-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V0zkd8SBmfvo8UTea+GfLfQjnHXHkZI3/J65zPxV3kziB0faFWeTaO1Gjvy8wHAl Bm/afCJCml1ucCY75cZgrw== 0000837913-99-000007.txt : 19990420 0000837913-99-000007.hdr.sgml : 19990420 ACCESSION NUMBER: 0000837913-99-000007 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990519 FILED AS OF DATE: 19990419 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENUS INC CENTRAL INDEX KEY: 0000837913 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 942790804 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-17139 FILM NUMBER: 99596631 BUSINESS ADDRESS: STREET 1: 1139 KARLSTAD DR CITY: SUNNYVALE STATE: CA ZIP: 94089-2117 BUSINESS PHONE: 4087477120 MAIL ADDRESS: STREET 2: 1139 KARLSTAD DR CITY: SUNNYVALE STATE: CA ZIP: 94089-2117 DEF 14A 1 SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 GENUS, INC. - ------------ (Name of Registrant as Specified In Its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined: (4) Proposed maximum aggregate value of transaction: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: GENUS, INC. NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 19, 1999 TO THE SHAREHOLDERS: NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Genus, Inc. (the "Company") will be held on Wednesday, May 19, 1999 at 10:00 a.m., local time, at The Network Meeting Center located at 5201 Great America Parkway, Suite 122 in Santa Clara, California, 95054, for the following purposes: 1. To elect directors to serve for the ensuing year and until their successors are elected. 2. To approve an amendment to the 1991 Incentive Stock Option Plan increasing the number of shares reserved for issuance thereunder by 500,000 additional shares. 3. To approve an amendment to the 1989 Employee Stock Purchase Plan increasing the number of shares reserved for issuance thereunder by 300,000 additional shares. 4. To ratify the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company's financial statements for the fiscal year ending December 31, 1999. 5. To transact such other business as may properly come before the meeting or any adjournment thereof. The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. Only shareholders of record at the close of business on March 22, 1999 are entitled to vote at the meeting. All shareholders are cordially invited to attend the meeting in person. However, to ensure your representation at the meeting you are urged to mark, sign, date, and return the enclosed proxy card as promptly as possible in the self-addressed stamped envelope enclosed for that purpose. Any shareholder attending the meeting may vote in person even if he or she returned a proxy. THE BOARD OF DIRECTORS WILLIAM W.R. ELDER Chairman of the Board, President and Chief Executive Officer Sunnyvale, California April 19, 1999 GENUS, INC. PROXY STATEMENT FOR 1999 ANNUAL MEETING OF SHAREHOLDERS The enclosed Proxy is solicited on behalf of the Board of Directors of Genus, Inc., a California corporation (the "Company"), for use at the Annual Meeting of Shareholders (the "Annual Meeting") to be held Wednesday, May 19, 1999 at 10:00 a.m., local time, or at any adjournment thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at The Network Meeting Center at 5201 Great America Parkway, Suite 122 in Santa Clara, California, 95054. The principal executive offices of the Company are located at 1139 Karlstad Drive, Sunnyvale, California 94089. The Company's telephone number at that location is (408) 747-7120. These proxy solicitation materials were mailed on or about April 19, 1999 to all shareholders entitled to vote at the meeting. INFORMATION CONCERNING SOLICITATION AND VOTING RECORD DATE AND SHARE OWNERSHIP Shareholders of record at the close of business on March 22, 1999 (the "Record Date") are entitled to notice of and to vote at the Annual Meeting. At the Record Date, 18,113,791 shares of the Company's common stock, no par value, were issued and outstanding. VOTING Each share of common stock outstanding on the Record Date is entitled to one vote. In addition, each shareholder on the Record Date, or his or her proxy, may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of shares held by such shareholder, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder may select, provided that votes cannot be cast for more than four candidates. No shareholder or proxy, however, shall be entitled to cumulate votes for a candidate unless such candidate's name has been placed in nomination prior to the voting and the shareholder, or any other shareholder, has given notice at the meeting, prior to the voting, of the shareholder's intention to cumulate votes. If any shareholder gives such notice, all shareholders may cumulate their votes for candidates in nomination. QUORUM; ABSTENTIONS; BROKER NON-VOTES The affirmative vote of a majority of the Votes Cast will be required under California law to approve the proposals in this Proxy Statement. For this purpose, the "Votes Cast" are defined under California law to be the shares of the Company's common stock represented and "voting" at the Annual Meeting. In addition, the affirmative votes must constitute at least a majority of the required quorum, which quorum is a majority of the shares outstanding on the Record Date. Votes that are cast against the proposal will be counted for purposes of determining (i) the presence or absence of a quorum and (ii) the total number of Votes Cast with respect to the proposal. While there is no definitive statutory or case law authority in California as to the proper treatment of abstentions in the counting of votes with respect to a proposal, the Company believes that abstentions should be counted for purposes of determining both (i) the presence or absence of a quorum and (ii) the total number of Votes Cast with respect to the proposal. In the absence of controlling precedent to the contrary, the Company intends to treat abstentions in this manner. Accordingly, abstentions will have the same effect as a vote against the proposal. Broker non-votes will be counted for purposes of determining the presence or absence of a quorum, but will not be counted for purposes of determining the number of Votes Cast with respect to the proposal. REVOCABILITY OF PROXIES Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by delivering to the Company (Attention: Kenneth Schwanda, Vice President of Finance, Chief Financial Officer) a written notice of revocation or a duly executed proxy bearing a later date or by attending the meeting and voting in person. SOLICITATION The cost of soliciting proxies will be borne by the Company. The Company is retaining the services of Corporate Investor Communications, Inc. to solicit proxies for a cost of approximately $6,000 plus out-of-pocket expenses. In addition, the Company may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners. Proxies may also be solicited by certain of the Company's directors, officers and regular employees, without additional compensation, personally or by telephone, telegram or facsimile. DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS Shareholders who intend to present a proposal for inclusion in the Company's proxy materials for the 2000 Annual Meeting of Shareholders must submit the proposal to the Company no later than December 21, 1999. Additionally, shareholders who intend to present a proposal at the 2000 Annual Meeting of Shareholders without inclusion of such proposal in the Company's proxy materials for the 2000 Annual Meeting must provide notice of such proposal to the Company no later than December 21, 1999. The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to the Company regarding beneficial ownership of the Company's common stock as of March 22, 1999 by (i) each of the Company's directors, (ii) each executive officer named in the Summary Compensation Table appearing herein, (iii) all directors and executive officers of the Company as a group, and (iv) each person known by the Company to beneficially own more than 5% of the Company's common stock:
NAME OF BENEFICIAL OWNER NUMBER OF SHARES(1) PERCENT OF CLASS(2) - ---------------------------------------------------------------- ------------------- ------------------- Bachow Investment Partners III, L.P. 977,876 5.40% 3 Bala Plaza East, Suite 502 Bala Cynwyd, PA 19004 William W.R. Elder (3) 438,929 2.42% Kenneth Schwanda (4) 64,968 * Jeff Farrell (5) 72,882 * Mario M. Rosati (6) 59,250 * James T. Healy 5,000 * Thomas E. Seidel (7) 132,264 * John E. Aldeborgh 2,593 * G. Frederick Forsyth (8) 16,250 * Todd S. Myhre (9) 102,923 * All directors and executive officers as a group (8 persons) (10) 889,960 4.91% * Less than 1%.
