-----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, IUVHyuVN7wHHxv4oPX84CQr6boPMbG9cG82DKxn2FfQWrOJ9u0zmX2EqViVRXG85 zX8p3vPy699l9AJFIDoceg== 0000837913-01-500007.txt : 20010409 0000837913-01-500007.hdr.sgml : 20010409 ACCESSION NUMBER: 0000837913-01-500007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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: 10-K SEC ACT: SEC FILE NUMBER: 000-17139 FILM NUMBER: 1591890 BUSINESS ADDRESS: STREET 1: 1139 KARLSTAD DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089-2117 BUSINESS PHONE: 408-747-7120 MAIL ADDRESS: STREET 1: GENUS, INC. STREET 2: 1139 KARLSTAD DRIVE CITY: SUNNYVALE STATE: CA ZIP: 94089-2117 10-K 1 doc1.txt AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000 ------------------- OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 0-17139 ------- GENUS, INC. (Exact name of registrant as specified in its charter) CALIFORNIA (State or other jurisdiction of incorporation or organization) 94-2790804 (I.R.S. Employer Identification Number) 1139 Karlstad Drive, Sunnyvale, CA 94089 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (408) 747-7120 --------------- Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, no par value 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 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 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the common stock on March 22, 2001 in the over-the-counter market as reported by the Nasdaq National Market, was approximately $49.5 million Shares of common stock held by each officer and director and by each person who owns 5% or more of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 22, 2001, Registrant had 19,419,989 shares of common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following document are incorporated by reference in Part III of this Form 10-K Report: Proxy Statement for Registrant's 2001 Annual Meeting of Shareholders - Items 10, 11, 12 and 13 PART I ITEM 1. OVERVIEW Since 1982, we have been supplying advanced manufacturing systems to the semiconductor industry worldwide. Major semiconductor manufacturers use our leading-edge thin film deposition equipment and process technology to produce integrated circuits, commonly called chips, that are incorporated into a variety of products, including personal computers, communications equipment and consumer electronics. We pioneered the development of chemical vapor deposition tungsten silicide, which is used in certain critical steps in the manufacture of integrated circuits. In addition, today we are leading the commercialization of atomic layer deposition, also known as ALD technology. This technology is designed to enable a wide spectrum of thin film applications such as aluminum oxide, tungsten nitride and other advanced dielectric insulating and conducting metal barrier materials for advanced integrated circuit manufacturing. In 2000, we announced our marketing strategy of targeting non-semiconductor markets, as we are confident that our developed films can serve multiple applications in both semiconductors and non-semiconductor segments. In addition to expanding our total available market, this strategy of diversifying our customer base is intended to gain us some protection against cyclical downturns in the semiconductor industry. We think our emerging ALD technology will prove effective in expanding and diversifying our customer base. We continue to develop enabling thin film technology that addresses the scaling challenges facing the semiconductor industry relating to gate and capacitor materials. These challenges have been labeled as "red zones" by the International Technology Roadmap for Semiconductors (ITRS) because there are no known solutions that allow for further reduction in feature sizes and improved performance. Our innovative thin film technology solutions are designed to enable chip manufacturers to simplify and advance their integrated circuit production processes and lower their total cost of manufacturing per chip, known as cost of ownership. As it is in the semiconductor industry, non-semiconductor business segments have scaling initiatives as well. For example, the making of thin film magnetic heads in the data storage industry has scaling requirements analogous to the scaling trends in semiconductors. A key part of our business strategy includes providing enabling thin film solutions for non-semiconductor applications. We provide a production-proven platform that is used for both the development and volume production of new thin films in integrated circuit manufacturing. This platform is based on a common architecture and a high percentage of common parts that are designed to provide manufacturers with high reliability and low cost of ownership across a wide range of thin film deposition applications. The modular design of our system permits manufacturers to add capacity and to service their manufacturing systems easily. In addition to the modular platform architecture, our systems operate on a standardized software that is designed to support a wide range of thin film deposition processes. Furthermore, our patented process chamber design incorporated into our flagship LYNX product family can be configured for chemical vapor deposition (CVD), plasma enhanced CVD, metal organic CVD and ALD with minimal changes to the chamber design. Our global customer base consists of semiconductor manufacturers in the United States, Europe and Asia. Our current customers include semiconductor manufacturers such as Infineon Technologies, Micron Technology, Inc. and Samsung Electronics Company, Ltd. Recently, we gained a new, non-semiconductor customer in the United States, Read-Rite Corporation, which is an independent manufacturer of magnetic recording heads for hard disk drives and a recognized technology leader in the data storage industry. INDUSTRY BACKGROUND The manufacture of a chip requires a number of complex steps and processes. Most integrated circuits are built on a base of silicon, called a wafer, and consist of two main structures. The lower structure is made up of components, typically transistors or capacitors, and the upper structure consists of the circuitry that connects the components. Building an integrated circuit requires the deposition of a series of film layers, which may be conductors, dielectrics (insulators), or semiconductors. The overall growth of the semiconductor industry and the increasing complexity of integrated circuits have led to increasing demand for advanced semiconductor equipment. Although the semiconductor industry has grown over 30 years with an average compound annual growth rate (CAGR) of 17%, it is prone to cyclic variations. Typically there are periods of high demand followed by periods of low demand. Each cycle is one to three years of high growth and one to three years of low growth. Currently we are entering a period of a down cycle after two years of overheated high demand. In spite of a forecasted flat year of growth in the semiconductor industry for 2001, Genus is planning the execution of 30% growth (down from 66% in the year 2000). This is rationalized by the diversity and demand of Genus' new product base and our entry into new markets. INDUSTRY DRIVERS: LOWERING THE COST PER FUNCTION AND INCREASING PERFORMANCE The growth of computer markets and the emergence and growth of new markets such as wireless communications and digital consumer electronics have contributed to recent growth in the semiconductor industry. This increase also has been fueled by the semiconductor industry's ability to supply increasingly complex, higher performance integrated circuits, while continuing to reduce cost. The increasing complexity of integrated circuits and the accompanying reductions in feature size require more advanced and expensive wafer fabrication equipment which can increase the average cost of advanced wafer fabrication facilities. Technological advances in semiconductor manufacturing equipment have historically enabled integrated circuit manufacturers to lower cost per function and improve performance dramatically by: - - reducing feature size of integrated circuits and the introduction of new materials with scaled dimensions; - - increasing the wafer size; - - increasing manufacturing yields; and - - improving the utilization of wafer fabrication equipment. Reducing feature sizes and adding new enabling thin films. Smaller feature sizes allow more circuits to fit on one wafer. These reductions have contributed significantly to reducing the manufacturing cost per chip. The semiconductor industry is driven by performance (mainly the increased speed for logic and memory signals) and increased chip density (mainly the increased density of memory and logic capacity). In addition to the continued reduction in feature sizes, there is a paradigm shift for the use of new materials to improve performance of integrated circuits. New materials are required for gate, capacitor and interconnect application segments within the semiconductor manufacturing process. The adoption of new types of thin film conducting and insulating materials will accelerate the trend toward higher levels of semiconductor performance and integration while maintaining the historic trend of reduction of cost per function. Larger wafer sizes. By increasing the wafer size, integrated circuit manufacturers can produce more circuits per wafer, thus reducing the overall manufacturing costs per chip. Leading-edge wafer fabrication lines are currently using 200 millimeter (mm) wafers, up from the 100mm wafers used ten to fifteen years ago. Currently, many integrated circuit makers are commencing pilot production lines using 300mm wafers. We believe that most major manufacturers will add 300mm production capabilities within the next one to four years. Higher manufacturing yields. In the last fifteen years, manufacturing yields, or the percentage of good integrated circuits per wafer, have increased substantially, while the time to reach maximum yield levels during a production lifecycle has decreased significantly. As the complexity of chips increases, manufacturers must continually reduce defect density to obtain higher yields. Improved equipment utilization and introducing new equipment architectures. The utilization of semiconductor manufacturing lines has improved in the last ten years. Manufacturing lines now operate continuously. In addition, new architectures of production equipment are being explored that allow for higher throughputs, better reliability, high quality, and low overall cost-of-ownership as measured by the total cost to process each wafer through the equipment. While these production techniques are important for reducing the cost per function of chips, we believe that the most beneficial production solution is likely to combine feature size reduction and the use of new thin film materials. RED ZONE CHALLENGES FACING THE SEMICONDUCTOR INDUSTRY The semiconductor industry is driven by the need for higher performance and greater chip density as measured by an increasing number of functions on the chip. The semiconductor industry has historically been able to double the number of transistors on a given space of silicon every 18 to 24 months by reducing feature sizes. However, as the industry approaches feature size dimensions of 0.15 micron and below, the industry will face significant challenges and roadblocks pertaining to improving device performance and feature size reduction. These challenges have been labeled "red zones" by the International Technology Roadmap for Semiconductors because there are no known solutions to allow for further reduction in feature sizes and improved performance. It is estimated that semiconductor manufacturers need approximately two to four years to research, develop and commercially produce a new type of chip. Accordingly, we expect semiconductor manufacturers to begin their research and development activities as well as capital purchases to support those activities at least two years before producing a new chip. As part of its strategy to solve the challenges posed by the red zones, the semiconductor industry is moving towards the use of ultra-thin dielectrics with high insulating capabilities for gate dielectrics and capacitors as well as ultra-thin metal barriers for copper-based interconnect processes. Emerging thin films with high dielectric capabilities for gate and capacitor applications include metal oxides such as aluminum oxide. In these ultra-thin dielectric film applications, the thickness and quality must be highly controlled while the films need to be deposited in a high-volume, cost-effective manner. Ultra-thin metal nitride barrier films, such as those made of tungsten nitride, must be developed to support copper-based interconnect schemes. Reduction of feature size requires innovations in