall pay all legal fees and related
expenses reasonably incurred by Executive as they become due in connection with
the preparation, negotiation and execution of this Agreement.
(F) GOVERNING LAW. This Agreement shall be governed by, interpreted and
enforced in accordance with Pennsylvania law as such laws are applied to
agreements between Pennsylvania residents entered into and to be performed in
Pennsylvania.
(G) SEVERABILITY. In the event that any terms or provisions of this
Agreement shall be held to be invalid or unenforceable, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remaining terms and provisions hereof.
(H) WAIVER OF BREACH. Any waiver of any breach of employment terms set
forth herein shall not be construed to be a continuing waiver of consent to any
subsequent breach on the part of either Executive or the Company.
(I) HEADINGS. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation and
performance of any of the provisions of this Agreement.
(J) NOTICES. All notices, requests, demands and other communications
hereunder (including any Notice of Termination) shall be in writing and shall be
deemed to have been duly given if personally delivered or if mailed by United
States certified or registered mail, prepaid, to the parties or their permitted
assignees at the following addresses (or at such other address as shall be given
in writing by either party to the other):
To: SubMicron Systems Corporation
6330 Hedgewood Dr., #150
Allentown, PA 18106
To: David W. Dedman
1491 Sumneytown Pike
Lansdale, PA 19446
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<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the day and year first written above.
SUBMICRON SYSTEMS CORPORATION
By: _____________________________________ _____________________________________
David J. Ferran David W. Dedman
President and Chief Executive Officer
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Exhibit 10.10
SEVERANCE/CONSULTING AGREEMENT
THIS AGREEMENT, made as of this 22nd day of June, 1997, by and between
SubMicron Systems Corporation, a Delaware corporation (the "Company"), and David
F. Levy, an individual residing at 17270 Bermuda Village Drive, Boca Country
Club, Bermuda Village, Boca Raton, FL 33487 ("Levy").
B A C K G R O U N D:
Until May 6, 1997, Levy served as Chairman of the Board, President and
Chief Executive Officer of the Company and as an executive officer or director
of certain of the Company's subsidiaries. As of May 6, 1997, Levy resigned as
President and Chief Executive Officer of the Company. Levy wishes to resign from
all of his positions as an officer and director of the Company and as an officer
or director of any of its subsidiaries. The Company and Levy are parties to an
Employment Agreement dated as of August 31, 1993 (the "Prior Agreement")
pursuant to which Levy has been employed by the Company. In order to ensure that
the Company will continue to have the benefits of Levy's expertise and
experience, and in recognition of Levy's past services to the Company, the
Company desires to engage Levy as a consultant, and Levy desires to become a
consultant to the Company, upon the terms and conditions set forth herein.
Accordingly, this Agreement is intended to replace the Prior Agreement, and as
of the date hereof, the Prior Agreement shall be of no further force or effect.
NOW, THEREFORE, in consideration of the facts, mutual promises and
covenants contained herein and intending to be legally bound hereby, the Company
and Levy agree as follows:
1. Resignation of Current Positions; Continuation of Service. Levy
hereby resigns all of his positions as a director and officer of the Company and
as an officer or member of the board of directors of any of its subsidiaries,
including without limitation his positions as Chairman of the Board and a
director of the Company (Levy had previously resigned as President and Chief
Executive Officer of the Company).
2. Duties. During the term of this Agreement, Levy agrees to render
such services, including without limitation such consultation and advice, as may
be reasonably requested of him by the Board of Directors or the Chief Executive
Officer of the Company; provided, however, Levy's services hereunder shall be
requested and performed only during regular business hours on weekdays (subject
to such periods when Levy shall be unavailable by reason of illness, vacation or
otherwise). It is agreed that Levy's services hereunder shall normally be
performed at the Company's principal executive offices and that out-of-town
travel shall not be required, except with Levy's consent. If Levy is at his
residence in Florida when requested to perform services for the Company, he
shall be reimbursed for his reasonable travel expenses in returning to the
Company's principal executive offices.
3. Term. This Agreement shall commence as of the date hereof and shall
continue until June 30, 2000, unless sooner terminated as hereinafter provided
(the "Term").
<PAGE> 2
4. Compensation.
(a) Cash. For all of the services rendered by Levy to the Company,
and all of the restrictions or obligations of Levy hereunder, Levy shall receive
payments at the annual rate of Three Hundred Sixty Thousand Dollars ($360,000),
payable in installments in accordance with the Company's regular payroll
practices in effect from time to time.
(b) Automobile. During the Term, the Company shall continue leasing
the BMW currently being leased by the Company for Levy's use and shall be
responsible for paying all expenses in connection with its use during the Term,
including, but not limited to, maintenance, insurance and fuel. If this
Agreement is still in effect at the end of the Term, the Company will deliver
free and clear title to such automobile to Levy. Further, subject to Levy's
reimbursement to the Company of the applicable insurance premiums, the Company
will, to the extent it is permitted by its policies, continue to provide
insurance with respect to Levy's other automobiles during the Term.
(c) Benefits; Insurance.
(i) Medical, Life, Dental and Vision Benefits. During the Term,
(A) Levy and his eligible spouse and dependents will be entitled to receive such
group medical, dental and vision benefits as the Company may generally provide
to its employees and executive officers from time to time, and (B) the Company
will continue paying the premiums on the split-dollar life insurance policy
currently being provided by the Company to Levy. From the expiration of the Term
until May 31, 2004, except if the Company has terminated this Agreement for
Cause, Levy and his eligible spouse and dependents will continue to be entitled
to receive such group medical, dental and vision benefits as the Company may
provide to its employees and executive officers from time to time, unless Levy
is employed by another employer (other than a company formed by Levy) and in
connection therewith is entitled to participate in medical, dental or vision
benefits in connection with such employment.
(ii) Other Welfare Benefits. During the Term, Levy will be
entitled to receive such other welfare benefits as the Company currently
provides or such additional welfare benefits as the Company may during the Term
provide for its employees and executive officers, to the extent Levy is entitled
to be covered by such benefits.
(d) New York Residence. During the Term, the Company will pay Levy's
condominium maintenance and garage fees with respect to his New York residence
at 340 E. 64th Street, Apt. 33D, New York, New York. Those fees currently
aggregate approximately $1,500 per month, but it is understood that the amount
of such fees may vary during the Term.
(e) Personal Property. Upon Levy's written request at any time
during the Term or upon his termination of service with the Company (whether or
not during the Term), to the extent permitted by any third parties having rights
with respect to such items, the Company shall transfer the ownership of the
items listed on Exhibit A hereto to Levy and deliver such items to Levy, at the
Company's expense, as reasonably directed by Levy. In connection with such
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transfer, the Company shall use reasonable efforts to preserve Levy's PIN Number
54006 on his pager for his continued use.
5. Expenses. The Company will reimburse Levy for all reasonable
expenses incurred by Levy in connection with the performance of Levy's services
hereunder upon receipt of vouchers therefor and in accordance with the Company's
regular reimbursement procedures and practices in effect from time to time. Such
expenses shall include, without limitation, expenses related to the portable
communication facilities presently provided to Levy, including his portable
cellular phone, car phone and pager to the extent used to provide services to
the Company hereunder. To facilitate Levy's payment of the expenses authorized
in this Section 5, the Company shall continue to authorize, during the Term,
Levy's use of the Company's credit cards listed on Exhibit B hereto, to the
extent the Company generally maintains credit cards with such companies. In the
event Levy utilizes any of the credit cards or portable communications
facilities for non-Company business, Levy will promptly reimburse the Company
for any such charges or expenses paid or incurred by the Company.
6. Termination of Service.
(a) Death. Levy's service shall be terminated at Levy's death.
(b) Discharge for Cause. The Company may terminate Levy's service to
the Company at any time for Cause. For purposes of this Agreement, "Cause" shall
be defined as a material breach by Levy of Section 8 or 9 of this Agreement
after 30 days' prior written notice to Levy of such material breach and Levy's
failure to cure such breach.
7. Obligations of Employer Upon Termination.
(a) Death. If Levy's service shall be terminated by reason of death,
the Company shall pay to Levy's designee identified in a written designation
filed by Levy with the Company during Levy's lifetime or, if there be no such
designation, to Levy's estate, for the lesser of (i) a period of one year after
Levy's death or (ii) until May 31, 2000, payments based on Levy's annual payment
of $360,000 in accordance with the Company's normal payroll practices as if the
Levy had remained in the service of the Company. This shall be the Company's
sole obligation to Levy and his estate.
(b) Cause. If the Company shall terminate Levy's employment for
Cause, the Company shall pay Levy, subject to any offsetting claim asserted by
the Company in good faith in the event of a termination for Cause, the amount
payable to Levy under Section 4(a) through the date of termination. This shall
be the Company's sole obligation to Levy.
(c) Other Termination.