(1) Except as otherwise indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. (2) Applicable percentage ownership is based on 18,113,791 shares of common stock outstanding as of March 22, 1999 together with applicable options for such shareholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, based on factors including voting and investment power with respect to shares. Shares of common stock subject to the options currently exercisable, or exercisable within 60 days of March 22, 1999, are deemed outstanding for computing the percentage ownership of the person holding such options, but are not deemed outstanding for computing the percentage ownership of any other person. (3) Consists of 305,599 shares held by William W.R. Elder and Gloria S. Elder Family Trust, and options to purchase 133,330 shares of common stock exercisable within 60 days of March 22, 1999. (4) Consists of 31,634 shares of common stock and options to purchase 33,334 shares of common stock exercisable within 60 days of March 22, 1999. (5) Consists of 18,048 shares of common stock and options to purchase 54,834 shares of common stock exercisable within 60 days of March 22, 1999. (6) Consists of 22,500 shares held by Mr. Rosati, 9,000 shares held by WS Investment Company 92A and options to purchase 27,750 shares of common stock exercisable within 60 days of March 22, 1999. Mr. Rosati is a general partner of WS Investment Company 92A and disclaims beneficial ownership of the shares held by such entity except to the extent of his proportionate partnership interest therein. (7) Consists of 17,266 shares of common stock and options to purchase 114,998 shares of common stock exercisable within 60 days of March 22, 1999. (8) Consists of options to purchase 16,250 shares of common stock exercisable within 60 days of March 22, 1999. (9) Consists of options to purchase 102,923 shares of common stock exercisable within 60 days of March 22, 1999. (10) Includes options to purchase 509,754 shares of common stock exercisable within 60 days of March 22, 1999. PROPOSAL ONE ELECTION OF DIRECTORS NOMINEES The Company's Bylaws provide for a variable board of four to seven directors, with the number currently fixed at four. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the Company's four nominees named below, all of who are presently directors of the Company. In the event that any nominee of the Company is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any nominee who shall be designated by the present Board of Directors to fill the vacancy. It is not expected that any nominee listed below will be unable or will decline to serve as a director. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner in accordance with cumulative voting as will assure the election of as many of the nominees listed below as possible, and, in such event, the specific nominees to be voted for will be determined by the proxy holders. The term of office of each person elected as a director will continue until the next Annual Meeting of Shareholders or until his successor has been elected and qualified. The names of the nominees, and certain information about them, are set forth below.
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE - -------------------- --- --------------------------------------------------------------------------- -------------- William W.R. Elder 60 Chairman of the Board, President and Chief Executive Officer of the Company 1981 Todd S. Myhre 53 Business Consultant 1994 G. Frederick Forsyth 55 Business Consultant 1996 Mario M. Rosati 52 Member of Wilson Sonsini Goodrich & Rosati, Professional Corporation 1981
Except as set forth below, each of the nominees has been engaged in his principal occupation set forth above during the past five years. There are no family relationships among any directors or executive officers of the Company. Mr. Elder, a founder of the Company, is the Chairman of the Board, President and Chief Executive Officer of the Company. From October 1996 to April 1998, he served only as Chairman of the Board. From April 1990 to September 1996, he was Chairman of the Board, President and Chief Executive Officer of the Company. From November 1981 to April 1990, he was President and a director of the Company. Mr. Myhre has served as a director of the Company since January 1994. Since April 1998, and from September 1995 to January 1996, Mr. Myhre has served as President and Chief Executive Officer of GameTech International, an electronic gaming manufacturer. From September 1995 to March 1998, Mr. Myhre was an international business consultant. From January 1993 to August 1993, from August 1993 to December 1993 and from January 1994 to August 1995, Mr. Myhre served as Vice President and Chief Financial Officer of the Company, as Executive Vice President and Chief Operating Officer of the Company and as President and a director of the Company, respectively. Mr. Forsyth has been a director of the Company since February 1996. Since March 1999, Mr. Forsyth has served as President, Systems Engineering and Services of Solectron Corp. From August 1997 to March 1999, he served as President, Professional Products Division of Iomega, Inc. From June 1989 to February 1997, Mr. Forsyth was associated with Apple Computer, Inc., a personal computer manufacturer, in various senior management positions, most recently as Senior Vice President and General Manager, Macintosh Product Group. Mr. Rosati has been Secretary of the Company since May 1996 and a director of the Company since the Company's inception in November 1981. He is also a director of Aehr Test Systems, a manufacturer of semiconductor test equipment; Meridian Data, Inc., a developer of compact disc-read only memory (CD-ROM) and compact disc-recordable (CD-R) systems and related software for both networks and personal computers; Ross Systems, Inc., a supplier of enterprise-wide business systems and related services to companies installing open systems/client server software products; Sanmina Corporation, an electronics manufacturer of multilayered printed circuit boards, backplane assemblies, subassemblies, and printed circuit board assemblies; and Vivus, Inc., a pharmaceutical company developing products for erectile disfuntion. He is a member of Wilson Sonsini Goodrich & Rosati, P.C., general counsel to the Company. VOTE REQUIRED The four nominees receiving the highest number of affirmative votes of the Votes Cast will be elected as directors of the Company for the ensuing year. RECOMMENDATION THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE ELECTION OF THE NOMINEES. BOARD MEETINGS AND COMMITTEES The Board of Directors of the Company held a total of 13 meetings during the year ended December 31, 1998. The Board of Directors has an Audit Committee and a Compensation Committee. It does not have a nominating committee or a committee performing the functions of a nominating committee. During the year ended December 31, 1998, and as of March 22, 1999, the Audit Committee of the Board of Directors, consisting of directors Forsyth, Myhre and Rosati, held 1 meeting. The Audit Committee recommends engagement of the Company's independent accountants and is primarily responsible for approving the services performed by the Company's independent accountants and for reviewing and evaluating the Company's accounting principles and its system of internal accounting controls. During the year ended December 31, 1998, and as of March 22, 1999, the Compensation Committee of the Board of Directors, consisting of directors Forsyth, Myhre and Rosati, held 1 meeting. The Compensation Committee makes recommendations to the Board of Directors regarding the Company's executive compensation policy. See "Compensation Committee Report on Executive Compensation." No director serving in the year ended December 31, 1998, attended fewer than 75% of the aggregate number of meetings of the Board of Directors and meetings of the committees of the Board on which he or she serves. DIRECTOR COMPENSATION The Company currently pays to its directors who are not employees a fee of $1,000 per meeting and $500 per telephonic meeting. In addition, the Company pays non-employee members of the board an annual fee of $10,000. The Company also reimburses directors for reasonable expenses incurred in attending meetings. Under the Company's 1991 Incentive Stock Option Plan, each of the non-employee directors receives an automatic grant of an option to purchase 5,000 shares of common stock on the date of his or her appointment or election to the Board and, for so long as he or she continues to serve as a director, an automatic grant of an option to purchase 5,000 shares of common stock on February 7 of each year. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In 1998 the Company paid legal fees and expenses to Wilson Sonsini Goodrich & Rosati, Professional Corporation, general counsel to the Company. The amounts paid by the Company to Wilson Sonsini Goodrich & Rosati were less than 5% of the law firm's total gross revenues for its last completed fiscal year. Mario M. Rosati, a director and Secretary of the Company, is a member of the law firm of Wilson Sonsini Goodrich & Rosati. SECTION 16(A) REPORTS Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file certain reports regarding ownership of, and transactions in, the Company's securities with the Securities and Exchange Commission (the "SEC"). Such officers, directors and 10% shareholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) reports that they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons, the Company believes that during 1998 its executive officers, directors and 10% shareholders filed all required Section 16(a) reports on a timely basis, with the following exceptions: James T. Healy, Mary F. Bobel, John E. Aldeborgh, Frederick E. Heslet, Ed.D. and James McEleney. EXECUTIVE OFFICER COMPENSATION SUMMARY COMPENSATION TABLE The following table discloses compensation received by the Company's Chief Executive Officer and the four other most highly compensated executive officers of the Company (the "Named Executive Officers") for the three fiscal years ended December 31, 1998, 1997 and 1996:
LONG TERM COMPENSATION AWARDS ----------------------------- ANNUAL COMPENSATION SECURITIES ------------------------------------ UNDERLYING FISCAL OTHER ANNUAL OPTIONS ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($) (# OF SHARES) COMPENSATION($) - ---------------------------- ----- --------- ----------- --------------- ------------- --------------- William W.R. Elder 1998 285,576 -- -- 300,000 4,489 (3) Chairman of the Board, 1997 305,000 -- -- -- 3,540 (4) President and Chief Executive 1996 304,167 -- -- 50,000 2,947 (5) Officer (2) James T. Healy 1998 122,493 -- 22,367 (7) 250,000 228,625 (8) Former President and Chief 1997 300,000 90,000 -- -- 6,940 (9) Executive Officer (6) 1996 87,500 -- -- 250,000 -- Kenneth Schwanda 1998 106,118 -- -- 53,000 1,080 (10) Vice President of Finance and 1997 95,948 -- -- 10,000 744 (11) Chief Financial Officer 1996 82,500 4,230 -- -- 568 (12) John E. Aldeborgh 1998 150,491 -- 41,874 (14) 50,000 167,215 (15) Former Executive Vice 1997 206,845 20,976 -- 30,000 8,716 President, Chief Customer 1996 182,390 -- -- 50,000 -- Satisfaction Officer (13) Thomas E. Seidel, Ph.D. 1998 210,000 -- -- 200,000 5,895 (16) Executive Vice President and 1997 209,200 21,000 -- 125,000 948 Chief Technical Officer 1996 183,333 -- -- 5,000 8,692 Jeff Farrell 1998 144,922 -- -- 107,000 2,272 (17) Vice President of Engineering 1997 141,284 -- -- 10,000 1,612 (18) 1996 96,254 -- -- 12,500 1,204 (19)
(1) Except as otherwise noted, all bonuses were earned by the named officer in fiscal year indicated and paid to the named officer early in the subsequent year pursuant to the Company's Management Incentive Plan. (2) Mr. Elder was re-appointed President and Chief Executive Officer in April 1998. (3) Consists of insurance premiums of $4,489 for a term life insurance policy, the proceeds of which are payable to Mr. Elder's named beneficiaries. (4) Consists of insurance premiums of $3,540 for a term life insurance policy, the proceeds of which are payable to Mr. Elder's named beneficiaries. (5) Consists of insurance premiums of $2,994 for a term life insurance policy, the proceeds of which are payable to Mr. Elder's named beneficiaries. (6) Mr. Healy served as President and Chief Executive Officer of the Company until April 1998. (7) Includes car allowance of $18,135. (8) Consists of insurance premiums of $2,996 for a group term life insurance policy, the proceeds of which were payable to Mr. Healy's named beneficiaries, matched 401(k) contributions of $629 and severance payment of $225,000. (9) Consists of insurance premiums of $5,040 for a group term life insurance policy, the proceeds of which were payable to Mr. Healy's named beneficiaries, and matched 401(k) contributions of $1,900. (10) Consists of insurance premiums of $231 for a group term life insurance policy, the proceeds of which were payable to Mr. Schwanda's named beneficiaries, and matched 401(k) contribution of $849. (11) Consists of insurance premiums of $149 for a group term life insurance policy, the proceeds of which are payable to Mr. Schwanda's named beneficiaries, and matched 401(k) contribution of $595. (12) Consists of insurance premiums of $149 for a group term life insurance policy, the proceeds of which are payable to Mr. Schwanda's named beneficiaries, and matched 401(k) contribution of $419. (13) Mr. Aldeborgh served as Executive Vice President, Chief Customer Satisfaction Officer of the Company until June 1998. (14) Includes sales commissions of $33,738. (15) Consists of matched 401(k) contribution of $715 and severance payment of $166,500. (16) Consists of insurance premiums of $5,335 for a group term life insurance policy, the proceeds of which are payable to Dr. Seidel's named beneficiaries, and matched 401(k) contribution of $560. (17) Consists of insurance premiums of $1,452 group term life insurance policy, the proceeds of which are payable to Mr. Farrell's named beneficiaries, and matched 401(k) contribution of $820. (18) Consists of insurance premiums of $848 for a group term life insurance policy, the proceeds of which are payable to Mr. Farrell's named beneficiaries, and matched 401(k) contribution of $764. (19) Consists of insurance premiums of $601 for a group term life insurance policy, the proceeds of which are payable to Mr. Farrell's named beneficiaries, and matched 401(k) contribution of $603. OPTION/SAR GRANTS IN LAST FISCAL YEAR The following table provides information on option grants made in fiscal 1998 to the Named Executive Officers. No SARs were granted.
INDIVIDUAL GRANTS POTENTIAL ---------------------------------- REALIZABLE VALUE % OF TOTAL AT ASSUMED ANNUAL NUMBER OF OPTIONS RATES OF STOCK SECURITIES GRANTED TO PRICE APPRECIATION UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(3) OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------ NAME GRANTED YEAR (1) SHARE ($)(2) DATE 5% ($) 10% ($) - ------------------ ------- ---------- ------------ ------------ -------- ------- William W.R. Elder 300,000 7.96% 0.875 09/21/03 72,524 160,259 50,000 * 1.33% 3.031 01/27/01 ** 23,888 50,163 50,000 * 1.33% 3.031 12/14/01 ** 23,888 50,163 50,000 * 1.33% 3.031 07/23/02 ** 32,660 70,334 James T. Healy 250,000 6.64% 2.438 01/28/03 168,394 372,106 250,000 * 6.64% 3.031 09/16/02 ** 163,300 351,672 Kenneth Schwanda 3,000 0.08% 2.031 03/20/03 1,683 3,720 50,000 1.33% 1.625 05/14/03 22,448 49,604 4,000 * 0.10% 3.031 12/14/01 ** 1,911 4,013 7,500 * 0.20% 3.031 07/23/02 ** 4,899 10,550 John E. Aldeborgh 50,000 1.33% 2.438 01/28/03 33,679 74,421 6,668 * 0.18% 3.031 05/23/00 ** 2,072 4,244 8,333 * 0.22% 3.031 01/27/01 ** 3,981 8,360 25,000 * 0.66% 3.031 12/14/01 ** 11,944 25,082 50,000 * 1.33% 3.031 07/03/02 ** 32,660 70,334 30,000 * 0.80% 3.031 02/10/03 ** 25,122 55,514 Thomas E. Seidel 10,000 0.27% 2.438 01/28/03 6,736 14,884 200,000 5.31% 0.875 09/21/03 48,349 106,839 75,000 * 2.00% 3.031 01/30/02 ** 48,990 105,502 50,000 * 1.33% 3.031 07/23/02 ** 32,660 70,334 5,000 * 0.13% 3.031 02/10/03 ** 4,187 9,252 Jeff Farrell 7,000 0.19% 2.438 01/28/03 4,715 10,419 100,000 2.66% 1.625 05/14/03 44,896 99,208 12,500 * 0.33% 3.031 04/30/03 ** 10,468 23,131 10,000 * 0.30% 3.031 05/20/04 ** 10,308 23,386
* Represents options that were repriced by the Company on February 9, 1998. The share amounts and vesting schedules remained the same as the original option; however, the term of the option was extended one year to compensate for a one-year blackout period following the repricing. ** Includes one-year extended term pursuant to the option repricing (see above). (1) Based on an aggregate of 3,764,407 options granted to all employees during fiscal year 1998, including 1,562,241 options that were repriced. Options granted in fiscal year 1998 expire in 2003 and typically vest in three equal annual installments commencing on the first anniversary of the date of grant. (2) All options were granted at an exercise price equal to the fair market value based on the closing market value of common stock on the Nasdaq National Market on the date of grant with the exception of those options that were repriced as disclosed. (3) Potential realizable value assumes that the stock price increases from the date of grant until the end of the option term (5 years) at the annual rate specified (5% and 10%). This assumption is based on SEC rules and does not necessarily represent the expected rate of appreciation. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES The following table provides information on option exercises in fiscal 1998 by the Named Executive Officers and the number and value of such officers' unexercised options at December 31, 1998. No SARs have been granted.
