Opinion ID: 3024056
Heading Depth: 2
Heading Rank: 1

Heading: SubMicron’s Financing

Text: 3 This bankruptcy case is before the District Court because it withdrew, pursuant to 28 U.S.C. § 157(d), the reference of the case to the Bankruptcy Court for the District of Delaware. 5 Before its sale in bankruptcy, SubMicron designed, manufactured and marketed “wet benches” 4 for use in the semiconductor industry. By 1997, it was experiencing significant financial and operational difficulties. To sustain its operations in the late 1990s, SubMicron secured financing from several financial and/or investment institutions. On November 25, 1997, it entered into a $15 million working capital facility with Greyrock Business Credit (“Greyrock”), granting Greyrock first priority liens on all of its inventory, equipment, receivables and general intangibles. The next day, SubMicron raised another $20 million through the issuance of senior subordinated 12% notes (the “1997 Notes”) to KB/Equinox (for $16 million) and Celerity (for $4 million) secured by liens behind Greyrock on substantially all of SubMicron’s assets. Submicron subsequently issued a third set of notes in 1997 (the “Junior 1997 Notes”) for $13.7 million, comprising $8.7 million of 8% notes and a $5 million note to The BOC Group, Inc. The Junior 1997 Notes were secured but junior to the security for the 1997 Notes. Despite this capital influx, SubMicron incurred a net loss of $47.6 million for the 1997 fiscal year. A steep downturn in the semiconductor industry made 1998 a similarly difficult year for SubMicron. By August of that 4 Wet benches are automatic process tools used for cleaning and etching operations in semiconductor processing. See http://www.semiconductorglossary.com/default.asp?searchter m=wet+bench (last visited Dec. 27, 2005). 6 year, it was paying substantially all of the interest due on the 1997 Notes as paid-in-kind senior subordinated notes. On December 2, 1998, SubMicron and Greyrock agreed to renew the Greyrock line of credit, reducing the maximum funds available from $15 to $10 million and including a $2 million overadvance conditioned on SubMicron’s securing an additional $4 million in financing. To satisfy this condition, on December 3, SubMicron issued Series B 12% notes (the “1998 Notes”) to KB/Equinox (for $3.2 million) and Celerity (for $800,000). The 1998 Notes ranked pari passu with the 1997 Notes and the interest was deferred until October 1, 1999. SubMicron incurred a net loss of $21.9 million for the 1998 fiscal year, and at year’s end its liabilities exceeded its assets by $4.2 million. SubMicron’s financial health did not improve in 1999. By March of that year, its management determined that additional financing would be required to meet the company’s immediate critical working capital needs. To this end, between March 10, 1999 and June 6, 1999, SubMicron issued a total of eighteen Series 1999 12% notes (the “1999 Tranche One Notes”) for a total of $7,035,154 (comprising nine notes to KB/Equinox totaling $5,888,123 and nine notes to Celerity totaling $1,147,031). The 1999 Tranche One Notes proved insufficient to keep SubMicron afloat. As a result, between July 8, 1999 and August 31, 1999, KB/Equinox and Celerity made periodic payments to SubMicron (the “1999 Tranche Two Funding”) totaling $3,982,031 and $147,969, respectively. No notes were issued in exchange for the 1999 Tranche Two 7 Funding. Between the 1999 Tranche One Notes and the 1999 Tranche Two Funding (collectively, the “1999 Fundings”), KB/Equinox and Celerity advanced SubMicron a total of $9,870,154 and $1,295,000, respectively. (The 1999 Fundings were recorded as secured debt on SubMicron’s 10-Q filing with the Securities and Exchange Commission.) Despite the cash infusions, during the first half of 1999 SubMicron incurred a net loss of $9.9 million. On June 30, 1999, SubMicron’s liabilities exceeded its assets by $3.1 million. By January 1999, KB/Equinox had appointed three members to SubMicron’s Board of Directors. All appointees were either principals or employees of KB/Equinox. By June 1999, following resignations of various SubMicron Board members, KB/Equinox employees Bonaparte Liu and Robert Wickey, and Celerity employee Mark Benham, represented three-quarters of the Board, with SubMicron CEO David Ferran the lone Board member not employed by KB/Equinox or Celerity.