(i) In the event of the termination by the Company of Levy's
service other than pursuant to Section 6(b), Levy will continue to receive,
until June 30, 2000 (the
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"Severance Period"), payments at the rate of $360,000 per annum in accordance
with the Company's normal payroll practices as if Levy had remained in the
service of the Company during the Severance Period; provided, however, the
Company shall be entitled to cease making such payments in the event that Levy
violates the provisions of Section 8 or 9. In addition, the Company shall
continue to provide to Levy during the Severance Period the benefits Levy was
receiving or was entitled to receive immediately prior to the termination of his
service pursuant to Section 4(c), including without limitation, the provision of
health insurance for Levy and his eligible spouse and dependents; provided,
however, the Company may cease providing such benefits in the event it is
entitled to cease making payments to Levy in accordance with the previous
sentence. The payments and benefits set forth in Section 7(c) are referred to
herein as the "Severance Benefits."
(ii) In the event of the death of Levy after he becomes entitled
to Severance Benefits, the Severance Benefits will be paid to Levy's estate, and
all benefits as described in Section 4(c) that benefit Levy's spouse and/or
dependents will continue for the above specified period.
(d) Penalty for Late Payments. If the Company does not timely make
the payments called for under this Section, the unpaid balance will accrue
interest at the rate of 18% per year. Such late charges will be due and payable
to Levy on the first day of each 30-day period thereafter.
8. Company Property. All advertising, sales, manufacturers' and other
materials or articles or information, including without limitation data
processing reports, customer sales analyses, invoices, price lists or
information, samples, or any other materials or data of any kind furnished to
Levy by the Company or developed by Levy on behalf of the Company or at the
Company's direction or for the Company's use or otherwise in connection with
Levy's prior employment or his service hereunder, are and shall remain the sole
and confidential property of the Company; if the Company requests the return of
such materials at any time during or at or after the termination of Levy's
employment or service, Levy shall immediately deliver the same to the Company.
9. Noncompetition, Trade Secrets, Etc.
(a) During the Term and for a period of one year after the
termination of his employment or service with Company for any reason (whether or
not during the Term), Levy shall not, directly or indirectly, solicit, induce,
encourage or attempt to influence any client, customer, employee, consultant,
independent contractor, salesman or supplier of the Company to cease to do
business or terminate his employment with the Company, and shall not engage in
(as a principal, partner, director, officer, agent, employee, consultant or
otherwise) or be financially interested in any business operating anywhere which
is involved in business activities which are the same as, similar to, or in
competition with business activities carried on by the Company, or being
definitively planned by the Company, at the time of the termination of Levy's
employment or service with the Company. However, nothing contained in this
Section 9 shall prevent Levy from holding
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for investment no more than five percent (5%) of any class of equity securities
of a company whose securities are publicly traded.
(b) During the Term and at all times thereafter, Levy shall not use
for his personal benefit, or disclose, communicate or divulge to, or use for the
direct or indirect benefit of any person, firm, association or company other
than the Company, any material referred to in Section 8 above or any information
regarding the business methods, business policies, procedures, techniques,
research or development projects or results, trade secrets, or other knowledge
or processes of or developed by the Company or any names and addresses of
customers or clients or any data on or relating to past, present or prospective
customers or clients or any other confidential information relating to or
dealing with the business operations or activities of the Company, made known to
Levy or learned or acquired by Levy while in the employ or service of the
Company.
(c) Any and all writings, inventions, improvements, processes and/or
techniques which Levy may make, conceive, discover or develop, either solely or
jointly with any other person or persons, at any time during his prior
employment with the Company or during the Term, whether during working hours or
at any other time and whether at the request or upon the suggestion of the
Company or otherwise, which relate to or are useful in connection with any
business now or hereafter carried on or contemplated by the Company, including
developments or expansions of its present fields of operations, shall be the
sole and exclusive property of the Company. Levy shall make full disclosure to
the Company of all such writings, inventions, improvements, processes,
procedures and techniques, and shall do everything necessary or desirable to
vest the absolute title thereto in the Company. Levy shall write and prepare all
specifications and procedures regarding such inventions, improvements,
processes, procedures and techniques and otherwise aid and assist the Company so
that the Company can prepare and present applications for copyright or Letters
Patent therefor and can secure such copyright or Letters Patent wherever
possible, as well as reissues, renewals, and extensions thereof, and can obtain
the record title to such copyright or patents so that the Company shall be the
sole and absolute owner thereof in all countries in which it may desire to have
copyright or patent protection. Levy shall not be entitled to any additional or
special compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques.
(d) Levy acknowledges that the restrictions contained in the
foregoing subsections (a), (b) and (c), in view of the international nature of
the business in which the Company is engaged, are reasonable and necessary in
order to protect the legitimate interests of the Company, and that any violation
thereof would result in irreparable injuries to the Company, and Levy therefore
acknowledges that, in the event of his violation of any of these restrictions,
the Company shall be entitled to obtain from any court of competent jurisdiction
preliminary and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company may be entitled.
(e) If the period of time or the area specified in subsection (a)
above should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such
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number of months or the area shall be reduced by the elimination of such portion
thereof or both so that such restrictions may be enforced in such area and for
such time as is adjudged to be reasonable. If Levy violates any of the
restrictions contained in the foregoing subsection (a), the restrictive period
shall not run in favor of Levy from the time of the commencement of any such
violation until such time as such violation shall be cured by Levy to the
satisfaction of the Company.
(f) For purposes of Sections 8 and 9 of this Agreement, the term
"Company" shall mean SubMicron Systems Corporation and its direct and indirect
subsidiaries.
10. Release; Continued Indemnification.
(a) Levy, and all other persons and entities claiming through or
under him, hereby releases and forever discharges the Company, its subsidiaries,
affiliates, predecessors, successors and assigns, and their present and former
directors, officers, employees, agents, and representatives (hereinafter
collectively "Releasees"), both in their official corporate capacities and in
their individual capacities, of and from any and all obligations, claims,
demands, promises, attorney's fees, actions or causes of actions of any nature
whatsoever (hereinafter collectively "Claims"), including but not limited to,
any and all Claims in any way arising from, relating to, or based upon Levy's
relationship with the Company and/or modification of that relationship, and/or
any and all Claims for breach of contract, unfair competition, wrongful and/or
retaliatory termination, defamation, infliction of emotional distress,
interference with contractual relations, discrimination (including, without
limitation, discrimination based upon race, national origin, ancestry, religion,
sex, age (specifically including claims under the Age Discrimination in
Employment Act), marital status, sexual orientation, or non-job related
handicap) and/or on any other theory of liability that against Releasees, Levy
and all other persons and entities claiming through or under him, ever had, now
have, or hereafter can, shall, or may have, from the beginning of the world to
the date of execution of this Agreement.
(b) The Company hereby releases and forever discharges Levy of and
from any all obligations, claims, demands, promises, attorney's fees, actions or
causes of actions of any nature whatsoever (hereinafter collectively "Claims
against Levy"), including but not limited to, any and all Claims against Levy in
any way arising from, relating to, or based upon Levy's relationship with the
Company and/or the modification of that relationship and/or any and all claims
for breach of contract, unfair competition, wrongful and/or retaliatory
termination, defamation, infliction of emotional distress, interference with
contractual relations, and/or on any other theory of liability that against
Levy, the Company ever had, now has, or hereafter can, shall, or may have, from
the beginning of the world to the date of execution of this Agreement.
(c) Indemnification. With respect to matters arising prior to the
date hereof, the Company shall continue to provide Levy with indemnification and
advancement of expenses to the same extent as the Company provides to its
officers and directors under its By-laws.
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11. Options.
(a) Service. During the Term, Levy's service to the Company shall
be deemed to constitute employment or service with the Company for purposes of
all options granted to Employee under the Company's 1993 Key Employee Stock
Option Plan (the "1993 Option Plan") and the Company's 1991 Amended and Restated
Stock Option Plan.
(b) Extension of Options. Employee has been granted an option (the
"1993 Options") to purchase 268,125 shares of the Company's Common Stock at
$6.00 per share under the 1993 Option Plan pursuant to an Option Agreement dated
August 31, 1993 between the Company and Levy (the "Option Agreement"). The 1993
Options expire on August 31, 1998 (the "Expiration Date" under the Option
Agreement), unless sooner terminated as provided therein. The Company hereby
agrees that the Expiration Date of the 1993 Options shall be extended until the
end of the Term. All other terms of the 1993 Options shall remain unchanged.
12. Miscellaneous.
(a) Press Release. The parties shall agree on a mutually acceptable
press release regarding Levy's resignation as Chairman of the Board and as a
director of the Company.
(b) Non-Disparagement. With the exception of claims that may arise
out of noncompliance with this Agreement, neither party shall disparage the
other or place the other in an unfavorable light.
(c) Indulgences, Etc. Neither the failure nor any delay on the part
of either party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.
(d) Controlling Law. This Agreement and all questions relating to
its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania
and without the aid of any canon, custom or rule of law requiring construction
against the draftsman.
(e) Review Period. Levy acknowledges that an unexecuted copy of
this Agreement was presented to him for his review on or before June 19, 1997,
and that the Company has given him at least 21 days in which to consider this
Agreement.
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<PAGE> 8
(f) Consulting with Counsel. Levy acknowledges that the Company has
advised him, in writing, to consult with an attorney prior to signing this
Agreement.