NUMBER OF VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT SHARES VALUE DECEMBER 31, 1998 DECEMBER 31, 1998 ($)(2) ACQUIRED ON REALIZED -------------------------- -------------------------- NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------ ------------ --------- ----------- ------------- ----------- ------------- William W.R. Elder -0- -- 133,330 316,670 -- 46,800 James T. Healy -0- -- -0- -0- -- -- Kenneth Schwanda -0- -- 12,334 62,166 -- -- John E. Aldeborgh -0- -- -0- -0- -- -- Thomas E. Seidel -0- -- 84,992 255,008 -- 31,200 Jeff Farrell -0- -- 11,667 117,833 -- --
(1) Market value of underlying securities (based on the fair market value of the Company's common stock on the Nasdaq National Market) at the time of exercise, minus the exercise price. (2) Market value of securities underlying in-the-money options at the end of fiscal year 1998 (based on $1.031 per share, the closing price of Company's common stock on the Nasdaq National Market on December 31, 1998), less the exercise price. The Company has not established any long-term incentive plans or defined benefit or actuarial plans covering any of the Named Executive Officers. 10-YEAR STOCK OPTION REPRICING The following table sets forth certain information regarding the participation of any executive officer in the Company's repricing of stock options for the previous 10 fiscal years.
LENGTH OF ORIGINAL NUMBER OF OPTION TERM SECURITIES MARKET PRICE REMAINING UNDERLYING OF STOCK EXERCISE PRICE AT DATE OF OPTIONS/SARS AT TIME OF AT TIME OF NEW REPRICING OR REPRICED OR REPRICING OR REPRICING OR EXERCISE AMENDMENT NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) (IN YEARS) - --------------------------------- -------- ----------- ------------ ------------ -------- ----------- William W.R. Elder 02/09/98 50,000 3.0310 7.7500 3.0310 1.9 Chairman of the Board, President 02/09/98 50,000 3.0310 8.6250 3.0310 1.8 and Chief Executive Officer 02/09/98 50,000 3.0310 6.1250 3.0310 3.4 12/14/95 50,000 8.6250 12.1250 8.6250 4.6 01/15/91 20,000 1.2500 2.5000 1.2500 1.1 01/15/91 60,000 1.2500 2.5000 1.2500 1.1 01/15/91 120,000 1.2500 3.1250 1.2500 4.4 06/08/90 120,000 3.1250 5.1250 3.1250 3.5 James T. Healy 02/09/98 250,000 3.0310 5.9375 3.0310 3.6 Former President and Chief Executive Officer Kenneth Schwanda 02/09/98 4,000 3.0310 8.6250 3.0310 2.8 Vice President of Finance and 02/09/98 7,500 3.0310 6.1250 3.0310 3.4 Chief Financial Officer John E. Aldeborgh 02/09/98 6,668 3.0310 4.0000 3.0310 1.3 Former Executive Vice President, 02/09/98 8,333 3.0310 7.7500 3.0310 1.9 Chief Customer Satisfaction 02/09/98 25,000 3.0310 8.6250 3.0310 2.8 Officer; former Vice President and 02/09/98 50,000 3.0310 6.1250 3.0310 3.4 General Manager, Ion Technology 02/09/98 30,000 3.0310 5.2500 3.0310 4.0 Division 07/20/95 25,000 12.1250 12.1250 8.6250 5.0 01/15/91 4,000 1.2500 3.1250 1.2500 4.4 06/08/90 4,000 3.1250 10.2500 3.1250 4.0 Thomas E. Seidel 02/09/98 75,000 3.0310 8.3700 3.0310 2.9 Executive Vice President and 02/09/98 50,000 3.0310 6.1250 3.0310 3.4 Chief Technical Officer 02/09/98 5,000 3.0310 5.2500 3.0310 4.0 Jeff Farrell 02/09/98 12,500 3.0310 8.0000 3.0310 4.2 Vice President of Engineering 02/09/98 10,000 3.0310 4.1900 3.0310 5.3 Frederick E. Heslet, Ed.D. 02/09/98 25,000 3.0310 6.3750 3.0310 5.9 Former Vice President, Chief Quality Officer James McEleney. 02/09/98 5,000 3.0310 8.0000 3.0310 3.2 Former Vice President, 02/09/98 10,000 3.0310 6.1250 3.0310 3.4 General Manager, 02/09/98 3,00 3.0310 5.2500 3.0310 4.0 Ion Technology Products 02/09/98 20,000 3.0310 3.8750 3.0310 4.1 Michael Mitchell 02/09/98 1,000 3.0310 8.6250 3.0310 0.8 Director of Operations 02/09/98 2,000 3.0310 5.2550 3.0310 2.0 02/09/98 5,000 3.0310 4.1900 3.0310 2.3 12/14/95 1,000 8.6250 15.6250 8.6250 4.8 James Burns 12/14/95 25,000 8.6250 12.1250 8.6250 4.6 Former Executive Vice President and General Manager, Thin Film Division W. Wayne Carlson 01/15/91 20,000 1.2500 3.1250 1.2500 4.4 Former Vice President and 06/08/90 20,000 3.1250 8.3800 3.1250 3.9 General Manager, Ion Technology Division William Cole 12/14/95 25,000 8.6250 12.1250 8.6250 4.6 Former Vice President, Sales Kevin Conlon 12/14/95 25,000 8.6250 12.1250 8.6250 4.6 Former Vice President, Marketing Frank Deak 06/08/90 10,000 3.1250 5.1250 3.1250 3.5 Former Vice President, Information Services Richard Hannigan 01/15/91 20,000 1.2500 2.5000 1.2500 1.1 Former Executive Vice President 01/15/91 20,000 1.2500 2.5000 1.2500 1.1 and Chief Financial Officer 01/15/91 20,000 1.2500 3.1250 1.2500 4.4 06/08/90 20,000 3.1250 5.1250 3.1250 3.5 William Harshberger 01/15/91 14,000 1.2500 3.1250 1.2500 4.4 Former Vice President, 01/15/91 4,000 1.2500 3.0000 1.2500 4.5 Japan Operations and Chief 06/08/90 14,000 3.1250 5.1250 3.1250 3.5 Technologist Michael Hernandez 01/15/91 11,000 1.2500 2.5000 1.2500 2.0 Former Vice President, 01/15/91 3,000 1.2500 3.1250 1.2500 4.4 Human Resources 01/15/91 4,000 1.2500 3.0000 1.2500 4.5 06/08/90 3,000 3.1250 8.3800 3.1250 4.2 Michael McCann 01/15/91 6,000 1.2500 2.5000 1.2500 1.1 Former Vice President, Sales 01/15/91 800 1.2500 2.5000 1.2500 1.1 01/15/91 2,000 1.2500 2.5000 1.2500 1.1 01/15/91 6,000 1.2500 2.5000 1.2500 2.1 01/15/91 10,000 1.2500 5.1250 1.2500 2.9 01/15/91 4,000 1.2500 3.0000 1.2500 4.5 Eric Newton 01/15/91 8,000 1.2500 3.1250 1.2500 4.4 Former General Manager, 01/15/91 4,000 1.2500 3.0000 1.2500 4.5 Thin Film Products 06/08/90 8,000 3.1250 5.1250 3.1250 3.2 Ken Norcross 01/15/91 10,000 1.2500 3.1250 1.2500 4.4 Former Vice President, 01/15/91 7,000 1.2500 3.0000 1.2500 4.5 Customer Service 06/08/90 10,000 3.1250 8.3800 3.1250 4.1 Ernerst Qinones 12/14/95 10,000 8.6250 15.6250 8.6250 4.8 Former Vice President of Finance 01/15/91 4,000 1.2500 3.1250 1.2500 4.4 01/15/91 2,000 1.2500 3.0000 1.2500 4.5 06/08/90 4,000 3.1250 10.2500 3.1250 4.0 Kent Robertson 12/14/95 75,000 8.6250 12.3750 8.6250 4.5 Former Chief Financial Officer Kenneth L. Schroeder 05/15/91 100,000 1.2500 3.1250 1.2500 4.4 Former President and Chief 06/08/90 100,000 3.1250 4.5000 3.1250 4.9 Operating Officer Clifford Smedley 01/15/91 24,000 1.2500 2.5000 1.2500 2.0 Former Vice President, 01/15/91 10,000 1.2500 3.1250 1.2500 4.4 New Business Development 01/15/91 10,000 1.2500 3.1250 1.2500 4.4 01/15/91 4,000 1.2500 3.0000 1.2500 4.5 06/08/90 10,000 3.1250 5.1250 3.1250 3.5 06/08/90 10,000 3.1250 8.3800 3.1250 4.2
COMPENSATION COMMITTEE REPORT OPTION REPRICING On January 28, 1998 the Board of Directors authorized the repricing of certain stock options at the fair market value of the Company's common stock as of February 9, 1998. The Company and the Board of Directors took this action in order to address concerns regarding the retention of the Company's key employees in a climate of intense competition for experienced personnel. Pursuant to the option repricing, all individuals who held stock options granted under the Company's 1991 Incentive Stock Option Plan were offered the opportunity to exchange all of their stock options with an exercise price of greater than $3.03 for a like number of options at an exercise price of $3.03 per share, the fair market value of the Company's common stock on February 9, 1998. Participants in the February 1998 repricing were required to agree not to exercise their new options for a period of one year (the "blackout period"). The original expiration dates of the stock options cancelled and reissued pursuant to the repricing were extended for one year to compensate for the blackout period. On February 9, 1998 options to purchase 1,652,241 shares of common stock at exercise prices ranging from $4.00 to $8.625 -per share were repriced at an exercise price of $3.03 per share. EXECUTIVE COMPENSATION The objectives of the overall executive compensation program are to attract, retain, motivate and reward Company executives while aligning their compensation with the achievements of key business objectives, maximization of shareholder value and optimal satisfaction of customers. The Compensation Committee is responsible for: 1. Determining the specific executive compensation methods to be used by the Company and the participants in each of those specific programs; 2. Determining the evaluation criteria and timelines to be used in those programs; 3. Determining the processes that will be followed in the ongoing administration of the programs; and 4. Determining their role in the administration of the programs. All of the actions take the form of recommendations to the full Board of Directors where final approval, rejection or redirection will occur. The Compensation Committee is