new types of thin film deposition technologies and equipment to deposit new films. THE GENUS SOLUTION We are an innovative supplier of thin film deposition equipment to semiconductor and non-semiconductor manufacturers and are focused on developing enabling thin film technology to solve the challenges posed by the red zones. Our patented multi-purpose process chamber serves as the foundation for all of our current products. Our products are designed to deliver high throughput, low cost of ownership and quick time to market, enhancing the ability of manufacturers to achieve productivity gains. We support our innovative thin film deposition systems with a focused level of customer service. INNOVATIVE THIN FILM SOLUTIONS Our systems and processes are designed to provide innovative thin film solutions that address technical and manufacturing problems of the semiconductor industry. We provide our customers with advanced systems and processes for depositing thin films such as CVD tungsten silicide, tungsten nitride, and blanket tungsten, and ALD films such as aluminum oxide, tantalum oxide, titanium oxide, zirconium oxide, hafnium oxide, titanium nitride and tungsten nitride. These innovative thin films solve certain key device and interconnect problems faced by semiconductor manufacturers as they scale their device geometries below 0.13 micron. VERSATILE PRODUCTION PLATFORM Our Lynx series of systems is based on a common outsourced, reliable wafer-handling robotic platform. The Lynx systems are designed to be flexible and can be configured for multiple deposition processes, such as CVD, plasma enhanced CVD, metal organic CVD and ALD. Our Lynx systems offer the following advantages: - - a production-proven platform which allows for easier and faster migration from research and development to production; - - a platform based upon a large number of standardized parts used across our systems to enhance reliability; and - - a modular design that allows for simplified service. In addition, all of our systems are designed with a graphical user interface that automates tasks and allows for comprehensive viewing of the real-time status of the systems. Our software supports our customers' process development needs with the ability to run a different set of processes for each wafer. LOW COST OF OWNERSHIP Our Lynx series equipment offers low cost of ownership by featuring multiple deposition processes capabilities, production-proven process chamber design, advanced software architecture and reliable wafer handling. Based on feedback from our installed customer base, we estimate that our production systems consistently achieve greater than 90% availability, and that the mean time between failure of our system is greater than 300 hours. In addition, our customers have confirmed that we offer among the lowest costs of operation. We are committed to improving these results, achieving these same levels of performance or better with our new thin film products. CUSTOMER SUPPORT We believe we deliver superior customer support and service to enhance our long-term customer relationships. We maintain an international customer support infrastructure with fully staffed customer support facilities in Japan, Korea and the United States. We provide training for two customer engineers with all of our equipment installations as well as 24 hours a day, seven days a week product support. We offer warranties consisting of a two-year parts warranty and a one-year labor warranty that provides a dedicated technician on site. MARKETS AND APPLICATIONS In 2000, we continued expanding our product line with new films and applications that allow us to serve broader markets. In 1999, Genus had tungsten silicide and tungsten nitride for gate and barrier applications and we were just introducing ALD technology. As we turn into 2001, we have tungsten silicide, tungsten nitride and blanket tungsten by conventional CVD, and aluminum oxide, tantalum oxide, titanium oxide, hafnium oxide and zirconium oxide as well as titanium nitride and tungsten nitride by ALD. In addition, Genus has the demonstrated capability to integrate these ALD films as alloys and nanolaminates (layered structures) for the engineering of specialized capabilities on its Lynx series platforms. These 10 films serve the Company for applications in semiconductors for gate, capacitor and interconnect, as well as non-semiconductor applications (e.g. in particular, aluminum oxide for thin film magnetic heads of hard disk drives). In the near term, our key target applications are gate and capacitor for semiconductors, while ALD interconnect barriers may be marketed in the years 2002-2003. We are also now marketing certain of our dielectrics for gap applications in thin film heads. The 2001 estimated market for silicide is $400 million; for gate and capacitor dielectric film tools the estimated market is $700 million; the estimated market for metal barriers is $1.4 billion. Genus has increased its potential market from approximately $400 million in 1998 to more than $2.5 billion today. If we assume that these segments have a historic CAGR (+17%), we estimate a total available market (TAM) of $3.4 billion for 2003 and $4 billion by 2005. It is also reasonable to assume, as many key dielectrics and metal barrier films migrate from CVD toward ALD technology, that an increasing fraction of this TAM can be applicable to the Genus product suite. Genus has already shipped its ALD dielectric and metal system for capacitor appliqu , and its dielectric system (with enabling engineering specializations) for logic gate application. As far as the non-semiconductor segments are concerned, we now have business in the thin film magnetic head specialty market, for which gap dieletrics has an estimated TAM level of approximately $30-50 million per year. By focusing on a broader set of film markets, we believe we can reduce our dependence on the volatile dynamic-random-access memory (DRAM) market, as well as benefit from participation in the logic segment and non-semiconductor market opportunities. In summary, we are now participating in semiconductor memory with gate and capacitor films, in semiconductor logic with advanced gate films, and in non-semiconductor gap dielectrics for thin film magnetic heads. We moved from solely memory applications to this level of diversification in the last two years. We focus on the following thin film market segments: CVD SILICIDE AND METAL, AND ALD DIELECTRICS AND METAL BARRIERS FOR GATE STACK FILMS CVD tungsten silicide is used to reduce the electrical resistance of the gate material in a transistor device structure. Our tungsten silicide gate thin films are used in DRAM integrated circuit production. In the future, we expect the tungsten gate material to migrate from tungsten silicide to the low resistance tungsten gate films, such as RInG that we have developed and beyond that to use various metal barrier films in combination with high-k dielectrics. CAPACITOR FILMS Genus is commercializing its ALD technology with the application to advanced capacitors. These include: cylinder ("stacked"), trench, embedded, rf and decoupling capacitor applications. Genus is in beta phase with several applications and customers using both ALD dielectric and metal electrode barriers. The state of the art has been advanced due to high conformality and high quality Genus ALD films. The opportunity to increase the number of beta sites and move to pilot production exists. BARRIER METAL INTERCONNECT THIN FILMS We are currently commercializing new thin film CVD barrier metal films such as tungsten nitride. CVD tungsten nitride has better film characteristics and can more uniformly cover device structures than conventional physical vapor deposition barrier thin films such as titanium nitride. We expect our CVD tungsten nitride barrier thin films to have applications in multi-layer copper interconnect processes. NON-SEMICONDUCTOR FILMS Genus has developed a market for its ALD films in the thin film magnetic head (reader) market. This market developed because of a production ready-made solution that the Genus ALD dielectrics provide for the scaling of the gap dielectrics. The market is scaling to thinner films, ideally suited to the ALD approach. Other non-semiconductor markets are targeted, these include: MRAM. Optical interconnects / filters, Organic LED's MEMS, and photomasks, in fact anywhere that film uniformity and conformality are enabling. However, it is too early to predict timing of the penetration in many of these markets. PRODUCTS AND TECHNOLOGY We have developed our product strategy around the Lynx system concept. The Lynx system integrates platform and process modules with our standardized operating software. The Lynx system refers specifically to the vacuum robotic wafer handler and its wafer controlling software. The Lynx process modules are generically appropriate for CVD, plasma enhanced CVD, metal organic CVD and ALD technologies. All of our current thin film systems are built on a common platform and marketed in the context of the Lynx series. Each Lynx product includes wafer handling robotics, dual loadlocks, control electronics and system software. The Lynx system can be used for the deposition of advanced dielectrics and copper ultra-thin barrier seed. The Lynx product line addresses both 200 and 300mm wafer sizes and is designed for the deposition of the following thin film applications: CVD -- - - tungsten silicide-monosilane - - tungsten silicide-dichlorosilane - - tungsten nitride - - tungsten ALD -- - - aluminum oxide - - advanced metal oxides (e.g., tantalum oxide, titanium oxide, zirconium oxide, hafnium oxide) - - nanolaminates and alloys - - metal barrier films (e.g., titanium nitride and tungsten nitride) LYNX Series LYNX2. The LYNX2 system is currently used in production by manufacturers of advanced DRAM devices of 0.35 to 0.18 micron. LYNX2 systems support over 120 process modules in high volume production. Production availability for the LYNX2 system runs from 90-95%. LYNX2 platforms are also used for customer development and pilot manufacturing for more advanced semiconductor applications below 0.18 micron. The LYNX2 features a wafer handling platform that is compatible with the Modular Equipment Standards Committee (MESC). This platform uses a centrally located, dual-end effector robot for high throughput operation. The system is controlled by a graphical user interface that provides the operator with real-time information such as recipe, set points, hardware status and service features. The modular design of the LYNX2 allows the addition of up to four process modules, which can be run serially or in parallel. The LYNX2 process module design also offers a multi-zone resistive heater for more uniform wafer heating, two-zone showerheads for improved film composition uniformity and a state-of-the-art gas delivery system that minimizes chamber-to-chamber variance. In the case of ALD, fast gas switching has been developed for high productivity ALD. LYNX3. We introduced the LYNX3 in January 1999 as our first 300mm low pressure CVD process module in a beta system. The LYNX3 process module is based on a newly developed and patented process chamber concept that results in exceptional uniformity. The LYNX3 is designed to run all films currently supported by the LYNX2, as well as all films currently in development. The LYNX3 system will support up to five process modules, which can be run serially or in parallel. We are currently developing an advanced version of the LYNX3, which is designed to be a "bridge tool", capable of running either 200 or 300mm wafers. The range of thin films that can be deposited using the LYNX product family include: - - ALD Dielectrics. In July 1999, we announced the availability of ALD aluminum oxide. ALD has many possible applications in the semiconductor market including as a high dielectric constant oxide for either capacitors or for gate dielectrics, as an etch stop for advanced structures, or for hard mask applications. We made other advanced ALD dielectrics available during 2000. We believe that our ALD aluminum oxide-based technology will find near-term opportunities in the DRAM capacitor application. Other ALD dielectrics will find longer-term applications in both capacitor and gate dielectric structures. - - ALD Metal Barriers. Metal barrier films have been developed and offer application for metal gate (work function control as well as barrier), capacitor electrodes, contact and interconnect barriers. The applications are current in the case of capacitor electrodes and contact barrier. For interconnects they will likely come to be needed below the 90nm feature size, where barrier film thicknesses decrease below 100 angstroms. Somewhat beyond 2005, there will be an interest in these barriers for metal gate electrodes. - - Tungsten