(g) Revocation of Agreement. This Agreement will not become
effective or enforceable for a period of seven days after its execution by Levy.
Levy may revoke this Agreement during such seven-day period by providing the
Company with written notice of revocation within such period. In the event that
Levy does not provide the Company with notice of revocation within such
seven-day period, this Agreement shall then be fully binding on, and
non-revocable by, Levy.
(h) Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be deemed to have been duly given, made and received only when
delivered (personally, by courier service such as Federal Express, or by other
messenger) or when deposited in the United States mails, registered or certified
mail, postage prepaid, return receipt requested, addressed as set forth below:
(i) If to Levy:
David F. Levy
17270 Bermuda Village Drive
Boca Country Club, Bermuda Village
Boca Raton, FL 33487
(ii) If to Company:
SubMicron Systems Corporation
6620 Grant Way
Allentown, PA 18106
Attention: President
In addition, notice by mail shall be by air mail if posted outside
of the continental United States.
Any party may alter the address to which communications or copies
are to be sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
(i) Binding Nature of Agreement. This Agreement shall be binding
upon and inure to the benefit of the Company and its successors and assigns and
shall be binding upon Levy, his heirs and legal representatives.
(j) Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument.
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<PAGE> 9
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
(k) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(l) Entire Agreement. This Agreement contains the entire
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained, including without limitation the Prior Agreement.
The express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement may
not be modified or amended other than by an agreement in writing.
(m) Section Headings. The section headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not affect
its interpretation.
(n) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not a
Saturday, Sunday or such holiday.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
SUBMICRON SYSTEMS CORPORATION
By:/s/ David J. Ferran
------------------------------------
Name: David J. Ferran
Title: President
Levy:
/s/ David F. Levy
---------------------------------------
David F. Levy
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<PAGE> 1
Exhibit 10.12
[LOGO]
LOAN AND SECURITY AGREEMENT
BORROWER: SUBMICRON SYSTEMS, INC.
ADDRESS: 6330 HEDGEWOOD DRIVE
ALLENTOWN, PENNSYLVANIA 18106
BORROWER: SUBMICRON WET PROCESS STATIONS, INC.
ADDRESS: 3381 EDWARDS AVENUE
SANTA CLARA, CALIFORNIA 95054
DATE: NOVEMBER 25, 1997
This Loan and Security Agreement is entered into on the above date
between GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial
Corporation ("GBC"), whose address is 10880 Wilshire Boulevard, Suite
950, Los Angeles, CA 90024 and the borrower(s) named above (jointly and
severally "Borrower"), whose chief executive office is located at the
above address ("Borrower's Address"). The Schedule to this Agreement
(the "Schedule") being signed concurrently is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set
forth in Section 8 below.)
1. LOANS.
1.1 LOANS. GBC will make loans to Borrower (the "Loans"), in
amounts determined by GBC in its good faith business judgment, up to the
amounts (the "Credit Limit") shown on the Schedule, provided no Default or
Event of Default has occurred and is continuing. If at any time or for any
reason the total of all outstanding Loans and all other Obligations
exceeds the Credit Limit, Borrower shall immediately pay the amount of the
excess to GBC, without notice or demand.
1.2 INTEREST. All Loans and all other monetary Obligations shall
bear interest at the rate shown on the Schedule, except where expressly
set forth to the contrary in this Agreement or in another written
agreement signed by GBC and Borrower. Interest shall be payable monthly,
on the last day of the month. Interest may, in GBC's discretion, be
charged to Borrower's loan account, and the same shall thereafter bear
interest at the same rate as the other Loans.
1.3 FEES. Borrower shall pay GBC the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to GBC and
are not refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of
all of the Obligations when due, Borrower hereby grants to GBC a security
interest in all of Borrower's interest in the following, whether now
owned or hereafter acquired, and wherever located (collectively, the
"Collateral"): All Inventory, Equipment, Receivables, and General
Intangibles, including, without limitation, all of Borrower's Deposit
Accounts, all money, all collateral in which GBC is granted a security
interest pursuant to any other present or future agreement, all property
now or at any time in the future in GBC's possession, and all proceeds
(including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products of the foregoing, and all
books and records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce GBC to enter into this Agreement and to make
Loans, Borrower represents and warrants to GBC as follows, and Borrower
covenants that the following representations will continue to be true,
and that Borrower will at all times comply with all of the following
covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation,
is and will continue to be, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation.
Borrower is and will continue to be qualified and licensed to do business
in all jurisdictions in which any failure to do so would have a material
adverse effect on Borrower. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby
(i) have been duly and validly authorized, (ii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be
limited by equitable principles and by bankruptcy, insolvency,
reorganization,
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<PAGE> 2
moratorium or similar laws relating to creditors' rights generally),
(iii) do not violate Borrower's articles or certificate of incorporation,
or Borrower's by-laws, or any law or any material agreement or instrument
which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding
upon Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth
in the heading to this Agreement is its correct name. Listed on the
Schedule are all prior names of Borrower and all of Borrower's present
and prior trade names. Borrower shall give GBC 30 days' prior written
notice before changing its name or doing business under any other name.
Borrower has complied, and will in the future comply, with all laws
relating to the conduct of business under a fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set
forth in the heading to this Agreement is Borrower's chief executive
office. In addition, Borrower has places of business and Collateral is
located only at the locations set forth on the Schedule. Borrower will
give GBC at least 30 days prior written notice before opening any
additional place of business, changing its chief executive office, or
moving any of the Collateral to a location other than Borrower's Address
or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will
at all times in the future be, the sole owner of all the Collateral,
except for items of Equipment which are leased by Borrower. The
Collateral now is and will remain free and clear of any and all liens,
charges, security interests, encumbrances and adverse claims, except for
Permitted Liens. GBC now has, and will continue to have, a first-priority
perfected and enforceable security interest in all of the Collateral,
subject only to the Permitted Liens, and Borrower will at all times defend
GBC and the Collateral against all claims of others. So long as any Loan
is outstanding which is a term loan, none of the Collateral now is or will
be affixed to any real property in such a manner, or with such intent, as
to become a fixture. Borrower is not and will not become a lessee under
any real property lease pursuant to which the lessor may obtain any rights
in any of the Collateral superior to those of GBC and no such lease now
prohibits, materially restrains, or impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party
has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise), Borrower shall, whenever requested by GBC, use
its best efforts to cause such third party to execute and deliver to GBC,
in form acceptable to GBC, such waivers and subordinations as GBC shall
specify, so as to ensure that GBC's rights in the Collateral are, and will
continue to be, superior to the rights of any such third party. Borrower
will keep in full force and effect, and will comply with all the terms of,
any lease of real property where any of the Collateral now or in the
future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the
Collateral in good working condition, ordinary wear and tear excepted,
and Borrower will not use the Collateral for any unlawful purpose.
Borrower will promptly advise GBC in writing of any material loss or
damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain
at Borrower's Address complete and accurate books and records, comprising
an accounting system in accordance with generally accepted accounting
principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to GBC have been, and will be,
prepared in conformity with generally accepted accounting principles and
now and in the future will completely and fairly reflect the financial
condition of Borrower, at the times and for the periods therein stated.
Between the last date covered by any such statement provided to GBC and
the date hereof, there has been no material adverse change in the
financial condition or business of Borrower. Borrower is now and will
continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required
by applicable law, and Borrower has timely paid, and will timely pay, all
applicable taxes, assessments, deposits and contributions now or in the
future owed by Borrower. Borrower may, however, defer payment of any
contested taxes, provided that Borrower (i) in good faith contests
Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies GBC in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to
keep the contested taxes from becoming a lien upon any of the Collateral.
Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall
continue to pay all amounts necessary to fund all present and future
pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from
participation in, permit partial or complete termination of, or permit
the occurrence of any other event with respect to, any such plan which
could result in any liability of Borrower, including any liability to the
Pension Benefit Guaranty Corporation or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll
service providing for the automatic deposit of all payroll taxes payable
by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply,
in all material respects, with all provisions of all applicable laws and
regulations, including, but not limited to, those relating to Borrower's
ownership of real or personal property, the conduct and licensing of
Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best
of Borrower's knowledge) threatened by or against or affecting Borrower
in any court or
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<PAGE> 3
before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of
Borrower, or in any material impairment in the ability of Borrower to
carry on its business in substantially the same manner as it is now being
conducted. Borrower will promptly inform GBC in writing of any claim,
proceeding, litigation or investigation in the future threatened or
instituted by or against Borrower involving any single claim of $50,000
or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used
solely for lawful business purposes.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents
and warrants to GBC as follows: Each Receivable with respect to which
Loans are requested by Borrower shall, on the date each Loan is requested
and made, represent an undisputed, bona fide, existing, unconditional
obligation of the Account Debtor created by the sale, delivery, and
acceptance of goods or the rendition of services, in the ordinary course
of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to GBC as follows: All statements made
and all unpaid balances appearing in all invoices, instruments and other
documents evidencing the Receivables are and shall be true and correct and
all such invoices, instruments and other documents and all of Borrower's
books and records are and shall be genuine and in all respects what they
purport to be, and all signatories and endorsers have the capacity to
contract. All sales and other transactions underlying or giving rise to
each Receivable shall comply with all applicable laws and governmental
rules and regulations. All signatures and indorsements on all documents,
instruments, and agreements relating to all Receivables are and shall be
genuine, and all such documents, instruments and agreements are and shall
be legally enforceable in accordance with their terms. Subject to
limitations on enforcement imposed by equitable principles and by
bankruptcy, insolvency and other similar laws affecting creditors rights
generally
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower
shall deliver to GBC transaction reports and loan requests, schedules and
assignments of all Receivables, and schedules of collections, all on
GBC's standard forms; provided, however, that Borrower's failure to
execute and deliver the same shall not affect or limit GBC's security
interest and other rights in all of Borrower's Receivables, nor shall
GBC's failure to advance or lend against a specific Receivable affect or
limit GBC's security interest and other rights therein. Together with
each such schedule and assignment, or later if requested by GBC, Borrower
shall furnish GBC with copies (or, at GBC's request, originals) of all
contracts, orders, invoices, and other similar documents, and all
original shipping instructions, delivery receipts, bills of lading, and
other evidence of delivery, for any goods the sale or disposition of
which gave rise to such Receivables, and Borrower warrants the
genuineness of all of the foregoing. Borrower shall also furnish to GBC
an aged accounts receivable trial balance in such form and at such
intervals as GBC shall request. In addition, Borrower shall deliver to
GBC the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, immediately upon receipt thereof and in the same form as
received, with all necessary indorsements.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to
collect all Receivables, unless and until a Default or an Event of
Default has occurred. Borrower shall hold all payments on, and proceeds
of, Receivables in trust for GBC, and Borrower shall deliver all such
payments and proceeds to GBC, within one business day after receipt of
the same, in their original form, duly endorsed, to be applied to the
Obligations in such order as GBC shall determine.
4.5 DISPUTES. Borrower shall notify GBC promptly of all disputes
or claims relating to Receivables on the regular reports to GBC.
Borrower shall not forgive, or settle any Receivable for less than
payment in full, or agree to do any of the foregoing, except that
Borrower may do so, provided that: (i) Borrower does so in good faith, in
a commercially reasonable manner, in the ordinary course of business, and
in arm's length transactions, which are reported to GBC on the regular
reports provided to GBC; (ii) no Default or Event of Default has
occurred and is continuing; and (iii) taking into account all such
settlements and forgiveness, the total outstanding Loans and other
Obligations will not exceed the Credit Limit.
4.6 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the
reason for such return and if accepted for return in the discretion of
borrower consistent with past practice, borrower shall promptly issue a
credit memorandum to the Account Debtor in the appropriate amount (sending
a copy to GBC). In the event any attempted return occurs after the
occurrence of any Event of Default, Borrower shall (i) not accept any
return without GBC's prior written consent, (ii) hold the returned
Inventory in trust for GBC, (iii) segregate all returned Inventory from
all of Borrower's other property, (iv) conspicuously label the returned
Inventory as GBC's property, and (v) immediately notify GBC of the return
of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on GBC's request deliver such
returned Inventory to GBC.
4.7 VERIFICATION. GBC may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters
relating to the Receivables, by means of mail, telephone or otherwise,
either in the name of Borrower or GBC or such other name as GBC may
choose, and GBC or its designee may, at any time, notify Account Debtors
that it has a security interest in the Receivables.
4.8 NO LIABILITY. GBC shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or
loss or destruction of, any goods, the sale or other disposition of which
gives rise to a Receivable, or for any error, act, omission, or delay of
any kind occurring in the settlement, failure to settle, collection or
failure to collect any Receivable, or for settling any Receivable in good
faith for less than the full
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<PAGE> 4
amount thereof, nor shall GBC be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve GBC from liability
for its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the
tangible personal property Collateral and carry such other business
insurance, with insurers reasonably acceptable to GBC, in such form and
amounts as GBC may reasonably require, and Borrower shall provide
evidence of such insurance to GBC, so that GBC is satisfied that such
insurance is, at all times, in full force and effect. All such insurance
policies shall name GBC as an additional loss payee, and shall contain a
lenders loss payee endorsement in form reasonably acceptable to GBC.
Upon receipt of the proceeds of any such insurance, GBC shall apply such
proceeds in reduction of the Obligations as GBC shall determine in its
sole discretion, except that, provided no Default or Event of Default has
occurred and is continuing, GBC shall release to Borrower insurance
proceeds with respect to Equipment totaling less than * $200,000, which
shall be utilized by Borrower for the replacement of the Equipment with
respect to which the insurance proceeds were paid. GBC may require
reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, GBC may,
but is not obligated to, obtain the same at Borrower's expense. Borrower
shall promptly deliver to GBC copies of all reports made to insurance
companies.
5.2 REPORTS. Borrower, at its expense, shall provide GBC with the
written reports set forth in the Schedule, and such other written reports
with respect to Borrower (including budgets, sales projections, operating
plans and other financial documentation), as GBC shall from time to time
reasonably specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times,
and on one business day's notice, GBC, or its agents, shall have the right
to inspect the Collateral, and the right to audit and copy Borrower's
books and records. GBC shall take reasonable steps to keep confidential
all information obtained in any such inspection or audit, but GBC shall
have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other
legal process. GBC shall use its good faith efforts to notify borrower of
any such intended disclosure pursuant to subpoena or other legal process,
but GBC shall have no liability for any failure to do so. The foregoing
inspections and audits shall be at Borrower's expense and the charge
therefor shall be $600 per person per day (or such higher amount as shall
represent GBC's then current standard charge for the same), plus
reasonable out-of-pockets expenses. Borrower shall not be charged more
than $3,000 per audit (plus reasonable out-of-pockets expenses), nor shall
audits be done more frequently than four times per calendar year, provided
that the foregoing limits shall not apply after the occurrence of a
Default or Event of Default, nor shall they restrict GBC's right to
conduct audits at its own expense (whether or not a Default or Event of
Default has occurred). Borrower will not enter into any agreement with any
accounting firm, service bureau or third party to store Borrower's books
or records at any location other than Borrower's Address, without first
obtaining GBC's written consent, which may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give GBC
the same rights with respect to access to books and records and related
rights as GBC has under this Agreement.
5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or
other disposition of any Collateral shall be delivered, in kind, by
Borrower to GBC in the original form in which received by Borrower not
later than the following business day after receipt by Borrower, to be
applied to the Obligations in such order as GBC shall determine; provided
that, (a) proceeds from the sale of collateral pursuant to transactions
permitted by Section 5.5(iii) need not be remitted by borrower to GBC
unless an event of default shall have occurred and be continuing, and (b)
if no Default or Event of Default has occurred and is continuing, then
Borrower shall not be obligated to remit to GBC the proceeds of the sale
of Equipment which is sold in the ordinary course of business, in a
good-faith arm's length transaction. Except for the proceeds of the sale
of collateral as set forth above, Borrower shall not commingle proceeds of
Collateral with any of Borrower's other funds or property, and shall hold
such proceeds separate and apart from such other funds and property and in
an express trust for GBC. Nothing in this Section limits the restrictions
on disposition of Collateral set forth elsewhere in this Agreement.
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without GBC's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity,
unless borrower is the surviving corporation in such merger and no event
of default results from such merger under the other provisions of this
agreement; (ii) acquire any assets, except in the ordinary course of
business or, if other than in the ordinary course, with a fair market
value in the aggregate in excess of $100,000 in any fiscal quarter; (iii)
enter into any other transaction outside the ordinary course of business
other than (a) contribution of borrower's assets listed on Exhibit A
hereto to Primaxx Corporation ("Primaxx") in connection with the
contemplated sale of the capital stock of Primaxx to an unaffiliated third
party; and (b) the contemplated sale of the capital stock of Primaxx to an
unaffiliated third part in an arms length transaction; provided that the
consummation of the transactions described in clauses (a) through (b) is
subject to the following condition: No loans will be outstanding with
respect to any receivables or inventory included in the assets contributed
or sold; (iv) sell or transfer any Collateral, except that, provided no
Default or Event of Default has occurred and is continuing, Borrower may
(a) sell finished Inventory in the ordinary course of Borrower's business,
and (b) sell Equipment in the ordinary course of business, in good-faith
arm's length transactions; (v) store any Inventory or other Collateral
with any warehouseman or other third party other than inventory stored on
customer sites or at bonded warehouses (none of which inventory shall
constitute "eligible inventory"); (vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis
(but the foregoing is not intended to prohibit borrower from storing
inventory on customer sites in the ordinary course of business; provided
that no inventory so stored shall be "eligible inventory"); (vii) make any
loans of any money or other assets other than loans to other borrowers or
to Submicron Systems Corporation (the "Parent") or secured loans which in
a total amount for all such loans not to exceed $59,000 at any time
outstanding; (viii) incur any debts, outside the ordinary course of
business, which would have a material, adverse effect on Borrower or on
the prospect of repayment of the Obligations; (ix) guarantee or otherwise
become liable with respect to the obligations of another party or entity;
(x) pay or declare any dividends on Borrower's stock (except for dividends
payable solely in stock of Borrower and except for cash dividends paid to
the Parent in accordance with applicable law); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's
stock; (xii) make any change in Borrower's capital structure which would
have a material adverse effect on Borrower or on the prospect of repayment
of the Obligations; or (xiii) dissolve or elect to dissolve; or (xiv)
agree to do any of the foregoing.