responsible for administering the compensation programs for all Company officers. The Compensation Committee has delegated the responsibility of administering the compensation programs for all other Company employees to the Company's officers. Currently, the Company uses the following executive compensation vehicles: - - Cash-based programs: Base salary, Annual Incentive Bonus Plan, Annual Profit Sharing Plan, and a Sales Incentive Commission Plan; and - - Equity-based programs: 1991 Incentive Stock Option Plan and the 1989 Employee Stock Purchase Plan. These programs apply to the Chief Executive Officer and all executive level positions, except for the Sales Incentive Commission Plan, which only includes executives directly responsible for sales activities. Periodically, but at least once near the close of each fiscal year, the Compensation Committee reviews the existing plans and recommends those that should be used for the subsequent year. The criteria for determining the appropriate salary level, bonus and stock option grants for the Chief Executive Officer and each of the executive officers include (a) Company performance as a whole, (b) business unit performance (where appropriate) and (c) individual performance objectives. Company performance and business unit performance are measured against both strategic and financial goals. Examples of these goals are to obtain: operating profit, revenue growth, timely new product introduction, and shareholder value (usually measured by the Company stock price). Individual performance is measured to specific objectives relevant to the individual's position and a specific time frame. These criteria are usually related to a fiscal year time period, but may, in some cases, be measured over a shorter or longer time frame. The processes used by the Compensation Committee include the following steps: 1. The Compensation Committee periodically receives information comparing the Company's pay levels to other companies in similar industries, other leading companies (regardless of industry) and competitors. Primarily national and regional compensation surveys are used. 2. At or near the start of each evaluation cycle, the Compensation Committee meets with the Chief Executive Officer to review, revise as needed, and agree on the performance objectives set for the other executives reporting to the Chief Executive Officer. The Chief Executive Officer and Compensation Committee jointly set the Company objectives to be used. The business unit and individual objectives are formulated jointly by the Chief Executive Officer and the specific individual. The Compensation Committee also, with the Chief Executive Officer, jointly establishes and agrees on their respective performance objectives. 3. Throughout the performance cycle review, feedback is provided by the Chief Executive Officer, the Compensation Committee and full Board, as appropriate. 4. At the end of the performance cycle, the Chief Executive Officer evaluates each executive's relative success in meeting the performance goals. The Chief Executive Officer makes recommendations on salary, bonus and stock options, utilizing the comparative results as a factor. Also included in the decision criteria are subjective factors such as teamwork, leadership contributions and ongoing changes in the business climate. The Chief Executive Officer reviews the recommendations and obtains Compensation Committee approval. The Compensation Committee also determines the level of salary and bonus and the terms of stock option grants for the Chief Executive Officer. 5. The final evaluations and compensation decisions are discussed with each executive by the Chief Executive Officer or Compensation Committee, as appropriate. The Compensation Committee feels that the compensation vehicles used by the Company, generally administered through the process as outlined above, provide a fair and balanced executive compensation program related to the proper business issues. In addition, it should be noted that compensation vehicles will be reviewed and, as appropriate, revised in order to attract and retain new executives in addition to rewarding performance on the job. Respectfully submitted by: Frederick Forsyth Todd S. Myhre Mario M. Rosati PERFORMANCE GRAPH The following graph shows a comparison of cumulative total shareholder return among the Company, the NASDAQ Stock Market-US Index and the H & Q Technology Index for the period from December 31, 1993 (the last trading day before the beginning of the Company's 1994 Fiscal Year) through 1998 Fiscal Year End for the Company. The graph assumes that $100 was invested in the Company's common stock, in the NASDAQ Stock Market-US Index and the H&Q Technology Index on December 31, 1993 and all dividends were reinvested. Historic stock price performance is not necessarily indicative of future stock price performance. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
GENUS, INC. NASDAQ STOCK MARKET (U.S.) H&Q TECHNOLOGY ----------- -------------------------- -------------- 12/93 $ 100 $ 100 $ 100 12/94 267 98 120 12/95 250 138 180 12/96 183 170 223 12/97 111 209 262 12/98 34 293 407
TRANSACTIONS WITH MANAGEMENT CHANGE OF CONTROL SEVERANCE AGREEMENTS Certain executive officers and key employees have severance agreements with the Company that provide severance benefits in the event that the officer's or employee's employment with the Company is "Involuntarily Terminated" or otherwise terminated without "Cause" within a specified period of time (either six months or one year) following a "Change of Control." The severance benefits include a cash payment of a specified percentage (either 600% or 1200%) of the executive's or employee's monthly base pay. The severance agreements define "Cause" to include an act of dishonesty intended to result in substantial gain or personal enrichment; conviction of an illegal act with respect to his or her employment by the Company; and willful violations of the executive's or key employee's obligations to the Company. The severance agreements define "Involuntary Termination" to include a reduction in base compensation; a relocation of the executive or key employee to a location more than 50 miles from the executive or key employee's present location; a material reduction in benefits or a material increase in the executive's or employee's cost of benefits; significant reduction of the executive's or key employee's duties or responsibilities; or the failure or refusal of a successor company to assume the Company's obligations under the severance agreements. The severance agreements define "Change of Control" to mean the occurrence of any of the following events: (i) any person becomes the beneficial owner of securities of the Company representing 50% or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) a change in the composition of the Board of Directors occurring within a two-year period, as a result of which fewer than a majority of the directors are incumbent directors; or (iii) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets. TERMINATION OF EMPLOYMENT AGREEMENTS In January 1998, the Company entered into a Settlement Agreement and Mutual Release with John E. Aldeborgh (the "Aldeborgh Agreement") in connection with Mr. Aldeborgh's resignation from the Company effective as of June 30, 1998. Pursuant to the Aldeborgh Agreement, the Company continued to pay Mr. Aldeborgh $18,500 per month, less applicable withholding, for nine months from the date of his resignation. In April 1998, the Company entered into a Settlement Agreement and Mutual Release with James T. Healy (the "Healy Agreement") in connection with Mr. Healy's resignation from the Company effective as of April 30, 1998. Pursuant to the Healy Agreement, the Company continued to pay Mr. Healy $25,000 per month, less applicable withholding, for nine months from the date of his resignation. In May 1998, the Company entered into a Settlement Agreement and Mutual Release with Mary F. Bobel (the "Bobel Agreement") in connection with Ms. Bobel's resignation from the Company effective as of August 7, 1998. Pursuant to the Bobel Agreement, the Company continued to pay Ms. Bobel $13,750 per month, less applicable withholding, for nine months from the date of her resignation. In May 1998, the Company entered into a Settlement Agreement and Mutual Release with Frederick E. Heslet, Ed.D. (the "Heslet Agreement") in connection with Dr. Heslet's resignation from the Company effective as of May 30, 1998. Pursuant to the Heslet Agreement, the Company continued to pay Dr. Heslet $11,600 per month, less applicable