Silicide. In addition to our mainstream production silane-based tungsten silicide film, we offer dichlorosilane LRS silicide, a low resistivity, low stress CVD tungsten silicide. DRAM manufacturers can use LRS tungsten silicide for increased yields and faster device speeds. - - RInG. We introduced the industry's first plasma enhanced CVD tungsten nitride barrier film in 1997, Rapid Integrated Gate or RInG. The application is for tungsten gates with a built-in tungsten nitride barrier that can be rapidly integrated for gates using rapid thermal annealing processes. This film is a low-cost candidate for production using tungsten gate technology. - - Metal Oxide Alloys and Nanolaminates. With the development of Genus ALD, the Company has been able to demonstrate a film flexibility otherwise not known. For example, Genus LYNX ALD system can provide the flexibility to deposit up to 3 compound films in alloy and / or nanolaminate form. The capability has become enabling for the "engineering" of composite films for optimal performance in next generation semiconductor devices. Composites of both dielectrics and metals can be achieved. Genus 8700 Series and 6000 Series. While we no longer actively sell these thin film products, we continue to sell spare parts and provide service for the installed base worldwide. CUSTOMER SUPPORT We believe that our customer support organization is critical to establishing and maintaining the long-term customer relationships that often are the basis upon which semiconductor manufacturers select their equipment vendor. Our customer support organization is headquartered in Sunnyvale, California with additional employees located in Japan, South Korea and Europe. Our support personnel are available on a 24-hour a day, seven days a week basis with a maximum one-hour response time. All support personnel have technical backgrounds, with process, mechanical and electronics training, and are supported by our engineering and applications personnel. Support personnel install systems, perform warranty and out-of-warranty service and provide sales support. We offer a 12-month labor warranty and a 24-month parts warranty. Our labor warranty includes having on-site dedicated support technician during the labor warranty period. We also offer training to our customers at our headquarters. SALES AND MARKETING We maintain direct sales and service offices in the United States, Japan, South Korea and Europe. From these offices and other locations, we provide customer support directly and maintain "spares depots" for our products. We also have sales representatives in the northwestern U.S., Taiwan, Singapore, Malaysia and China. CUSTOMERS We rely on a limited number of customers for a substantial portion of our net sales. Our major customers in 2000 included Samsung, Micron Technology and Infineon. Samsung and Micron accounted for 91% and 5% of our net sales in 2000. In early 2001, we gained a new customer, a leading US-based supplier of components for the data storage industry, with a multiple system order for our ALD technology. BACKLOG We schedule production of our systems based on both backlog and regular sales forecasts. We include in backlog only those systems for which we have accepted purchase orders and assigned shipment dates within the next 12 months. All orders are subject to cancellation or delay by the customer with limited or no penalty. Our backlog was approximately $9.6 million as of December 31, 2000. The year-to-year fluctuation is due primarily to the cyclical nature of the semiconductor industry. Our backlog at any particular date is not necessarily representative of actual sales to be expected for any succeeding period, and our actual sales for the year may not meet or exceed the backlog represented. Because of possible changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily representative of actual sales for any succeeding period. In particular, during periods of industry downturns we have experienced significant delays relating to orders that were previously booked and included in backlog. RESEARCH AND DEVELOPMENT We focus our research and development efforts on developing innovative thin film products. During recent periods, we have devoted a significant amount of resources to the Lynx2 and Lynx3 systems and ALD films. We expect to focus our future efforts on our Lynx ALD system for 200 and 300mm applications for advanced film technologies. We maintain a Class 1 applications laboratory and a separate thin films development area in California. By basing our products on the Lynx system, we believe that we can focus our development activities on the process chamber and develop new products quickly and at relatively low cost. Our research and development expenses were $8.7 million for 2000, $5.4 million for 1999 and $8.9 million for 1998, representing 21.3%, 18.9% and 27.5% of net sales, respectively. Our research and development expenses were higher in 2000 primarily due to investments made in productizing ALD and 300mm, development of ALD films. Research and development expenses associated with our current thin film product line were $8.7 million for 2000, $5.4 million for 1999 and $5.4 million for 1998, representing 21.3% of thin film net sales in 2000, 18.9% in 1999 and 47.7% in 1998. The worldwide semiconductor industry is characterized by rapidly changing technology, evolving industry standards and continuous improvements in products and services. Because of continual changes in these markets, we believe that our future success will depend upon our ability to continue to improve our existing systems and process technologies, and to develop systems and new technologies that compete effectively. We must adapt our systems and processes to technological changes and to support emerging industry standards for target markets. We cannot be sure that we will complete our existing and future development efforts within our anticipated schedule or that our new or enhanced products will have the features to make them successful. We may experience difficulties that could delay or prevent the successful development, introduction or marketing of new or improved systems or process technologies. These new and improved systems and process technologies may not meet the requirements of the marketplace and achieve market acceptance. Furthermore, despite testing by us, difficulties could be encountered with our products after shipment, resulting in loss of revenue or delay in market acceptance and sales, diversion of development resources, injury to our reputation or increased service and warranty costs. The success of new system introductions is dependent on a number of factors, including timely completion of new system designs and market acceptance. If we are unable to improve our existing systems and process technologies or to develop new technologies or systems, we may lose sales and customers. COMPETITION The global semiconductor fabrication equipment industry is intensely competitive and is characterized by rapid technological change and demanding customer service requirements. Our ability to compete depends upon our ability to continually improve our products, processes and services and our ability to develop new products that meet constantly evolving customer requirements. A substantial capital investment is required by semiconductor manufacturers to install and integrate new fabrication equipment into a semiconductor production line. As a result, once a semiconductor manufacturer has selected a particular supplier's products, the manufacturer often relies for a significant period of time upon that equipment for the specific production line application and frequently will attempt to consolidate its other capital equipment requirements with the same supplier. It is difficult for us to sell to a particular customer for a significant period of time after that customer has selected a competitor's product, and it may be difficult for us to unseat an existing relationship that a potential customer has with one of our competitors in order to increase sales of our products to that customer. Each of our product lines competes in markets defined by the particular wafer fabrication process it performs. In each of these markets we have multiple competitors. At present, however, no single competitor competes with us in all of the same market segments in which we compete. Competitors in a given technology tend to have different degrees of market presence in the various regional geographic markets. Competition is based on many factors, primarily technological innovation, productivity, total cost of ownership of the systems, including yield, price, product performance and throughput capability, quality, contamination control, reliability and customer support. We believe that our competitive position in each of our markets is based on the ability of our products and services to address customer requirements related to these competitive factors. We compete principally with other methods of thin film deposition, such as CVD and physical vapor deposition, in the overall thin film systems market. Our direct competitors in the tungsten silicide market includes Applied Materials, Inc. and Tokyo Electron, Ltd. Competition from these competitors increased in 1999 and in 2000, and we expect that such competition will continue to intensify. We believe that we compete favorably on each of the competitive elements in this market. We may not be able to maintain our competitive position against current and potential competition. New products, pricing pressures, rapid changes in technology and other competitive actions from both new and existing competitors could materially affect our market position. Some of our competitors have substantially greater installed customer bases and greater financial, marketing, technical and other resources than we do and may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Our competitors may introduce or acquire competitive products that offer enhanced technologies and improvements. In addition, some of our competitors or potential competitors have greater name recognition and more extensive customer bases that could be leveraged to gain market share to our detriment. We believe that the semiconductor equipment industry will continue to be subject to increased consolidation, which will increase the number of larger, more powerful companies and increase competition. MANUFACTURING AND SUPPLIERS Our manufacturing operations are based in our Sunnyvale, California facility and consist of procurement, subassembly, final assembly, test and reliability engineering. Our manufacturing facility maintains and operates a Class-1 cleanroom to demonstrate integrated applications with its customers. The LYNX family systems are based on an outsourced wafer handling platform, enabling us to use a large number of common subassemblies and components. Many of the major assemblies are procured completely from outside sources. We focus our internal manufacturing efforts on those precision mechanical and electro-mechanical assemblies that differentiate our systems from those of our competitors. Most of the components for our thin film systems are produced in subassemblies by independent domestic suppliers according to our design and procurement specifications. We anticipate that the use of such subassemblies will continue to increase in order to achieve additional manufacturing efficiencies. Many of these components are obtained from a limited group of suppliers. We generally acquire these components on a purchase order basis and not under long-term supply contracts. Our reliance on outside vendors generally, and a limited group of suppliers in particular, involves several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing and timely delivery of components. Because the manufacture of certain of these components and subassemblies is an extremely complex process and can require long lead times, we could experience delays or shortages caused by suppliers. Historically, we have not experienced any significant delays in manufacturing due to an inability to obtain components, and we are not currently aware of any specific problems regarding the availability of components that might significantly delay the manufacturing of our systems in the future. However, the inability to develop alternate sources or to obtain sufficient source components as required in the future, could result in delays of product shipments that would have a material adverse effect on our business, results of operations and financial condition. We are subject to a variety of federal, state and local laws, rules and regulations relating to the use, storage, discharge and disposal of hazardous chemicals used during our sales demonstrations and research and development. Failure to comply with present or future regulations could