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5.6 LITIGATION COOPERATION. Should any third-party suit or
proceeding be instituted by or against GBC with respect to any Collateral
or in any manner relating to Borrower, Borrower shall, without expense to
GBC, make available Borrower and its officers, employees and agents, and
Borrower's books and records, without charge, to the extent that GBC may
deem them reasonably necessary in order to prosecute or defend any such
suit or proceeding. Any such books and records made available to GBC
hereunder shall be subject to the confidentiality provisions of Section
5.3 above.
5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify GBC in
writing of any change in its officers or directors, the opening of any
new bank account or other deposit account, and any material adverse
change in the business or financial affairs of Borrower.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on
request by GBC, to execute all documents and take all actions, as GBC may
deem reasonably necessary or useful in order to perfect and maintain
GBC's perfected security interest in the Collateral, and in order to
fully consummate the transactions contemplated by this Agreement.
5.9 INDEMNITY. Borrower hereby agrees to indemnify GBC and hold
GBC harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, costs and
expenses (including attorneys' fees), of every nature, character and
description, which GBC may sustain or incur based upon or arising out of
any of the Obligations, any actual or alleged failure to collect and pay
over any withholding or other tax relating to Borrower or its employees,
any relationship or agreement between GBC and Borrower, any actual or
alleged failure of GBC to comply with any writ of attachment or other
legal process relating to Borrower or any of its property, or any other
matter, cause or thing whatsoever occurred, done, omitted or suffered to
be done by GBC relating to Borrower or the Obligations (except any such
amounts sustained or incurred as the result of the gross negligence or
willful misconduct of GBC or any of its directors, officers, employees,
agents, attorneys, or any other person affiliated with or representing
GBC). Notwithstanding any provision in this Agreement to the contrary,
the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full
force and effect.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until
the maturity date set forth on the Schedule (the "Maturity Date");
provided that the Maturity Date shall automatically be extended, and this
Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice
to the other, not less than sixty days prior to the next Maturity Date,
that such party elects to terminate this Agreement effective on the next
Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to
the Maturity Date as follows: (i) by Borrower, effective three business
days after written notice of termination is given to GBC; or (ii) by GBC
at any time after the occurrence of an Event of Default, without notice,
effective immediately. If this Agreement is terminated by Borrower or by
GBC under this Section 6.2, Borrower shall pay to GBC a termination fee
(the "Termination Fee") in the amount shown on the Schedule. The
Termination Fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the
highest rate applicable to any of the Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and
whether or not all or any part of such Obligations are otherwise then due
and payable. Without limiting the generality of the foregoing, if on the
Maturity Date, or on any earlier effective date of termination, there are
any outstanding letters of credit issued based upon an application,
guarantee, indemnity or similar agreement on the part of GBC, then on
such date Borrower shall provide to GBC cash collateral in an amount
equal to 110% of the face amount of all such letters of credit plus all
interest, fees and costs due or (in GBC's estimation) likely to become
due in connection therewith, to secure all of the Obligations relating to
said letters of credit, pursuant to GBC's then standard form cash pledge
agreement. Notwithstanding any termination of this Agreement, all of
GBC's security interests in all of the Collateral and all of the terms
and provisions of this Agreement shall continue in full force and effect
until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion
of GBC, GBC may, in its sole discretion, refuse to make any
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further Loans after termination. No termination shall in any way affect
or impair any right or remedy of GBC, nor shall any such termination
relieve Borrower of any Obligation to GBC, until all of the Obligations
have been paid and performed in full. Upon payment and performance in
full of all the Obligations and termination of this Agreement, GBC shall
promptly deliver to Borrower termination statements, requests for
reconveyances and such other documents as may be reasonably required to
terminate GBC's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default" under this Agreement, and
Borrower shall give GBC immediate written notice thereof: (a) Any
warranty, representation, statement, report or certificate made or
delivered to GBC by Borrower or any of Borrower's officers, employees or
agents, now or in the future, shall be untrue or misleading in a material
respect; or (b) Borrower shall fail to pay when due any Loan or any
interest thereon or any other monetary Obligation; or (c) the total Loans
and other Obligations outstanding at any time shall exceed the Credit
Limit; or (d) Borrower shall fail to perform any non-monetary Obligation
which by its nature cannot be cured; or (e) Borrower shall fail to perform
any other non-monetary Obligation, which failure is not cured within 5
business days after the date performance is due; or (f) any levy,
assessment, attachment, seizure, lien or encumbrance (other than a
Permitted Lien) is made on all or any part of the Collateral which is not
cured within 10 days after the occurrence of the same; or (g) any default
or event of default occurs under any obligation secured by a Permitted
Lien, which is not cured within any applicable cure period or waived in
writing by the holder of the Permitted Lien; or (h) Borrower breaches any
material contract or obligation, which has or may reasonably be expected
to have a material adverse effect on Borrower's business or financial
condition; or (i) dissolution, termination of existence, insolvency or
cessation of failure of Borrower or any Guarantor; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any Guarantor under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in
effect; or (j) the commencement of any proceeding against Borrower or any
Guarantor under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 45 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of liability upon,
any guaranty of the Obligations or any attempt to do any of the foregoing;
or (l) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other
property or asset pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations
other than as permitted in the applicable subordination agreement, or if
any Person who has subordinated such indebtedness or obligations
terminates or in any way limits or terminates its subordination agreement;
or (n) there shall be a change in the record or beneficial ownership of an
aggregate of more than 20% of the outstanding shares of stock of Borrower,
in one or more transactions, compared to the ownership of outstanding
shares of stock of Borrower in effect on the date hereof, without the
prior written consent of GBC; or (o) Borrower shall generally not pay its
debts as they become due, or Borrower shall conceal, remove or transfer
any part of its property, with intent to hinder, delay or defraud its
creditors, or make or suffer any transfer of any of its property which may
be fraudulent under any bankruptcy, fraudulent conveyance or similar law;
or (p) there shall be a material adverse change in Borrower's business or
financial condition in GBC's good faith judgment. GBC may cease making any
Loans hereunder during any of the above cure periods, and thereafter if an
Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence and during the continuance of any
Event of Default, and at any time thereafter, GBC, at its option, and
without notice or demand of any kind (all of which are hereby expressly
waived by Borrower), may do any one or more of the following: (a) Cease
making Loans or otherwise extending credit to Borrower under this
Agreement or any other document or agreement; (b) Accelerate and declare
all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed
by any instrument evidencing or relating to any Obligation; (c) Take
possession of any or all of the Collateral wherever it may be found, and
for that purpose Borrower hereby authorizes GBC without judicial process
to enter in a peaceful manner onto any of Borrower's premises without
interference to search for, take possession of, keep, store, or remove any
of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so
long as GBC deems it reasonably necessary in order to complete the
enforcement of its rights under this Agreement or any other agreement;
provided, however, that should GBC seek to take possession of any of the
Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute,
court rule or otherwise as an incident to such possession; (ii) any demand
for possession prior to the commencement of any suit or action to recover
possession thereof; and (iii) any requirement that GBC retain possession
of, and not dispose of, any such Collateral until after trial or final
judgment; (d) Require Borrower to assemble any or all of the Collateral
and make it available to GBC at places designated by GBC which are
reasonably convenient to GBC and Borrower, and to remove the Collateral to
such locations as GBC may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof
and, for such purpose and for the purpose of removal, GBC shall have the
right to use Borrower's premises, vehicles, hoists, lifts, cranes,
equipment and all other property without charge; (f) Sell, lease or
otherwise dispose of any of the Collateral, in its condition at the time
GBC obtains possession of it or after
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further manufacturing, processing or repair, at one or more public and/or
private sales, in lots or in bulk, for cash, exchange or other property,
or on credit, and to adjourn any such sale from time to time without
notice other than oral announcement at the time scheduled for sale. GBC
shall have the right to conduct such disposition on Borrower's premises
without charge, for such time or times as GBC deems reasonable, or on
GBC's premises, or elsewhere and the Collateral need not be located at
the place of disposition. GBC may directly or through any affiliated
company purchase or lease any Collateral at any such public disposition,
and if permissible under applicable law, at any private disposition. Any
sale or other disposition of Collateral shall not relieve Borrower of any
liability Borrower may have if any Collateral is defective as to title or
physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising
Collateral and, in connection therewith, Borrower irrevocably authorizes
GBC to endorse or sign Borrower's name on all collections, receipts,
instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to
any item of the Collateral or proceeds thereof, and, in GBC's sole
discretion, to grant extensions of time to pay, compromise claims and
settle Receivables, General Intangibles and the like for less than face
value; and (h) Demand and receive possession of any of Borrower's federal
and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys'
fees, expenses, costs, liabilities and obligations incurred by GBC with
respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate
equal to the highest interest rate applicable to any of the Obligations.