withholding, for six months from the date of his resignation. See also "Compensation Committee Interlocks and Insider Participation" above. PROPOSAL TWO AMENDMENT OF 1991 INCENTIVE STOCK OPTION PLAN GENERAL The 1991 Incentive Stock Option Plan ("1991" Option Plan") was adopted by the Board of Directors in February 1991. Prior to January 1998, a total of 3,653,006 shares of common stock were reserved for issuance thereunder. In February 1999, the Board of Directors approved an amendment to the 1991 Option Plan to increase the number of shares of common stock reserved for issuance thereunder by 500,000 to a total of 4,153,006 shares. The Board of Directors recommends that the shareholders vote to approve this amendment of the 1991 Option Plan. All employees, including officers and directors, and consultants of the Company or any of its designated subsidiaries are eligible to be granted options under the 1991 Option Plan. In addition, non-employee directors are eligible for option grants under the Automatic Grant Plan described below. As of March 22, 1999, 81 full-time employees (including officers and directors), 0 part-time employees and 7 consultants were eligible for grants under the 1991 Option Plan, while 3 non-employee directors were eligible for grants under the Automatic Grant Plan. Options granted under the Option Plan may be either "incentive stock options," as defined in Section 422 of the Code, or "nonstatutory options." As of March 22,1999, options to purchase 872,610 shares had been exercised, options to purchase 2,193,390 shares were outstanding and 1,087,006 shares were available for future grant. The closing price of the Company's common stock reported on the NASDAQ National Market system on March 22, 1999, was $2.00 per share. The essential features of the 1991 Option Plan are outlined below. PURPOSE The 1991 Option Plan replaced the 1981 Option Plan, which terminated in December 1991. The purposes of the 1991 Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive and to promote the success of the Company's business. ADMINISTRATION The 1991 Option Plan provides for administration by the Board of Directors of the Company or by a committee of the Board. The 1991 Option Plan is currently being administered by the Board of Directors. No member of the Board who is eligible to participate in the plan may vote on any option to be granted to himself or take part in any consideration of the 1991 Option Plan as it applies to himself. The interpretation and construction of any provision of the 1991 Option Plan by the Board shall be final and conclusive. Members of the Board receive no compensation for their services in connection with the administration of the 1991 Option Plan. ELIGIBILITY The 1991 Option Plan provides that options may be granted to employees, including officers and directors, and consultants of the Company or any of its designated subsidiaries. Except with respect to non-employee directors ("Outside Directors"), the Board of Directors selects the optionees and determines the number of shares to be subject to each option and the time or times at which shares become exercisable under the option. In making such determination, the duties and responsibilities of the employee or consultant, the value of his or her services, his or her present and potential contribution to the success of the Company, the anticipated number of years of future service and other relevant factors are taken into account. There is a $100,000 limit on the aggregate market value of shares subject to all incentive stock options that are exercisable for the first time in any one calendar year. PERFORMANCE-BASED COMPENSATION LIMITATIONS No employee shall be granted in any fiscal year of the Company options to acquire in the aggregate 400,000 shares of common stock. The foregoing limitation, which shall adjust proportionately in connection with any change in the Company's capitalization, is intended to satisfy the requirements applicable to options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code. In the event that the Committee determines that such limitation is not required to qualify options as performance-based compensation, the Committee may modify or eliminate such limitation. OUTSIDE DIRECTORS' OPTIONS The 1991 Option Plan provides that, with respect to Outside Directors, nonstatutory options shall be automatically granted to Outside Directors on a yearly basis from their initial appointment or election in order to provide an incentive to Outside Directors of the Company ("Automatic Grant Program"). The exercise price of options granted under the Automatic Grant Program is the fair market value of the Company's common stock on the date of the automatic grant. Outside Directors may not be granted options under the 1991 Option Plan except under the Automatic Grant Program. Each Outside Director receives an automatic grant on the date of his or her appointment or election to the Board of an initial option to purchase 5,000 shares of common stock and, for as long as he or she continues to serve as an Outside Director, receives an automatic grant on February 7 of each year of an option to purchase an additional 5,000 shares of common stock. These options become exercisable cumulatively with respect to 1/12th of the underlying shares on the last day of each month following the date of grant and have a term of five years from the date of grant. TERMS OF OPTIONS The terms of the options granted under the 1991 Option Plan (other than options granted to Outside Directors pursuant to the Automatic Grant Program ("Outside Director Options")) are determined by the Board of Directors. Each option granted under the 1991 Option Plan is evidenced by a stock option agreement between the Company and the employee to whom such option is granted and is subject to the following additional terms and conditions: Exercise of the Option. The Board of Directors determines when options granted under the 1991 Option Plan (other than Outside Director Options) may be exercised. An option is exercised by giving written notice of exercise to the Company, specifying the number of full shares of common stock to be purchased and tendering payment to the Company of the purchase price. Payment for shares issued upon exercise of an option may consist of cash, promissory note, exchange of shares of the Company's common stock or such other consideration as determined by the Board of Directors and as permitted by the California Corporations Code. Option Price. The option price under the 1991 Option Plan (other than Outside Director Options) is determined by the board of Directors. The option price of incentive stock options may not be less than 100% of the fair market value of the Company's common stock on the date the option is granted and the exercise price of nonstatutory stock options may not be less than 85% of the fair market value of the common stock on the date the option is granted. However, in the case of options granted to an optionee who owns more than 10% of the voting power or value of all classes of stock of the Company, the per share exercise price of any option must not be less than 110% of the fair market value on the date of grant. The Board of Directors of the Company or its committee determines such fair market value based upon the closing price of the common stock in the NASDAQ National Market System on the date the option is granted. Termination of Employment. The 1991 Option Plan provides that if the optionee's employment by the Company is terminated for any reason other than death, options may be exercised not later than three months (or, in the case of a nonstatutory stock option, such other period of time not exceeding six months as is determined by the Board and specified in the option agreement) after such termination and may be exercised only to the extent the options were exercisable on the date of termination. Death. If an optionee should die while employed by the Company, options may be exercised at any time within twelve months after the date of death but only to the extent that the options were exercisable on the date of death. Term of Options. Options granted under the 1991 Option Plan (other than Outside Director Options) expire 10 years from the date of grant, unless a shorter term is provided in the option agreement. However, incentive stock options granted to an optionee who, immediately before the grant of such option, owns more than 10% of the total combined voting power of all classes of stock of the Company or a parent or subsidiary corporation may not have terms of more than five