result in substantial liability to us, suspension or cessation of our operations, restrictions on our ability to expand at our present locations or requirements for the acquisition of significant equipment or other significant expense. To date, we have adequately complied with environmental rules and regulations. Such compliance has not materially affected our operations. INTELLECTUAL PROPERTY We believe that because of the rapid technological change in the semiconductor industry, our future prospects will depend primarily upon the expertise and creative skills of our personnel in process technology, new product development, marketing, application engineering and product engineering, rather than on patent protection. Nevertheless, we have a policy to actively pursue domestic and foreign patent protection to cover technology developed by us. We hold 23 United States patents with thirteen patent applications pending in the United States as well as several foreign patents and patent applications covering various aspects of our products and processes. Where appropriate, we intend to file additional patent applications to strengthen our intellectual property rights. Although we attempt to protect our intellectual property rights through patents, copyrights, trade secrets and other measures, we cannot be sure that we will be able to protect our technology adequately, and our competitors could independently develop similar technology, duplicate our products or design around our patents. To the extent we wish to assert our patent rights, we cannot be sure that any claims of our patents will be sufficiently broad to protect our technology or that our pending patent applications will be approved. In addition, there can be no assurance that any patents issued to us will not be challenged, invalidated or circumvented, that any rights granted under these patents will provide adequate protection to us, or that we will have sufficient resources to protect and enforce our rights. In addition, the laws of some foreign countries may not protect our proprietary rights to as great an extent as do the laws of the United States. As is customary in our industry, from time to time we receive or make inquiries regarding possible infringement of patents or other intellectual property rights. Although there are no pending claims against us regarding infringement of any existing patents or other intellectual property rights or any unresolved notices that we are infringing intellectual property rights of others, such infringement claims could be asserted against us or our suppliers by third parties in the future. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays, subject us to significant liabilities to third parties, require us to enter into royalty or licensing agreements, or prevent us from manufacturing and selling our products. If our products were found to infringe a third party's proprietary rights, we could be required to enter into royalty or licensing agreements in order to continue to be able to sell our products. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which could seriously harm our business. Our involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and know-how could have a material adverse effect on our business. EMPLOYEES As of March 15, 2001, we employed approximately 139 full-time employees worldwide. The success of our future operations depends in large part on our ability to recruit and retain qualified employees, particularly those highly skilled design, process and test engineers involved in the manufacture of existing systems and the development of new systems and processes. The competition for such personnel is intense, particularly in the San Francisco bay area, where our headquarters are located. At times we have experienced difficulty in attracting new personnel, and we may not be successful in retaining or recruiting sufficient key personnel in the future. None of our employees is represented by a labor union, and we have never experienced a work stoppage, slowdown or strike. We consider our relationships with our employees to be good. SALE OF ASSETS In July 1998, we sold selected assets and transferred selected liabilities related to the MeV ion implant equipment product line to Varian Associates, Inc. MeV Ion Implant Market Ion implantation is the process by which a beam of electrically charged dopant atoms (ions) are accelerated and driven into the surface of a silicon wafer. This process alters the electrical characteristics of the silicon by making it more or less conductive. The market for ion implanters consisted of three primary segments: high current, medium current and high energy. High and medium current ion implanters made up approximately 67% of the total ion implant market in 1998. Ion implant sales accounted for 65% of total revenues for 1998. Information regarding our foreign and domestic operations and export sales is included in Note 12 of Notes to Consolidated Financial Statements. RECENT DEVELOPMENTS On March 28, 2001, we converted our existing $10 million Venture Bank line of credit to an asset-based line of credit. Amounts available under the line are based on 80% of eligible accounts receivable, and borrowings under the line are secured by all corporate assets and bear interest at 9.6% per annum and an administrative fee of a quarter of one percent on all advances. This line will not have accounts receivable customer concentration limitations, will allow borrowing against foreign receivables, and will have no financial covenants. It will expire in March, 2002. In March, 2001, we received an order from a major Japanese semiconductor manufacturer for a 300mm ALD system to be used for gate stack applications. This is our first order for 300mm ALD technology, and the first order from a Japanese customer since we reopened our Genus Japan office. The system is scheduled to ship during the fourth quarter of 2001. In March, 2001, we received a multiple system purchase order from a major thin film head (disk drive) manufacturer for multiple ALD systems. This is the first order for our ALD technology for a non-semiconductor application. The first system is scheduled for delivery early in the second quarter and the second system is scheduled for shipment no later than December 31, 2001. ITEM 2. PROPERTIES We maintain our headquarters, manufacturing and research and development operations in Sunnyvale, California. We have a lease for a facility totaling approximately 100,500 square feet. Our lease expires in October 2002, with a current annual rental expense of approximately $772,000. In 2000 we subleased approximately 38,000 square feet to a third parties. In December, 2000, one of the parties terminated their sublease, and we reclaimed 11,000 square feet of office space. We currently sublease approximately 27,000 square feet to a third party. We also lease sales and support offices in Seoul, South Korea, Tokyo and Japan. We believe that our existing facilities are adequate to meet our current requirements and that suitable additional or substitute space will be available as needed. However, our future growth may require that we secure additional facilities or expand our current facilities further before the term of our headquarters lease expires. Any move to new facilities or expansion could be disruptive and cause us to incur significant unexpected expense. Our present lease expires in October of 2002 and we have an option to renew the lease for five years at 95% of fair market value. ITEM 3. LEGAL PROCEEDINGS In January 2000, we settled, prior to arbitration, a dispute with Varian Associates, Inc. relating to the sale of our ion implant product line to Varian in July 1998. The original dispute involved the rights to one ion implant product sale and related inventory. As part of the final settlement, Varian received the ion implant product and we recorded a non-recurring charge of $543,000 relating to a write-off of a receivable from Varian. In July 1999, we were named as a co-defendant in a claim filed at the Superior Court of the state of California for the county of Santa Clara, involving an automobile accident by one of our former employees which resulted in the death of an individual. Significant general, punitive and exemplary damages are being sought by the plaintiffs. Recently, a demand was placed by the plaintiff that is within our insurance policy limits. While we believe we are not at fault in this matter, we have instructed our insurance carrier to pay the demand in an effort to avoid the costs associated with going to trial. Although the outcome of this matter is not presently determinable, we do not believe that resolution of this matter will have a material adverse effect on our financial position or results of operations. We may in the future be party to litigation arising in the course of our business, including claims that we allegedly infringe third party trademarks and other intellectual property rights. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Common Stock Information Our common stock is traded in the over-the-counter market under the NASDAQ symbol GGNS. The only class of Genus securities that is traded is Genus common stock. The high and low closing sales prices for 2000 and 1999 set forth below are as reported by the NASDAQ National Market System. At March 22, 2001, we had 372 registered shareholders as reported by Mellon Investor Services. The closing sales price of Genus common stock on December 29, 2000, the last trading day in 2000, was $ 1-19/32.
2000 1999 ---- ---- HIGH LOW HIGH LOW ------- -------- ------- -------- First Quarter. $16-3/4 $ 4-1/4 $2-7/16 $ 1-5/32 Second Quarter 12-5/16 5-5/8 3-3/8 1-1/4 Third Quarter. 10 3-13/16 3-3/4 2-9/32 Fourth Quarter 4-3/4 1-19/32 5-7/16 1-31/32
We have not paid cash dividends on our common stock since inception, and our Board of Directors presently intends to reinvest our earnings, if any, in our business. Accordingly, it is anticipated that no cash dividends will be paid to holders of common stock in the foreseeable future. Additionally, our $10 million accounts receivable based line of credit does not allow for the distribution of dividends. ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL DATA
YEARS ENDED DECEMBER 31, --------------------------- 2000 1999 1998(1) 1997 1996 -------- -------- --------- --------- --------- (IN THOUSANDS, EXCEPT SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales. . . . . . . . . . . . . . . . . . . . . . . $40,638 $28,360 $ 32,431 $ 84,286 $ 82,509 Costs and expenses: Costs of goods sold. . . . . . . . . . . . . . . . . 24,385 16,628 24,201 54,762 55,537 Research and development . . . . . . . . . . . . . . 8,659 5,368 8,921 12,327 14,639 Selling, general and administrative. . . . . . . . . 10,093 7,930 14,115 20,326 17,901 Restructuring and other(2)(3). . . . . . . . . . . . 0 543 12,707 0 5,890 -------- -------- --------- --------- --------- Loss from operations . . . . . . . . . . . . . . . . . (2,499) (2,109) (27,513) (3,129) (11,458) Other income (expense), net. . . . . . . . . . . . . . 108 669 (86) (1,363) 53 -------- -------- --------- --------- --------- Loss before provision for income taxes and cumulative effect of change in accounting principle (2,391) (1,440) (27,599) (4,492) (11,405) Provision for (benefit from) income taxes. . . . . . . 490 177 1 14,844 (2,200) -------- -------- --------- --------- --------- Loss before cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . (2,881) (1,617) (27,600) (19,336) (9,205) Cumulative effect of change in accounting principle (6,770) 0 0 0 0 -------- -------- --------- --------- --------- Net loss . . . . . . . . . . . . . . . . . . . . . . . (9,651) (1,617) (27,600) (19,336) (9,205) Deemed dividends on preferred stock. . . . . . . . . . 0 0 (1,903) 0 0 -------- -------- --------- --------- --------- Net loss attributable to common shareholders . . . . . $(9,651) $(1,617) $(29,503) $(19,336) $ (9,205) ======== ======== ========= ========= ========= Net income (loss) per share before cumulative effect of change in accounting principle Basic. . . . . . . . . . . . . . . . . . . . . . . . (0.15) (0.09) (1.71) (1.15) (0.56) Diluted. . . . . . . . . . . . . . . . . . . . . . . (0.15) (0.09) (1.71) (1.15) (0.56) Net income (loss) per share: Basic. . . . . . . . . . . . . . . . . . . . . . . . (0.51) (0.09) (1.71) (1.15) (0.56) Diluted. . . . . . . . . . . . . . . . . . . . . . . . (0.51) (0.09) (1.71) (1.15) (0.56) Shares used in computing net income (loss) per share: Basic. . . . . . . . . . . . . . . . . . . . . . . . 18,937 18,134 17,248 16,860 16,423 Diluted. . . . . . . . . . . . . . . . . . . . . . . 18,937 18,134 17,248 16,860 16,423
The following are pro forma amounts with the change in accounting principle related to revenue recognition applied retroactively to years prior to 2000.