Without limiting any of GBC's rights and remedies, from and after the
occurrence of any Event of Default, the interest rate applicable to the
Obligations shall be increased by an additional four percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower
and GBC agree that a sale or other disposition (collectively, "sale") of
any Collateral which complies with the following standards will
conclusively be deemed to be commercially reasonable: (i) Notice of the
sale is given to Borrower at least seven days prior to the sale, and, in
the case of a public sale, notice of the sale is published at least seven
days before the sale in a newspaper of general circulation in the county
where the sale is to be conducted; (ii) Notice of the sale describes the
collateral in general, non-specific terms; (iii) The sale is conducted at
a place designated by GBC, with or without the Collateral being present;
(iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v)
Payment of the purchase price in cash or by cashier's check or wire
transfer is required; (vi) With respect to any sale of any of the
Collateral, GBC may (but is not obligated to) direct any prospective
purchaser to ascertain directly from Borrower any and all information
concerning the same. GBC shall be free to employ other methods of
noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence and during the
continuance of any Event of Default, without limiting GBC's other rights
and remedies, Borrower grants to GBC an irrevocable power of attorney
coupled with an interest, authorizing and permitting GBC (acting through
any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at
Borrower's expense, to do any or all of the following, in Borrower's name
or otherwise, but GBC agrees to exercise the following powers in a
commercially reasonable manner: (a) Execute on behalf of Borrower any
documents that GBC may, in its sole discretion, deem advisable in order
to perfect and maintain GBC's security interest in the Collateral, or in
order to exercise a right of Borrower or GBC, or in order to fully
consummate all the transactions contemplated under this Agreement, and
all other present and future agreements; (b) Execute on behalf of
Borrower any document exercising, transferring or assigning any option to
purchase, sell or otherwise dispose of or to lease (as lessor or lessee)
any real or personal property which is part of GBC's Collateral or in
which GBC has an interest; (c) Execute on behalf of Borrower, any
invoices relating to any Receivable, any draft against any Account Debtor
and any notice to any Account Debtor, any proof of claim in bankruptcy,
any Notice of Lien, claim of mechanic's, materialman's or other lien, or
assignment or satisfaction of mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment
or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may
come into GBC's possession; (e) Endorse all checks and other forms of
remittances received by GBC; (f) Pay, contest or settle
any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise
take any action to terminate or discharge the same; (g) Grant extensions
of time to pay, compromise claims and settle Receivables and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account
of Borrower's taxes or to secure the release of any liens therefor, or
both; (i) Settle and adjust, and give releases of, any insurance claim
that relates to any of the Collateral and obtain payment therefor; (j)
Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give GBC the same
rights of access and other rights with respect thereto as GBC has under
this Agreement; and (k) Take any action or pay any sum required of
Borrower pursuant to this Agreement and any other present or future
agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and reasonable attorneys' fees
incurred by GBC with respect to the foregoing shall be added to and
become part of the Obligations, shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations. In no event shall GBC's rights under the
foregoing power of attorney or any of GBC's other rights under this
Agreement be deemed to indicate that GBC is in control of the business,
management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result
of any sale or other disposition of the Collateral shall be applied by
GBC first to the reasonable costs, expenses, liabilities, obligations and
attorneys' fees incurred by GBC in the exercise of its rights under this
Agreement, second to the interest due upon any of the Obligations, and
third to the principal of the Obligations,
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in such order as GBC shall determine in its sole discretion. Any surplus
shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to GBC for any deficiency. If GBC, in its
sole discretion, directly or indirectly enters into a deferred payment or
other credit transaction with any purchaser at any sale of Collateral,
GBC shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the
actual receipt by GBC of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies
set forth in this Agreement, GBC shall have all the other rights and
remedies accorded a secured party under the California Uniform Commercial
Code and under all other applicable laws, and under any other instrument
or agreement now or in the future entered into between GBC and Borrower,
and all of such rights and remedies are cumulative and none is exclusive.
Exercise or partial exercise by GBC of one or more of its rights or
remedies shall not be deemed an election, nor bar GBC from subsequent
exercise or partial exercise of any other rights or remedies. The
failure or delay of GBC to exercise any rights or remedies shall not
operate as a waiver thereof, but all rights and remedies shall continue
in full force and effect until all of the Obligations have been fully
paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent
or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person.
"Agreement" and "this Agreement" means this Loan and Security
Agreement and all modifications and amendments thereto, extensions
thereof, and replacements therefor.
"Business Day" means a day on which GBC is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in
the State of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Default" means any event which with notice or passage of time or
both, would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the
Code.
"Eligible Inventory" means Inventory which GBC, in its good faith
business judgement , deems eligible for borrowing, based on such
considerations as GBC may from time to time deem appropriate. Without
limiting the fact that the determination of which Inventory is eligible
for borrowing is a matter of GBC's good faith business judgment Inventory
which does not meet the following requirements will not be deemed to be
Eligible Inventory: Inventory which (i) is in good, new and salable
condition which is not perishable, not obsolete or unmerchantable, and is
not comprised of, packaging materials or supplies; (ii) meets all
applicable governmental standards; (iii) has been manufactured in
compliance with the Fair Labor Standards Act; (iv) conforms in all
respects to the warranties and representations set forth in this
Agreement; (v) is at all times subject to GBC's duly perfected, first
priority security interest; and (vii) is situated at Borrower's Address or
at one of Borrower's other locations set forth on the Schedule.
"Eligible Receivables" means unconditional Receivables arising in the
ordinary course of Borrower's business from the completed sale of goods or
rendition of services, which GBC, in its good faith business judgment
shall deem eligible for borrowing, based on such considerations as GBC may
from time to time deem appropriate.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment,
furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes,
jigs, goods and other tangible personal property (other than Inventory) of
every kind and description used in Borrower's operations or owned by
Borrower and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions or
improvements to any of the foregoing, wherever located.
"Event of Default" means any of the events set forth in Section 7.1
of this Agreement.
"General Intangibles" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower,
including, without limitation, all choses in action, causes of action,
corporate or other business records, Deposit Accounts, inventions,
designs, drawings, blueprints, patents, patent applications, trademarks
and the goodwill of the business symbolized thereby, names, trade names,
trade secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation
presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against GBC, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders,
and all insurance policies and claims (including life insurance, key man
insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes
and tape files, claims under guaranties, security interests or other
security held by or granted to Borrower, all rights to indemnification
and all other intangible property of every kind and nature (other than
Receivables).
"Guarantor" means any Person who has guaranteed any of the
Obligations.
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be
furnished under any
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contract of service or held for sale or lease (including all raw
materials, work in process, finished goods and goods in transit), and all
materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection
with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, merchandise or other personal property, and all
warehouse receipts, documents of title and other documents representing
any of the foregoing.
"LIBOR Rate" means (i) the one-month London Interbank Offered Rate
for deposits in U.S. dollars, as shown each day in The Wall Street
Journal (Eastern Edition) under the caption "Money Rates - London
Interbank Offered Rates (LIBOR)"; or (ii) if the Wall Street Journal does
not publish such rate, the offered one-month rate for deposits in U.S.
dollars which appears on the Reuters Screen LIBO Page as of 10:00 a.m.,
New York time, each day, provided that if at least two rates appear on
the Reuters Screen LIBO Page on any day, the "LIBOR Rate" for such day
shall be the arithmetic mean of such rates; or (iii) if the Wall Street
Journal does not publish such rate on a particular day and no such rate
appears on the Reuters Screen LIBO Page on such day, the rate per annum
at which deposits in U.S. dollars are offered to the principal London
office of The Chase Manhattan Bank, in the London interbank market at
approximately 11:00 A.M., London time, on such day in an amount
approximately equal to the outstanding principal amount of the Loans, for
a period of one month, in each of the foregoing cases as determined in
good faith by GBC, which determination shall be conclusive absent
manifest error.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness
at any time owing by Borrower to GBC, whether evidenced by this Agreement
or any note or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, banker's acceptance,
loan, guaranty, indemnification or otherwise, whether direct or indirect
(including, without limitation, those acquired by assignment and any
participation by GBC in Borrower's debts owing to others), absolute or
contingent, due or to become due, including, without limitation, all
interest, charges, expenses, fees, attorney's fees, expert witness fees,
audit fees, letter of credit fees, loan fees, termination fees, minimum
interest charges and any other sums chargeable to Borrower under this
Agreement or under any other present or future instrument or agreement
between Borrower and GBC.