years. Nontransferability of Options. An option is nontransferable by the optionee, other than by will or the laws of descent and distribution, and is exercisable only by the optionee during his or her lifetime or, in the event of death, by a person who acquires the right to exercise the option by bequest or inheritance or by reason of the death of the optionee. Acceleration of Options. In the event of a merger or sale of assets of the Company, options shall be assumed or substituted for by the successor corporation or the optionee's right to exercise outstanding options shall be accelerated in full. Other Provisions. The option agreement may contain such other terms, provisions and conditions not inconsistent with the 1991 Option Plan as may be determined by the Board of Directors or its committee. ADJUSTMENT UPON CHANGES IN CAPITALIZATION In the event any change, such as a stock split or dividend, is made in the Company's capitalization that results in an increase or decrease in the number of outstanding shares of common stock without receipt of consideration by the Company, an appropriate adjustment shall be made in the option price and in the number of shares subject to each option. In the event of the proposed dissolution or liquidation of the Company, all outstanding options automatically terminate immediately prior to the consummation of such action unless otherwise provided by the Board. The Board of Directors may in its discretion make provision for accelerating the exercisability of shares subject to options under the 1991 Option Plan in such event. AMENDMENT AND TERMINATION The Board of Directors may amend the 1991 Option Plan at any time or from time to time or may terminate it without approval of the shareholders. To the extent required by applicable law, shareholder approval shall be obtained of any Plan amendment. No action by the Board of Directors or shareholders may alter or impair any option previously granted under the 1991 Option Plan without the consent of the effected optionee. The 1991 Option Plan will terminate by its terms in 2001. TAX INFORMATION Options granted under the Option Plan may be either "incentive stock options," as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory options. An optionee who is granted an incentive stock option will not recognize taxable income either at the time the option is granted or upon its exercise, although the exercise may subject the optionee to the alternative minimum tax. Upon the sale or exchange of the shares more than two years after grant of the option and one year after exercising the option, any gain or loss will be treated as long-term capital gain or loss. If these holding periods are not satisfied, the optionee will recognize ordinary income at the time of sale or exchange equal to the difference between the exercise price and the lower of (i) the fair market value of the shares at the date of the option exercise or (ii) the sale price of the shares. A different rule for measuring ordinary income upon such a premature disposition may apply if the optionee is also an officer, director, or 10% shareholder of the Company. The Company will be entitled to a deduction in the same amount as the ordinary income recognized by the optionee. Any gain or loss recognized on such a premature disposition of the shares in excess of the amount treated as ordinary income will be characterized as long-term or short-term capital gain or loss, depending on the holding period. Options which do not qualify as incentive stock options are referred to as nonstatutory options. An optionee will not recognize any taxable income at the time a nonstatutory option is granted. However, upon its exercise, the optionee will recognize taxable income generally measured as the excess of the then fair market value of the shares purchased over the purchase price. Any taxable income recognized in connection with an option exercise by an optionee who is also an employee of the Company will be subject to tax withholding by the Company. Upon resale of such shares by the optionee, any difference between the sales price and the optionee's purchase price, to the extent not recognized as taxable income as described above, will be treated as long-term or short-term capital gain or loss, depending on the holding period. The Company will be entitled to a tax deduction in the same amount as the ordinary income recognized by the Optionee with respect to shares acquired upon exercise of a nonstatutory option. The foregoing is only a summary of the effect of federal income taxation upon the optionee and the Company with respect to the grant and exercise of options under the Option Plan, does not purport to be complete, and does not discuss the tax consequences of the optionee's death or the income tax laws of any municipality, state or foreign country in which an optionee may reside. VOTE REQUIRED Affirmative votes constituting a majority of the Votes Cast will be required to approve and ratify the amendment of the 1991 Option Plan. RECOMMENDATION THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 1991 INCENTIVE STOCK OPTION PLAN. PROPOSAL THREE AMENDMENT OF 1989 EMPLOYEE STOCK PURCHASE PLAN GENERAL The 1989 Employee Stock Purchase Plan ("Purchase Plan") was adopted by the board of Directors in March 1989 and approved by the shareholders in May 1990. In February 1999, the Board of Directors amended the Purchase Plan, subject to shareholder approval, to increase the number of shares of common stock reserved for issuance thereunder by 300,000 shares, from 2,050,000 to 2,350,000 shares. As of March 22, 1999, 1,862,608 shares had been issued under the Purchase Plan, and 487,392 shares remained available for future issuances under the Purchase Plan. PURPOSE The purpose of the Purchase Plan is to provide employees of the Company (and any of its subsidiaries which are designated by the Board of Directors) who participate in the plan with an opportunity to purchase common stock of the Company through payroll deductions. ADMINISTRATION The Purchase Plan may be administered by the Board of Directors or a committee appointed by the Board. All questions of interpretation or application of the plan are determined at the sole discretion of the Board of Directors or its committee. The Purchase Plan is currently being administered by the Board of Directors. Members of the Board of Directors who are eligible employees are permitted to participate in the Purchase Plan but may not vote on any matter affecting the administration of the plan or the grant of any option pursuant to the plan, or be a member of any committee appointed to administer the plan. No charges for administrative or other costs may be made against the payroll deductions of a participant in the plan. Members of the Board of Directors receive no additional compensation for their services in connection with the administration of the Purchase Plan. ELIGIBILITY Any person who is employed by the Company (or by any of its subsidiaries which are designated from time-to-time by the Board) for at least 20 hours per week and more than five months in a calendar year on the date his or her participation in the plan is effective is eligible to participate in the Purchase Plan. As of March 22, 1999 approximately 65 employees were eligible to participate in the Purchase Plan. OFFERING DATE The Purchase Plan is implemented by overlapping 24-month offering periods containing four six-month purchase periods. New offering periods commence every six months. The purchase periods generally commence on July 1 and January 1 of each year. The Board of Directors may change the duration of the offering periods without shareholder approval. PURCHASE PRICE The purchase price per share at which shares are sold under the Purchase Plan is the lower of 85% of fair market value of the common stock on the date of commencement of the 24-month offering period or 85% of the fair market value of the common stock on the last day of the six-month purchase period. Eligible employees are automatically re-enrolled in the offering period with the lower of 85% of fair market value of the common stock on the date of commencement of such 24-month offering period. The fair market value of the common stock on a given date shall be determined by the Board of Directors based upon the reported closing price in the NASDAQ National Market System on such date. PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS The purchase price of the shares is accumulated by payroll deductions during the offering period. The deductions may not exceed 10% of a participant's eligible compensation. A participant may discontinue his or her participation in the plan or may decrease, but not increase, the rate of payroll deductions at any time during the offering period. All payroll deductions are credited to the participant's account under the plan and are deposited with the general funds of the Company. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose. PURCHASE OF STOCK; EXERCISE OF OPTION At the beginning of each offering period, by executing a subscription agreement to participate in the Purchase Plan, each employee is in effect granted an option to purchase shares of common stock. The maximum number of shares placed under option to a participant in an offering is determined by dividing the compensation which such participant has elected to have withheld during the offering period by 85% of the fair market value of the common stock at the beginning of the offering period or ending of a purchase period, whichever is lower. WITHDRAWAL While each participant in the Purchase Plan is required to sign a subscription agreement authorizing payroll deductions, the participant's interest in a given offering may be terminated in whole, but not in part, by signing and delivering to the Company a notice of withdrawal from the plan. Such withdrawal may be elected at any time prior to the end of the applicable 24-month offering period. A participant's withdrawal from an offering does not have any effect upon such participant's eligibility to participate in subsequent offerings under the Purchase Plan. TERMINATION OF EMPLOYMENT Termination of a participant's employment for any reason, including retirement or death, cancels his or her participation in the Purchase Plan immediately. In such event, the payroll deductions credited to the participant's account will be returned to such participant or, in the case of death, to the person or persons entitled thereto as specified by the employee in the subscription agreement. CHANGES In the event of any change, such as stock splits or stock dividends, made in the capitalization of the Company that results in an increase or decrease in the number of shares of common stock outstanding without receipt of consideration by the Company, appropriate adjustments will be made by the Company in the number of shares subject to purchase and in the purchase price per share, subject to any required action by the shareholders of the Company. AMENDMENT AND TERMINATION OF THE PLAN The Board of Directors may at any time amend or terminate the Purchase Plan, except that such termination shall not affect options previously granted nor may any amendment make any change in an option granted prior thereto which adversely affects the rights of any participant. No amendment may be made to the Purchase Plan without approval of the shareholders of the Company if such amendment would increase the number of shares reserved under the plan. The Purchase Plan will by its terms terminate in 2009. TAX INFORMATION The Purchase Plan, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the Plan are sold or otherwise disposed of. Upon sale or other disposition of the shares, the participant will generally be subject to tax and the amount of the tax will depend upon the holding period. If the shares are sold or otherwise disposed of more than two years from the first day of the offering period and one year from the date the shares are purchased, the participant will recognize ordinary income measured as the lesser of (a) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or (b) an amount equal to 15% of the fair market value of the shares as of the first day of the offering period. Any additional gain will be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of these holding periods, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on the holding period. The Company is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized by participants upon a sale or disposition of shares prior to the expiration of the holding period(s) described above. The foregoing is only a summary of the effect of federal income taxation upon the participant and the Company with respect to the shares purchased under the Purchase Plan. Reference should be made to the applicable provisions of the Code. In addition, the summary does not discuss the tax consequences of a participant's death or the income tax laws of any state or foreign country in which the participant may reside. VOTE REQUIRED The approval of the amendment to the Purchase Plan requires the affirmative vote of a majority of the Votes Cast. RECOMMENDATION THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 1989 EMPLOYEE STOCK PURCHASE PLAN. PROPOSAL FOUR RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS The Board of Directors has selected PricewaterhouseCoopers LLP, independent accountants, to audit the financial statements of the Company for the year ending December 31, 1999, and recommends that the shareholders vote for ratification of such appointment. In the event of a negative vote on such ratification, the Board of Directors will reconsider its selection. PricewaterhouseCoopers LLP has audited the Company's financial statements since the year ended December 31, 1982. Representatives of PricewaterhouseCoopers LLP are expected to be present at the meeting with the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions. OTHER MATTERS The Company knows of no other matters to be submitted to the meeting. If any other matters properly come before the meeting, it is the intention of the persons named in the enclosed form of Proxy to vote the shares they represent as the Board of Directors may recommend. THE BOARD OF DIRECTORS Dated: April 19, 1999 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS GENUS, INC. 1999 ANNUAL MEETING OF SHAREHOLDERS The undersigned shareholder of GENUS, INC., a California corporation (the "Company"), hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement, each dated April 19, 1999, and hereby appoints William W.R. Elder and Kenneth Schwanda proxies and attorneys-in-fact, with full power of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the 1999 Annual Meeting of Shareholders of Genus, Inc. to be held on Wednesday, May 19, 1999 at 10:00 a.m., local time, at The Network Meeting Center located at 5201 Great America Parkway, Suite 122, in Santa Clara, California, 95054, and any continuation(s) or adjournment(s) thereof, and to vote all shares of common stock which the undersigned would be entitled to vote if then and there personally present, on the matters set forth below. - FOLD AND DETACH HERE - Please mark your choice like this [X] -------------- COMMON FOR all nominees listed WITHHOLD authority to vote below (except as indicated) for all nominees listed below. 1. Election of directors: [ ] [ ] IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW: William W.R. Elder, Todd S. Myhre, G. Frederick Forsyth, and Mario M. Rosati 2. Proposal to approve the amendment of the Company's 1991 Incentive Stock Option Plan to increase the number of shares of common stock reserved for issuance thereunder by 500,000 shares. FOR AGAINST ABSTAIN [ ] [ ] [ ] 3. Proposal to approve the amendment of the Company's 1989 Employee Stock Purchase Plan to increase the number of shares of common stock reserved for issuance thereunder by 300,000 shares. FOR AGAINST ABSTAIN [ ] [ ] [ ] 4. Proposal to ratify the appointment of PricewaterhouseCoopers LLP as the independent public accountants of the Company's financial statements for the fiscal year ending December 31, 1999. FOR AGAINST ABSTAIN [ ] [ ] [ ] 5. In the discretion of the proxy holders, upon such other matter or matters which may properly come before the meeting and any continuation(s) or adjournment(s) thereof. FOR AGAINST ABSTAIN [ ] [ ] [ ] THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL BE VOTED FOR THE ELECTION OF DIRECTORS, FOR THE AMENDMENT OF THE 1991 INCENTIVE STOCK OPTION PLAN, FOR THE AMENDMENT OF THE 1989 EMPLOYEE STOCK PURCHASE PLAN, FOR THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND IN THE DISCRETION OF THE PROXY HOLDERS, UPON SUCH OTHER MATTER OR MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING AND ANY CONTINUATION(S) OR ADJOURNMENT(S) THEREOF. Signature(s)_________________________________ Date __________, 1999 (This Proxy should be dated, signed by the shareholder(s) exactly as his or her name appears hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. If shares are held by joint tenants or as community property, both should sign.) - FOLD AND DETACH HERE - -----END PRIVACY-ENHANCED MESSAGE-----