Sales . . . . . . . . . . . . $ 40,638 $ 27,992 $ 33,599 * * Net income (loss) . . . . . . (2,881) (3,232) (25,963) * * Net income (loss) per share: Basic . . . . . . . . . . . $ (0.15) $ (0.18) $ (1.51) * * Diluted . . . . . . . . . . $ (0.15) $ (0.18) $ (1.51) * *
DECEMBER 31, ------------- 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents. . . . . . . . . . . . $ 3,136 $ 6,739 $ 8,125 $ 8,700 $11,827 Working capital. . . . . . . . . . . . . . . . . 896 14,151 15,799 30,774 39,290 Total assets . . . . . . . . . . . . . . . . . . 44,535 27,744 31,827 76,738 89,132 Long-term debt and capital lease obligations . . 0 0 50 971 1,260 Redeemable Series B convertible preferred stock. 0 0 773 0 0 Total shareholders' equity . . . . . . . . . . . $11,292 $19,378 $19,953 $48,357 $68,251
(1) In 1998, we sold the ion implant equipment product line. (2) In 1996, we incurred a charge of $5.9 million relating primarily to payroll costs associated with the reduction in workforce and inventory and demonstration equipment write-downs. (3) In 1998, we recorded a restructuring charge related to the sale of the ion implant equipment product line and the restructuring of the thin film operation. * Data is not available to provide pro forma information for these years. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations is being provided using both the historical method and the new SAB 101 method. This data should be read in conjunction with "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical information, the discussion in this Annual Report on Form 10-K contains certain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated by these forward-looking statements due to factors, including but not limited to, those set forth under "Risk Factors" and elsewhere in this Annual Report on Form 10-K. OVERVIEW We are a leading supplier of advanced manufacturing systems for the worldwide semiconductor industry. Semiconductor manufacturers use our leading-edge thin film deposition equipment and process technology to produce integrated circuits, commonly called chips, that are incorporated into a variety of products, including personal computers, communications equipment and consumer electronics. We pioneered the development of chemical vapor deposition tungsten silicide, which is used in certain critical steps in the manufacture of integrated circuits. In addition, we are leading the commercialization of atomic layer deposition, also known as ALD technology. This technology is designed to enable a wide spectrum of thin film applications such as aluminum oxide, tungsten nitride and other advanced dielectric and conducting metal barrier materials for advanced integrated circuit manufacturing. We also continue to develop enabling thin film technology that addresses the scaling challenges facing the semiconductor industry relating to gate, capacitor and interconnect materials. These challenges have been labeled as "red zones" by the International Technology Roadmap for Semiconductors because there are no known solutions that allow for further reduction in feature sizes and improved performance. Our innovative thin film technology solutions are designed to enable chip manufacturers to simplify and advance their integrated circuit production processes and lower their total cost of manufacturing per chip, known as cost of ownership. We provide a production proven platform that is used for both the development and production of new thin films in integrated circuit manufacturing. This platform is based on common architecture and a high percentage of common parts that is designed to provide manufacturers with high reliability and low cost of ownership across a wide range of thin film deposition applications. The modular design of our system permits manufacturers to add capacity and service their manufacturing systems easily. In addition to the modular platform architecture, our systems operate on a standardized software that is designed to support a wide range of thin film deposition processes. Furthermore, our patented process chamber design incorporated into our flagship LYNX product family can be configured for chemical vapor deposition, or CVD, plasma enhanced CVD, metal organic CVD and ALD with minimal changes to the chamber design. Our global customer base consists of semiconductor manufacturers in the United States, Europe and Asia. Our current customers include semiconductor manufacturers such as Infineon Technologies, Micron Technology, Inc. and Samsung Electronics Company, Ltd. In July 1998, we sold certain assets and transferred certain liabilities related to the MeV ion implant equipment product line to Varian Associates, Inc. for approximately $24.1 million. The net assets and liabilities we transferred to Varian included inventory of $18.9 million, capital equipment and other assets of $9.7 million, and warranty and installation liabilities of $3.6 million. We no longer engage in the ion implant business and have refocused our efforts on thin film deposition. In connection with the Varian transaction and the refocusing of our business on thin film products, we significantly reduced our workforce at our Sunnyvale, California location. In 1998, we recorded restructuring and other charges of approximately $12.7 million which included personnel charges of $1.7 million associated with our workforce reduction, $5.4 million in inventory write-downs, $1.1 million in leasehold improvement write-offs, $1.4 million for expenses associated with the closing of several sales offices, transaction losses as a result of the sale of the ion implant product line to Varian, $1.0 million for legal, accounting, and banking fees associated with the Varian transaction and $2.0 million for ion implant inventory related to the dispute with Varian in connection with the Varian transaction. Over the past few years, we were dependent on one customer, Samsung, for a majority of our thin film product revenue. Samsung accounted for 91% of our net sales in 2000 and 83.9% in 1999. There is no long-term agreement between us and Samsung. In 1999, we shipped our Lynx2 system to a new customer, Micron Technology, and in the first quarter of 2000, we shipped an ALD system to Infineon Technologies, also a new customer. The Company's selling arrangements generally involve contractual customer acceptance provisions and installation of the product occurs after shipment and transfer of title. As a result, effective January 1, 2000, to comply with the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 101, the Company deferred the recognition of revenue from such equipment sales until installation is complete and the product is accepted by the customer. Prior to January 1, 2000, revenue related to systems had been generally recognized upon shipment. A provision for the estimated future cost of system installation, warranty and commissions was recorded when revenue was recognized. Our business depends upon capital expenditures by semiconductor manufacturers. The level of capital expenditures by these manufacturers depends upon the current and anticipated market demand for devices which use integrated circuits. The semiconductor industry suffered a significant downturn beginning in late 1997. This was a result of several factors, including the economic crisis in Asia, semiconductor industry over-capacity and reduced profitability for semiconductor manufacturers resulting from the decreasing prices of personal computers. Accordingly, many semiconductor manufacturers delayed planned new equipment purchases until 1999, which significantly impacted our 1998 sales. The overall market improved throughout 1999 and 2000, and accordingly we experienced progressively higher thin film sales in 1999 and 2000 compared with 1998. The cyclical nature of the semiconductor equipment market continues to present challenges to us in terms of our ability to forecast both near and long-term sales. As such, we cannot assure you that this increase in sales represents a trend that will continue into the future. The sharp downturn that has affected the U.S. economy in early 2001 has meant a decrease in overall financial performance expectations. We expect this large-scale economic downturn to continue through the first half of 2001, if not longer. International net sales, predominantly to customers based in South Korea, accounted for 92.4% of total net sales in 2000, 86.5% of total net sales in 1999 and 56.7% of total net sales in 1998. To date, all sales have been denominated in U.S. dollars. We anticipate that international sales, and in particular from South Korea, will continue to account for a significant portion of our total net sales. The local currency is the functional currency for our foreign operations in South Korea and Japan. All other currency is dollar denominated. Gains or losses from translation of foreign operations where the local currencies are the functional currency are included as a component of shareholders' equity and comprehensive income/loss. Foreign currency transaction gains and losses are recognized in the statement of operations. In order to support our business strategy, we will be required to make significant investments in research and development. In addition, we believe selling, general and administrative costs will increase as sales volumes increase. We depend on increases in sales in order to attain profitability. If our sales do not increase, our current operating expenses could prevent us from attaining profitability and harm our financial results. RESULTS OF OPERATIONS The following table sets forth, expressed as a percentage of total net sales, certain consolidated statements of operations data for the periods indicated:
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------- ------ ------- Net sales 100.0% 100.0% 100.0% Costs and expenses: Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . 60.0 58.6 74.6 Research and development. . . . . . . . . . . . . . . . . . . 21.3 18.9 27.5 Selling, general and administrative . . . . . . . . . . . . . 24.8 28.0 43.5 Restructuring and Other . . . . . . . . . . . . . . . . . . . 0 1.9 39.2 ------- ------ ------- Loss from operations (6.1) (7.4) (84.8) Other income (expense), net . . . . . . . . . . . . . . . . . . 0.2 2.3 (0.3) ------- ------ ------- Loss before provision for income taxes and cumulative effect of change in accounting principle. . . . . . . . . . . . . . . . (5.9) (5.1) (85.1) Provision for income taxes. . . . . . . . . . . . . . . . . . . 1.2 0.6 0 ------- ------ ------- Loss before cumulative effect of change in accounting principle (7.1) (5.7) (85.1) Cumulative effect of change in accounting principle . . . . . . (16.6) 0 0 ------- ------ ------- Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . (23.7)% (5.7)% (85.1)% ======= ====== =======