"Permitted Liens" means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items
of Equipment; (iii) liens for taxes not yet payable; (iv) additional
security interests and liens which are subordinate to the security
interest in favor of GBC and are consented to in writing by GBC (which
consent shall not be unreasonably withheld); (v) security interests being
terminated substantially concurrently with this Agreement; (vi) liens of
materialmen, mechanics, warehousemen, carriers, or other similar liens
arising in the ordinary course of business and securing obligations which
are not delinquent; (vii) liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by liens of
the type described above in clauses (i) or (ii) above, provided that any
extension, renewal or replacement lien is limited to the property
encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase;
(viii) Liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
GBC will have the right to require, as a condition to its consent under
subparagraph (iv) above, that the holder of the additional security
interest or lien sign an intercreditor agreement on GBC's then standard
form, acknowledge that the security interest is subordinate to the
security interest in favor of GBC, and agree not to take any action to
enforce its subordinate security interest so long as any Obligations
remain outstanding, and that Borrower agree that any uncured default in
any obligation secured by the subordinate security interest shall also
constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, government, or any agency or political division thereof, or
any other entity.
"Receivables" means all of Borrower's now owned and hereafter
acquired accounts (whether or not earned by performance), letters of
credit, contract rights, chattel paper, instruments, securities,
documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, all merchandise
returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid
vendor, lienor or secured party.
Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in
accordance with generally accepted accounting principles, consistently
applied. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent
such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the
Obligations, all checks, wire transfers and other items of payment
received by GBC (including proceeds of Receivables and payment of the
Obligations in full) shall be deemed applied by GBC on account of the
Obligations three Business Days after receipt by GBC of immediately
available funds. GBC shall not, however, be required to credit
Borrower's account for the amount of any item of payment which is
unsatisfactory to GBC in its discretion, and GBC may charge Borrower's
Loan account for the amount of any item of payment which is returned to
GBC unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in GBC's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as GBC shall
determine in its sole discretion.
9.3 CHARGES TO ACCOUNT. GBC may, in its discretion, require that
Borrower pay monetary Obligations in cash to GBC, or charge them to
Borrower's Loan account, in which event they will bear interest at the
same rate applicable to the Loans.
-9-
<PAGE> 10
9.4 MONTHLY ACCOUNTINGS. GBC shall provide Borrower monthly with
an account of advances, charges, expenses and payments made pursuant to
this Agreement. Such account shall be deemed correct, accurate and
binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by
GBC), unless Borrower notifies GBC in writing to the contrary within
sixty days after each account is rendered, describing the nature of any
alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be
in writing and shall be given either personally or by reputable private
delivery service or by regular first-class mail, or certified mail return
receipt requested, addressed to GBC or Borrower at the addresses shown in
the heading to this Agreement, or at any other address designated in
writing by one party to the other party. All notices shall be deemed to
have been given upon delivery in the case of notices personally
delivered, or at the expiration of one business day following delivery to
the private delivery service, or two business days following the deposit
thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held
by any court of competent jurisdiction to be void or unenforceable, such
defect shall not affect the remainder of this Agreement, which shall
continue in full force and effect.
9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are
the final, entire and complete agreement between Borrower and GBC and
supersede all prior and contemporaneous negotiations and oral
representations and agreements, all of which are merged and integrated in
this Agreement. There are no oral understandings, representations or
agreements between the parties which are not set forth in this Agreement
or in other written agreements signed by the parties in connection
herewith.
9.8 WAIVERS. The failure of GBC at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement
or any other present or future agreement between Borrower and GBC shall
not waive or diminish any right of GBC later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or
affect any other default, whether prior or subsequent, and whether or not
similar. None of the provisions of this Agreement or any other agreement
now or in the future executed by Borrower and delivered to GBC shall be
deemed to have been waived by any act or knowledge of GBC or its agents
or employees, but only by a specific written waiver signed by an
authorized officer of GBC and delivered to Borrower. Borrower waives
demand, protest, notice of protest and notice of default or dishonor,
notice of payment and nonpayment, release, compromise, settlement,
extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by GBC on which
Borrower is or may in any way be liable, and notice of any action taken
by GBC, unless expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not
be waived or amended, except in a writing executed by Borrower and a duly
authorized officer of GBC.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.11 ATTORNEYS FEES AND COSTS. Borrower shall reimburse GBC for
all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by GBC,
pursuant to, or in connection with, or relating to this Agreement
(whether or not a lawsuit is filed), including, but not limited to, any
reasonable attorneys' fees and costs GBC incurs in order to do the
following: prepare and negotiate this Agreement and the documents
relating to this Agreement; obtain legal advice in connection with this
Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or
prosecute any probate claim, bankruptcy claim, third-party claim, or
other claim; examine, audit, copy, and inspect any of the Collateral or
any of Borrower's books and records; protect, obtain possession of,
lease, dispose of, or otherwise enforce GBC's security interest in, the
Collateral; and otherwise represent GBC in any litigation relating to
Borrower. If either GBC or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order,
decree, award or judgment. All attorneys' fees and costs to which GBC
may be entitled pursuant to this Paragraph shall immediately become part
of Borrower's Obligations, shall be due on demand, and shall bear interest
at a rate equal to the highest interest rate applicable to any of the
Obligations.
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall
be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and GBC;
provided, however, that Borrower may not assign or transfer any of its
rights under this Agreement without the prior written consent of GBC, and
any prohibited assignment shall be void. No consent by GBC to any
assignment shall release Borrower from its liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more
than one Person, their liability shall be joint and several, and the
compromise of any claim with, or the release of, any Borrower shall not
constitute a compromise with, or a release of, any other Borrower.
9.14 LIMITATION OF ACTIONS. Any claim or cause of action by
Borrower against GBC, its directors, officers, employees, agents,
accountants or attorneys, based upon, arising from, or relating to this
Loan Agreement, or any other present or future document or agreement, or
any other transaction contemplated hereby or thereby or relating hereto
or thereto, or any other matter, cause or thing whatsoever, occurred,
done, omitted or suffered to be done by GBC, its directors, officers,
employees, agents, accountants or attorneys, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a
court of competent jurisdiction by the
-10-
<PAGE> 11
filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of action, or any part thereof,
is based, and the service of a summons and complaint on an officer of
GBC, or on any other person authorized to accept service on behalf of
GBC, within thirty (30) days thereafter. Borrower agrees that such
one-year period is a reasonable and sufficient time for Borrower to
investigate and act upon any such claim or cause of action. The one-year
period provided herein shall not be waived, tolled, or extended except by
the written consent of GBC in its sole discretion. This provision shall
survive any termination of this Loan Agreement or any other present or
future agreement.
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only
used in this Agreement for convenience. Borrower and GBC acknowledge
that the headings may not describe completely the subject matter of the
applicable paragraph, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this
Agreement. The term "including", whenever used in this Agreement, shall
mean "including (but not limited to)". This Agreement has been fully
reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed
strictly against GBC or Borrower under any rule of construction or
otherwise.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all
acts and transactions hereunder and all rights and obligations of GBC and
Borrower shall be governed by the laws of the State of California. As a
material part of the consideration to GBC to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at GBC's option, be litigated in
courts located within California, and that the exclusive venue therefor
shall be Los Angeles County; (ii) consents to the jurisdiction and venue
of any such court and consents to service of process in any such action
or proceeding by personal delivery or any other method permitted by law;
and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
9.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GBC EACH HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GBC AND BORROWER, OR
ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR BORROWER OR ANY OF THEIR
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH GBC OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
SUBMICRON SYSTEMS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BORROWER:
SUBMICRON WET PROCESS STATIONS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
GBC:
GREYROCK BUSINESS CREDIT,
A DIVISION OF NATIONSCREDIT COMMERCIAL
CORPORATION
BY_______________________________
TITLE______________________________
Version -3
-11-
<PAGE> 12
[LOGO]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: SUBMICRON SYSTEMS, INC.
ADDRESS: 6330 HEDGEWOOD DRIVE
ALLENTOWN, PENNSYLVANIA 18106
BORROWER: SUBMICRON WET PROCESS STATIONS, INC.
ADDRESS: 3381 EDWARDS AVENUE
SANTA CLARA, CALIFORNIA 95054
DATE: NOVEMBER 25, 1997
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
("GBC") and the above borrowers (jointly and severally "Borrower") of even
date.
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of (1) or (2) below:
(1) $15,000,000 at any one time outstanding; or
(2) an amount equal to
(i) 80% of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above), plus
(ii) the lesser of 10% of the Value of
Borrower's Eligible Inventory (as defined in
Section 8 above) or $2,000,000. "Value", as
used herein, means the lower of cost or
wholesale market value.
Loans will be made separately to each Borrower
based on the Collateral of each Borrower.
2. INTEREST.
INTEREST RATE (Section 1.2):
The interest rate in effect throughout each calendar
month during the term of this Agreement shall be the
highest "LIBOR Rate" in effect during such month, plus
5.375% per annum, provided that the interest rate in
effect in each month shall not be less than 8% per
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<PAGE> 13
annum, and provided that the interest charged for each month
shall be a minimum of $10,000, regardless of the amount of
the Obligations outstanding. Interest shall be calculated
on the basis of a 360-day year for the actual number of days
elapsed. "LIBOR Rate" has the meaning set forth in Section
8 above.
3. FEES (Section 1.3/Section 6.2):
<TABLE>
<CAPTION>
<S> <C>
Loan Fee: $150,000, payable concurrently herewith.