YEARS ENDED DECEMBER 31, 2000 AND 1999 NET SALES. Net sales in 2000 were $40.6 million compared with net sales of $28.4 million in 1999, representing an increase of 43%. A total of 12 systems were accepted by the customer in 2000, and qualified for revenue recognition. A total of 5 systems that shipped in 2000 were not signed off and accepted by customers, and this revenue was deferred at December 31, 2000. Export sales accounted for 92% of revenue in 2000 compared with 86% in 1999. Net sales for 2000 of $40.6 million, compared to $28.0 million which reflect the 1999 net sales applying the change in accounting principle related to revenue recognition, represents an increase of 45.2%. COST OF GOODS SOLD. Costs of goods sold in 2000 was $24.4 million compared with $16.6 million in 1999. Gross profit in 2000 was $16.3 million, representing 40% of net sales, compared with $11.7 million or 41.4% of net sales in 1999. Costs of goods sold for 1999 reflecting the change in accounting principle were $17.9 million and the gross profit was $10.1 million or 36%. The gross margin % was lower on higher sales volumes, and was attributed to lower margins due to competitive pricing pressures on our standard tungsten silicide products, and increased worldwide customer service and manufacturing expenses to support our sales growth in 2000, including a new office in Japan. Our gross profits have historically been affected by variations in average selling prices, configuration differences, changes in the mix of product sales, unit shipment levels, the level of foreign sales and competitive pricing pressures. RESEARCH AND DEVELOPMENT. Research and development expenses in 2000 were $8.7 million compared with $5.4 million in 1999, representing an increase of 61%. As a percentage of net sales, research and development expenses were 21.3% in 2000 and 18.9% in 1999. The increase in research and development expenses is attributable to investments in development programs for ALD productization and films, our 3 300mm system, new tungsten products, and continuous improvement programs for existing products. These programs are essential in our efforts to broaden our customer base and penetrate new markets in both semiconductor and non-semiconductor applications. We expect research and development expenses to increase in the future. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses were $10.1 million in 2000 compared with $7.9 million in 1999, representing an increase of 27%. As a percentage of net sales, selling, general and administrative expenses were 24.8% in 2000 and 28.0% in 1999. The $2.2 million increase in 2000 was due primarily to increased investment in sales and marketing to support the 43% percent revenue growth and 66% shipment growth we experienced in 2000, and focused efforts toward new customers and market segments. OTHER INCOME (EXPENSE), NET. We had other income (net) of $108,000 in 2000 compared with other income of $669,000 in 1999. Other income in 2000 consisted of interest income and foreign currency exchange gains due to the strengthening of the Korean won against the U.S. dollar during the first half of 2000, offset by foreign currency exchange losses incurred in the fourth quarter. In 1999, other income included interest income and foreign currency exchange gains. PROVISION FOR INCOME TAXES. We had income taxes of $490,000 in 2000 compared with $177,000 of income taxes in 1999. In both years, income taxes were related to income generated from our South Korean subsidiary. At December 31, 2000, we had federal net operating loss carry-forwards of $80.5 million and state net operating loss carry-forwards of $6.7 million. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. We recorded a non-recurring charge of $6.77 million for the cumulative effect of a change in accounting principle due to the adoption of SAB 101. This amount represents the gross profit on systems that shipped during 1999, but did not receive final customer acceptance during 1999. Included in this number were 5 systems and some upgrades which had a total sales value of $13.5 million. ACCOUNTING CHANGE In December 2000, the Company changed its accounting method for recognizing revenue on sales with an effective date of January 1, 2000. The Company's selling arrangements generally involve contractual customer acceptance provisions and installation of the product occurs after shipment and transfer of title. As a result, effective January 1, 2000, to comply with the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 101, the Company deferred recognition of revenue from such equipment sales until installation is complete and the product is accepted by the customer. The Company previously recognized revenue related to systems upon shipment. A provision for the estimated future cost of system installation, warranty and commissions was recorded when revenue was recognized. Service revenue is recognized when service has been completed. The cumulative effect in prior years of the change in accounting method was a charge of $6.77 million or $0.36 per diluted share. The table set forth below shows three years' comparative data where 1998 and 1999 are shown as reported in prior years' financial statements and 2000 as how it would have been without the change in accounting principle for revenue recognition. The 2000 numbers are not presented under Generally Accepted Accounting Principles. The purpose of this table is to make it easier for the reader to understand the impact of the change under the Staff Accounting Bulletin No. 101.
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------- -------- -------- INCOME STATEMENT Net sales . . . . . . . . . . . . . . . . . . . . . . $47,186 $28,360 $ 32,431 Cost of goods sold. . . . . . . . . . . . . . . . . . $27,713 $16,628 $ 24,201 Net income (loss) attributable to common shareholders $ 286 $(1,617) $(29,503)
YEARS ENDED DECEMBER 31, 2000 AND 1999 ON A HISTORICAL BASIS, WITHOUT GIVING EFFECT TO SAB 101 NET SALES. Net sales in 2000 were $47.2 million compared with net sales of $28.4 million in 1999, representing an increase of 66%. Most of this consisted of current generation tungsten silicide business to Samsung, but we also shipped our ALD technology to a new customer, Infineon Technologies, and to an existing ALD customer, Micron Technology. Export sales accounted for 98% of our net sales in 2000, compared to 86% in 1999. COST OF GOODS SOLD. Costs of goods sold in 2000 was $27.7 million compared with $16.6 million in 1999. Gross profit in 2000 was $19.5 million, or 41% of sales, compared to 11.7 million or 41.4% of net sales in 1999. The gross margin % was lower on higher sales volumes, and was attributed to lower margins due to competitive pricing pressures on our standard tungsten silicide products, and increased worldwide customer service and manufacturing expenses to support our sales growth in 2000, including a new office in Japan. Our gross profits have historically been affected by variations in average selling prices, configuration differences, changes in the mix of product sales, unit shipment levels, the level of foreign sales and competitive pricing pressures. YEARS ENDED DECEMBER 31, 1999 AND 1998 NET SALES. Net sales in 1999 were $28.4 million compared with net sales of $32.4 million in 1998, representing a decrease of 12.6%. The decline in our net sales was primarily due to the divestiture of the ion implant product line to Varian, which contributed $21.1 million of net sales in 1998 and none in 1999, offset by increased demand for our thin film products as the semiconductor equipment industry emerged from the 1998 and 1997 recession. Our 1999 thin film product net sales of $28.4 million was an increase of over 150% from 1998 levels of thin film product sales. Export sales accounted for 86% of our net sales in 1999 compared with 56% in 1998. COST OF GOODS SOLD. Costs of goods sold in 1999 was $16.6 million compared with $24.2 million in 1998, representing a decrease of 31.3%. This decrease was primarily due to lower sales volume. Lower sales volumes were primarily due to the divestiture of the ion implant product line to Varian. The decrease was offset by $1.6 million of inventory and warranty reserve reversals recorded in the fourth quarter of 1998. Gross profit in 1999 was $11.7 million, representing 41.4% of net sales, compared with $8.2 million or 25.4% of net sales in 1998. Our gross profits have historically been affected by variations in average selling prices, configuration differences, changes in the mix of product sales, unit shipment levels, the level of foreign sales and competitive pricing pressures. RESEARCH AND DEVELOPMENT. Research and development expenses in 1999 were $5.4 million compared with $8.9 million in 1998, representing a decrease of 39.8%. As a percentage of net sales, research and development expenses were 18.9% in 1999 and 27.5% in 1998. Substantially all of the decrease in research and development expenses is attributable to expenditures in 1998 associated with the ion implant product line. Thin film research and development spending in 1999 remained relatively constant with 1998 levels. Included in research and development expense in 1999 is a credit of $360,000 from a government Small Business Innovative Research grant for ALD development. We expect research and development expenses to increase in the future. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses were $7.9 million in 1999 compared with $14.1 million in 1998, representing a decrease of 43.8%. As a percentage of net sales, selling, general and administrative expenses were 28.0% in 1999 and 43.5% in 1998. The $6.2 million decrease in 1999 was due primarily to the reduction in our workforce related to the divestiture of the ion implant product line to Varian in July 1998 as well as a $1.4 million write-off in 1998 relating to an ion implant receivable. RESTRUCTURING AND OTHER. In 1999, we recorded a charge of $543,000 for the final settlement of a dispute with Varian that arose in connection with the sale of the ion implant product line to Varian. This charge related to funds that were held in escrow for possible claims made under our change of control agreements with key ion implant employees who transferred to Varian as part of the Varian transaction. No funds were distributed from this escrow account, and the final change of control agreement expired in July 1999. OTHER INCOME (EXPENSE), NET. We had other income of $669,000 in 1999 compared with other expense of $86,000 in 1998. Other income in 1999 consisted of interest income and foreign currency exchange gains due to the strengthening of the Korean won against the U.S. dollar. In 1998, other expense included interest expense and foreign currency exchange losses during the first half of the year, partially offset by interest income during the second half of the year. PROVISION FOR INCOME TAXES. We had income taxes of $177,000 in 1999 compared with immaterial income taxes in 1998. Taxes in 1999 related to income from our South Korean subsidiary. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2000, our cash and cash equivalents were $3.1 million, a decrease of $3.6 million from cash and cash equivalents of $6.7 million held as of December 31, 1999. At December 31, 2000, our accounts receivable were $8.5 million, an increase of $850,000 from accounts receivable of $7.6 million at December 31, 1999. Cash used in operating activities totaled $2.3 million in 2000. Cash was primarily used by the net loss of $9.7 million and increased inventories of $10.4 million and accounts receivable of $850,000, offset by non-cash charges and increases in deferred revenue and accounts payable. Accounts payable increased primarily due to increased sales volumes, and managing the non-linear nature of our shipments and timing of collections from our customers. Inventory increased due to material on hand for four systems, two that we had expected to ship during the fourth quarter, and for two other systems which were scheduled to ship early in the first quarter of 2001, as well as an increase in inventory at customer sites. Accounts receivable increased due to two systems that we shipped late in the fourth quarter of 2000 and were not collected until the first quarter of 2001. In 1999, cash provided by operating activities totaled $4.5 million, and consisted of a decrease in accounts receivable of $5.1 million, an increase in accounts payable of $2.0 million, and depreciation and amortization of $1.8 million. Net cash provided by operating activities was also affected by the reported net loss in 1999 of $1.6 million and an increase in inventories of $1.9 million. Financing activities provided $4 million of cash in 2000. Net short term borrowings were $2.7 million, and proceeds from the issuance of common stock from our Employee Stock Purchase and Incentive Stock Option Plans totaled $1.3 million. In 1999, $3.7 million was used in financing activities, primarily for the payment of the short-term borrowings of $4.0 million, offset by $322,000 received from the issuance of common stock from our Employee Stock Purchase and Incentive Stock Option Plans. We had capital expenditures of $5.1 million during 2000. These expenditures principally related to the acquisition of machinery and equipment for our research and development and applications laboratories, expansion and upgrading of our Sunnyvale, California facility, and improvements to our enterprise resource planning business system. We currently anticipate that additional capital expenditures will be funded through lease financing or from our working capital. Our primary source of funds at December 31, 2000 consisted of $3.1 million in cash and cash equivalents, and $8.5 million of accounts receivable, most of which we expect to collect or to have been collected during 2001. In November 1999, we entered into a $10 million revolving line of credit with Venture Bank. Amounts available under the line are based on 80% of eligible accounts receivable, and borrowings under the line are secured by all corporate assets and bear interest at prime plus 0.25%. The line of credit expires in November 2001. The line of credit contains covenants that require us to maintain a minimum quick ratio and a maximum debt to tangible net equity ratio. In addition, the line of credit requires us to have annual profitability beginning in 2000 and a maximum quarterly loss of $1 million with no two consecutive quarterly losses. Additionally, we are prohibited from distributing dividends. At December 31, 2000, the Company was in default of certain of the covenants and Venture Bank has granted the Company a waiver of the default. The amount available to borrow at December 31, 2000 was $4.4 million at a rate of 9.75%. There was $2.7 million outstanding at the end of December, 2000. On March 28, 2001, we converted our existing $10 million Venture Bank line of credit to an asset-based line of credit. Amounts available under the line are based on 80% of eligible accounts receivable, and borrowings under the line are secured by all corporate assets and bear interest at 9.6% per annum and an administrative fee of a quarter of one percent on all advances. This line will not have accounts receivable customer concentration limitations, will allow borrowing against foreign receivables, and will have no financial covenants. It will expire in March, 2002. We believe that our existing working capital, as well as the $10 million Venture Bank line of credit, will be sufficient to satisfy our cash needs for the next 12 months. There can be no assurance that any required additional funding, if needed, will be available on terms attractive to us, which could have a material adverse affect on our business, financial condition and results of operations. Any additional equity financing may be dilutive to shareholders, and any additional debt financing, if available, may involve restrictive covenants. During the year ended December 31, 2000, the Company was in the process of executing its business strategy and has plans to eventually achieve profitable operations. Management believes that existing cash and available financing will be sufficient to meet projected working capital, capital expenditures and other cash requirements for the next twelve months. Accordingly, these financial statements have been prepared on a going concern basis. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which deferred the effective date until the first fiscal year beginning after June 15, 2000. In June 2000, the FASB issued SFAS Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities-an Amendment of SFAS 133." SFAS No. 138 amends certain terms and conditions of SFAS 133. SFAS 133 requires that all derivative instruments be recognized at fair value as either assets or liabilities in the statement of financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether is has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. We adopted SFAS No. 133, as amended, on January 1, 2001. The adoption of SFAS No. 133 did not have a material impact on our financial statements. RISK FACTORS The risks described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or that are currently deemed immaterial may also impair our business operations. Our business, operating results or financial condition could be materially adversely affected by, and the trading price of our common stock could decline due to any of these risks. You should also refer to the other information included in this Annual Report on Form 10-K and the other information, our financial statements and the related notes incorporated by reference into this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described below and elsewhere in this Annual Report on Form 10-K. You should not place undue reliance on these forward-looking statements. WE HAVE EXPERIENCED LOSSES OVER THE LAST FEW YEARS AND WE MAY NOT BE ABLE TO ACHIEVE OR SUSTAIN PROFITABILITY We have experienced losses of $9.6 million, $1.6 million and $29.5 million for 2000, 1999 and 1998, respectively. We may not be able to attain or sustain consistent future revenue growth on a quarterly or annual basis, or achieve and maintain consistent profitability on a quarterly or annual basis. As a result, our business could be materially harmed. SUBSTANTIALLY ALL OF OUR NET SALES COME FROM A SMALL NUMBER OF LARGE CUSTOMERS Historically, we have relied on a small number of customers for a substantial portion of our net sales. For example, Samsung Electronics Company, Ltd. and Micron Technology, Inc. accounted of 91% and 5% of our net sales in 2000. Samsung Electronics Company, Ltd. and Infineon Technologies accounted of 90% and 6% of total shipments made in 2000, which would have been recorded as revenue under the historical accounting method. In addition, Samsung Electronics Company, Ltd., and Infineon Technologies represented 92% of accounts receivable at December 31, 2000. The semiconductor manufacturing industry generally consists of a limited number of larger companies. We consequently expect that a significant portion of our future product sales will be concentrated within a limited number of customers. None of our customers has entered into a long-term agreement with us requiring them to purchase our products. In addition, sales to these customers may decrease in the future when they complete their current semiconductor equipment purchasing requirements. If any of our customers were to encounter financial difficulties or become unable to continue to do business with us at or near current levels, our business, results of operations and financial condition would be materially adversely affected. Customers may delay or cancel orders or may stop doing business with us for a number of reasons including: - - customer departures from historical buying patterns; - - general market conditions; - - economic conditions; or - - competitive conditions in the semiconductor industry or in the industries that manufacture products utilizing integrated circuits. OUR QUARTERLY FINANCIAL RESULTS FLUCTUATE SIGNIFICANTLY AND MAY FALL SHORT OF ANTICIPATED LEVELS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE Our net sales and operating results may fluctuate significantly from quarter to quarter. We derive our revenue primarily from the sale of a relatively small number of high-priced systems, many of which may be ordered and shipped during the same quarter. Our results of operations for a particular quarter could be materially adversely affected if anticipated orders, for even a small number of systems, were not received in time to enable shipment during the quarter, anticipated shipments were delayed or canceled by one or more customers or shipments were delayed due to manufacturing difficulties. At our current revenue level, each sale, or failure to make a sale, could have a material effect on us. Our lengthy sales cycle, coupled with our customers' competing capital budget considerations, make the timing of customer orders uneven and difficult to predict. In addition, our backlog at the beginning of a quarter typically does not include all orders required to achieve our sales objectives for that quarter. As a result, our net sales and operating results for a quarter depend on us shipping orders as scheduled during that quarter as well as obtaining new orders for systems to be shipped in that same quarter. Any delay in scheduled shipments or in shipments from new orders would materially and adversely affect our operating results for that quarter, which could cause our stock price to decline. OUR FINANCIAL REPORTING ACTIVITIES WILL CONTINUE TO BE IMPACTED BY SAB 101 RULES FOR REVENUE RECOGNITION. In December 1999, the SEC issued Staff Accounting Bulletin No. 101. SAB 101 summarizes certain of the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. Prior to SAB 101, we generally recognized revenue upon shipment of a system. Applying the requirements of SAB 101 to the selling arrangements we had used for the sale of semiconductor production equipment required a change in our accounting policy for revenue recognition and deferral of the recognition of revenue from such equipment sales until installation is complete and accepted by the customer. The effect of such a change had to be recognized as a cumulative effect of a change in accounting no later than the quarter ending December 31, 2000. Although SAB 101 applies to every company within our industry, there are risks that our stock price may be materially and adversely impacted by SAB 101 going forward. Since revenue is no longer recognized when a system ships but when installation is complete and customer acceptance occurs, any delays in acceptance, either by the customer or by Genus, may have a material adverse effect on our results of operations. In addition, the adoption of SAB 101 and its impact on our historical and projected financial performance may not be fully understood by our investors and analysts, and this may have a material adverse effect on the price of our stock. WE ARE SUBJECT TO RISKS BEYOND OUR CONTROL OR INFLUENCE AND ARE HIGHLY DEPENDENT ON OUR INTERNATIONAL SALES, PARTICULARLY SALES IN ASIAN COUNTRIES, AND Export sales accounted for approximately 98%, 86% and 56% of our total net sales in 2000, 1999 and 1998, respectively. Net sales to our South Korean-based customers accounted for approximately 92%, 84% and 30% of total net sales, respectively. We anticipate that international sales, including sales to South Korea, will continue to account for a significant portion of our net sales. As a result, a significant portion of our net sales will be subject to certain risks, including: - - unexpected changes in law or regulatory requirements; - - exchange rate volatility; - - tariffs and other barriers; - - political and economic instability; - - difficulties in accounts receivable collection; - - extended payment terms; - - difficulties in managing distributors or representatives; - - difficulties in staffing our subsidiaries; - - difficulties in managing foreign subsidiary operations; and - - potentially adverse tax consequences. Our foreign sales are primarily denominated in U.S. dollars and we do not engage in hedging transactions. As a result, our foreign sales are subject to the risks associated with unexpected changes in exchange rates, which could affect the price of our products. In the past, turmoil in the Asian financial markets resulted in dramatic currency devaluations, stock market declines, restriction of available credit and general financial weakness. For example, prices fell dramatically in 1998 as some integrated circuit manufacturers sold DRAMs at less than cost in order to generate cash. Currency devaluations make dollar-denominated goods, such