Termination Fee: $10,000 per month for each month (or
portion thereof) from the effective date
of termination to the Maturity Date
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
</TABLE>
4. MATURITY DATE
(Section 6.1):
NOVEMBER 30, 1998, subject to automatic renewal as provided
in Section 6.1 above, and early termination as provided in
Section 6.2 above.
5. REPORTING.
(Section 5.2):
Borrower shall provide GBC with the following:
1. Annual financial
statements, as soon as available, and in any
event within 90 days following the end of
Borrower's fiscal year, certified by independent
certified public accountants acceptable to GBC.
2. Quarterly unaudited
financial statements, as soon as available, and
in any event within 45 days after the end of each
fiscal quarter of Borrower.
3. Monthly unaudited
financial statements, as soon as available, and
in any event within 45 days after the end of each
month.
4. Monthly Receivable
agings, aged by invoice date, within 10 days
after the end of each month.
5. Monthly accounts payable
agings, aged by invoice date, and outstanding or
held check registers within 10 days after the end
of each month.
6. Monthly perpetual
inventory reports for the Inventory valued on a
first-in, first-out basis at the lower of cost
or market (in accordance with generally accepted
accounting principles) or such other inventory
reports as are reasonably requested by GBC, all
within 30 days after the end of each month.
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<PAGE> 14
6. BORROWER INFORMATION:
<TABLE>
<S> <C>
PRIOR NAMES OF
BORROWER
(Section 3.2): None
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): None
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): None
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Exhibit B hereto
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
</TABLE>
7. OTHER COVENANTS:
Borrower shall at all times comply with all of the
following additional covenants:
(1) GUARANTY.
Borrower shall concurrently cause SUBMICRON
SYSTEMS CORPORATION to execute and deliver to
GBC a Continuing Guaranty, on GBC's standard
form, with respect to all of the Obligations,
and to execute and deliver a Security
Agreement with respect to all of its assets,
on GBC's standard form, and Borrower shall
cause such Guaranty and Security Agreement to
continue in full force and effect throughout
the term of this Loan Agreement and so long as
any portion of the Obligations remains
outstanding.
8. CONDITIONS PRECEDENT: In addition to the other conditions set forth in
this Loan Agreement, the making of the first Loan is condition on the
satisfaction of the following conditions precedent, which Borrower agrees
to satisfy on or before December 5, 1997:
(1) SUBORDINATED DEBT.
Borrower shall have consummated the issuance of
$20,000,000 of 12% Senior Subordinated Notes
and received $20,000,000 in cash consideration
therefor, all documentation in connection
therewith shall be acceptable to GBC in its
discretion, and the holders of said notes shall
have entered into an Intercreditor Agreement
with GBC on terms acceptable to GBC in its
discretion.
(2) INTELLECTUAL
PROPERTY. Without limiting the requirement
that GBC have a first-priority perfected and
enforceable security interest in all of the
Collateral, subject only to the Permitted
Liens, all filings in the
United States Patent and Trademark Office and
the United States Copyright Office shall have
been effected to give GBC a first-priority
perfected security interest in all of the
-3-
<PAGE> 15
Borrower's and Parent's patents,patent
applications, trademarks and the goodwill
of the business symbolized thereby,
copyrights, and registrations, and the
same shall be acceptable to GBC and its
counsel in their discretion.
(3) NO CONSENTS. No
consent or authorization of, filing with or
other act by or in respect of any Governmental
Authority or any other Person is required in
connection, with the execution, delivery,
performance, validity or enforceability of this
Agreement, or the other Loan Documents or the
consummation of the transactions contemplated
hereby or thereby or the continuing operations
of the Borrower following the consummation of
such transactions.
(4) PRE-FUNDING AUDIT.
GBC shall have performed a pre-funding audit and
collateral review, with results satisfactory to
GBC.
(5) DOCUMENTS. GBC shall
have received the following, each dated the date
of the initial Loan or as of an earlier date
acceptable to GBC, in form and substance
satisfactory to GBC and its counsel:
(A) acknowledgment copies of Uniform Commercial
Code financing statements (naming GBC as
secured party and the Borrower as debtor),
duly filed in all jurisdictions that GBC
deems necessary or desirable to perfect and
protect the security interests created
hereunder, and Official Uniform Commercial
Code searches in such jurisdictions, showing
such financing statements of record;
(B) the opinion of counsel for the Borrower
covering such matters incident to the
transactions contemplated by this Agreement
as GBC may specify in its discretion;
(C) certified copies of all policies of
insurance required by this Agreement and the
other documents relating hereto
(collectively, the "Loan Documents"),
together with loss payee endorsements for
all such policies naming GBC as lender loss
payee and an additional insured;
(D) copies of the Borrower's and Parent's
articles or certificate of incorporation,
certified as true, correct and complete by
the secretary of state of the state of
incorporation of Borrower and Parent within
45 days of the date hereof;
(E) copies of the bylaws of the Borrower and
Parent and a copy of the resolutions of the
Board of Directors of the Borrower and
Parent authorizing the execution, delivery
and performance of this Agreement and the
other Loan Documents (as applicable), and
the transactions contemplated hereby and
thereby, attached to which is a certificate
of the Secretary or an Assistant Secretary
of the Borrower certifying (A) that such
copies of the bylaws and resolutions are
true, complete and accurate copies thereof,
have not been amended or modified since the
date of such certificate and are in full
force and effect and (B) the incumbency,
names and true signatures of the officers of
the Borrower and Parent;
(F) a good standing certificate from the
Secretary of State of Borrower's and
Parent's state of incorporation and each
state in which the Borrower and Parent are
qualified as a foreign
-4-
<PAGE> 16
corporation, each dated within ten days of the
date of the first Loan;
(G) such other agreements and instruments as
GBC deems necessary in its sole and absolute
discretion in connection with the transactions
contemplated hereby.
Borrower: GBC:
SUBMICRON SYSTEMS, INC. GREYROCK BUSINESS CREDIT,
a Division of NationsCredit
Commercial Corporation
By_______________________________ By_______________________________
President or Vice President Title_____________________________
Borrower:
SUBMICRON WET PROCESS STATIONS, INC.
By_______________________________
President or Vice President
Version -23
-5-
<PAGE> 17
EXHIBIT A
ASSETS TO BE TRANSFERRED TO PRIMAXX CORPORATION
<PAGE> 18
EXHIBIT "B"
OTHER LOCATIONS AND ADDRESSES
<TABLE>
<S> <C>
1. SubMicron Systems, Inc.
6330 Hedgewood Drive
6350 Hedgewood Drive
6520 Hedgewood Drive
Allentown, PA 18106
2. Universal Plastics
3381 Edwards Avenue
Santa Clara, CA 95054
</TABLE>
<PAGE> 19
LEVY, SMALL & LALLAS
815 Moraga Drive
Los Angeles, California 90049
Telephone (310) 471-3000
Telecopier (310) 471-7990
TRANSMITTAL NOTE
<PAGE> 20
SCHEDULE TO LOAN AND SECURITY AGREEMENT -.S.
-1-
<PAGE> 21
-2-
<PAGE> 1
Exhibit 21
List of Subsidiaries
- ---------------------
Submicron Systems Inc.
Submicron Wet Process Stations, Inc.
(S)Micron PTE Ltd.
Primaxx Corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-71900, 33-91986, and 333-4514 and Form S-3 Nos. 33-64500 and
333-4516) of our report dated March 31, 1998 (except Notes 2 and 8, as to which
the date is April 14, 1998), with respect to the consolidated financial
statements and schedule of SubMicron Systems Corporation included in the Annual
Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
April 14, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBIC ACCOUNTANTS
To SubMicron Systems Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statement File Nos. (33-71900, 33-91986 and 333-4514 and Form S-3
Nos. 33-64500 and 333-4516).
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
April 14, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of our
report dated February 23, 1996, on the financial statements of Imtec Acculine,
Inc. as of December 31, 1995, and for the year then ended, in this Annual Report
on Form 10-K for the year ended December 31, 1997.
IRELAND SAN FILIPPO, LLP
April 14, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0000000000
<NAME>SUBMICRON SYSTEMS CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE RATE> 1
<CASH> 8,228
<SECURITIES> 0
<RECEIVABLES> 17,577
<ALLOWANCES> 945
<INVENTORY> 13,152
<CURRENT-ASSETS> 40,300
<PP&E> 26,251
<DEPRECIATION> 12,436
<TOTAL-ASSETS> 59,708
<CURRENT-LIABILITIES> 31,275
<BONDS> 26,046
0
0
<COMMON> 2
<OTHER-SE> (2,592)
<TOTAL-LIABILITY-AND-EQUITY> 59,708
<SALES> 97,895
<TOTAL-REVENUES> 97,895
<CGS> 90,551
<TOTAL-COSTS> 90,551
<OTHER-EXPENSES> 47,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,885
<INCOME-PRETAX> (40,904)
<INCOME-TAX> 5,480
<INCOME-CONTINUING> (46,384)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,169)
<CHANGES> 0
<NET-INCOME> (47,553)
<EPS-PRIMARY> (2.77)
<EPS-DILUTED> (2.77)
</TABLE>