as ours, more expensive for international customers. In addition, difficult economic conditions may limit capital spending by our customers. These circumstances may also affect the ability of our customers to meet their payment obligations, resulting in the cancellations or deferrals of existing orders and the limitation of additional orders. As a result of any or all these factors, our business, financial condition and results of operations may be materially harmed. OUR SALES REFLECT THE CYCLICALITY OF THE SEMICONDUCTOR INDUSTRY, WHICH COULD CAUSE OUR OPERATING RESULTS TO FLUCTUATE SIGNIFICANTLY AND COULD CAUSE US TO FAIL TO ACHIEVE ANTICIPATED SALES Our business depends upon the capital expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for integrated circuits and products utilizing integrated circuits. Although we are marketing our ALD technology to non-semiconductor markets such as magnetic thin film heads, flat panel displays, MEMS and inkjet printers, we are still very dependent on the semiconductor market. The semiconductor industry is cyclical and experiences periodic downturns both of which reduce the semiconductor industry's demand for semiconductor manufacturing capital equipment. Semiconductor industry downturns have significantly decreased our revenues, operating margins and results of operations in the past. There is a risk that our revenues and operating results will be materially harmed by any future downturn in the semiconductor industry. OUR FUTURE GROWTH IS DEPENDENT ON ACCEPTANCE OF NEW THIN FILMS AND MARKET ACCEPTANCE OF OUR SYSTEMS RELATING TO THOSE THIN FILMS We believe that our future growth will depend in large part upon the acceptance of our new thin films and processes, especially ALD. As a result, we expect to continue to invest in research and development in these new thin films and the systems that use these films. There can be no assurance that the market will accept our new products or that we will be able to develop and introduce new products or enhancements to our existing products and processes in a timely manner to satisfy customer needs or achieve market acceptance. The failure to do so could have a material adverse effect on our business, financial condition and results of operations. In addition, we must manage product transitions successfully, as introductions of new products could harm sales of existing products. We derive our revenue primarily from the sale of our tungsten silicide CVD systems. We estimate that the life cycle for these systems is three-to-five years. There is a risk that future technologies, processes or product developments may render our product offerings obsolete and we may not be able to develop and introduce new products or enhancements to our existing products in a timely manner. WE MAY NOT BE ABLE TO CONTINUE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE SEMICONDUCTOR INDUSTRY AGAINST COMPETITORS WITH GREATER RESOURCES The semiconductor manufacturing capital equipment industry is highly competitive. We face substantial competition throughout the world. We believe that to remain competitive, we will require significant financial resources in order to develop new products, offer a broader range of products, establish and maintain customer service centers and invest in research and development. Many of our existing and potential competitors have substantially greater financial resources, more extensive engineering, manufacturing, marketing, customer service capabilities and greater name recognition. We expect our competitors to continue to improve the design and performance of their current products and processes and to introduce new products and processes with improved price and performance characteristics. If our competitors enter into strategic relationships with leading semiconductor manufacturers covering thin film products similar to those sold by us, it would materially adversely affect our ability to sell our products to such manufacturers. In addition, to expand our sales we must often replace the systems of our competitors or sell new systems to customers of our competitors. Our competitors may develop new or enhanced competitive products that will offer price or performance features that are superior to our systems. Our competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their product lines. We may not be able to maintain or expand our sales if competition increases and we are not able to respond effectively. WE MAY NOT ACHIEVE ANTICIPATED REVENUE GROWTH IF WE ARE NOT SELECTED AS VENDOR OF CHOICE FOR NEW OR EXPANDED FABRICATION FACILITIES AND IF OUR SYSTEMS AND PRODUCTS DO NOT ACHIEVE BROADER MARKET ACCEPTANCE Because semiconductor manufacturers must make a substantial investment to install and integrate capital equipment into a semiconductor fabrication facility, these manufacturers will tend to choose semiconductor equipment manufacturers based on established relationships, product compatibility and proven financial performance. Once a semiconductor manufacturer selects a particular vendor's capital equipment, the manufacturer generally relies for a significant period of time upon equipment from this vendor of choice for the specific production line application. In addition, the semiconductor manufacturer frequently will attempt to consolidate its other capital equipment requirements with the same vendor. Accordingly, we may face narrow windows of opportunity to be selected as the "vendor of choice" by potential new customers. It may be difficult for us to sell to a particular customer for a significant period of time once that customer selects a competitor's product, and we may not be successful in obtaining broader acceptance of our systems and technology. If we are not able to achieve broader market acceptance of our systems and technology, we may be unable to grow our business and our operating results and financial condition will be materially adversely affected. OUR LENGTHY SALES CYCLE INCREASES OUR COSTS AND REDUCES THE PREDICTABILITY OF OUR REVENUE Sales of our systems depend upon the decision of a prospective customer to increase manufacturing capacity. That decision typically involves a significant capital commitment by our customers. Accordingly, the purchase of our systems typically involves time-consuming internal procedures associated with the evaluation, testing, implementation and introduction of new technologies into our customers' manufacturing facilities. For many potential customers, an evaluation as to whether new semiconductor manufacturing equipment is needed typically occurs infrequently. Following an evaluation by the customer as to whether our systems meet its qualification criteria, we have experienced in the past and expect to experience in the future delays in finalizing system sales while the customer evaluates and receives approval for the purchase of our systems and constructs a new facility or expands an existing facility. Due to these factors, our systems typically have a lengthy sales cycle during which we may expend substantial funds and management effort. The time between our first contact with a customer and the customer placing its first order typically lasts from nine to twelve months and is often even longer. This lengthy sales cycle makes it difficult to accurately forecast future sales and may cause our quarterly and annual revenue and operating results to fluctuate significantly from period to period. If anticipated sales from a particular customer are not realized in a particular period due to this lengthy sales cycle, our operating results may be adversely affected. WE ARE DEPENDENT ON OUR INTELLECTUAL PROPERTY AND RISK LOSS OF A VALUABLE ASSET, REDUCED MARKET SHARE AND LITIGATION EXPENSE IF WE CANNOT ADEQUATELY PROTECT IT Our success depends in part on our proprietary technology. There can be no assurance that we will be able to protect our technology or that competitors will not be able to develop similar technology independently. We currently have a number of United States and foreign patents and patent applications. There can be no assurance that any patents issued to us will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide us with competitive advantages. From time to time, we have received notices from third parties alleging infringement of such parties' patent rights by our products. In such cases, it is our policy to defend against the claims or negotiate licenses on commercially reasonable terms where appropriate. However, no assurance can be given that we will be able to negotiate necessary licenses on commercially reasonable terms, or at all, or that any litigation resulting from such claims would not have a material adverse effect on our business and financial results. WE ARE DEPENDENT UPON KEY PERSONNEL WHO ARE EMPLOYED AT WILL, WHO WOULD BE DIFFICULT TO REPLACE AND WHOSE LOSS WOULD IMPEDE OUR DEVELOPMENT AND SALES We are highly dependent on key personnel to manage our business, and their knowledge of business, management skills and technical expertise would be difficult to replace. Our success depends upon the efforts and abilities of Dr. William W.R. Elder, our chairman and chief executive officer, Dr. Thomas E. Seidel, our chief technology officer, and other key managerial and technical employees who would be difficult to replace. The loss of Dr. Elder or Dr. Seidel or other key employees could limit or delay our ability to develop new products and adapt existing products to our customers' evolving requirements and would also result in lost sales and diversion of management resources. None of our executive officers are bound by a written employment agreement, and the relationships with our officers are at will. Because of competition for additional qualified personnel, we may not be able to recruit or retain necessary personnel, which could impede development or sales of our products. Our growth depends on our ability to attract and retain qualified, experienced employees. There is substantial competition for experienced engineering, technical, financial, sales and marketing personnel in our industry. In particular, we must attract and retain highly skilled design and process engineers. Competition for such personnel is intense, particularly in the San Francisco Bay Area where we are based. If we are unable to retain our existing key personnel, or attract and retain additional qualified personnel, we may from time to time experience inadequate levels of staffing to develop and market our products and perform services for our customers. As a result, our growth could be limited due to our lack of capacity to develop and market our products to customers, or fail to meet delivery commitments or experience deterioration in service levels or decreased customer satisfaction. OUR FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD RESULT IN SUBSTANTIAL LIABILITY TO US We are subject to a variety of federal, state and local laws, rules and regulations relating to the protection of health and the environment. These include laws, rules and regulations governing the use, storage, discharge, release, treatment and disposal of hazardous chemicals during and after manufacturing, research and development and sales demonstrations. If we fail to comply with present or future regulations, we could be subject to substantial liability for clean up efforts, property damage, personal injury and fines or suspension or cessation of our operations. Restrictions on our ability to expand or continue to operate our present locations could be imposed upon us or we could be required to acquire costly remediation equipment or incur other significant expenses. WE DEPEND UPON A LIMITED NUMBER OF SUPPLIERS FOR MANY COMPONENTS AND SUBASSEMBLIES, AND SUPPLY SHORTAGES OR THE LOSS OF THESE SUPPLIERS COULD RESULT IN INCREASED COST OR DELAYS IN MANUFACTURE AND SALE OF OUR PRODUCTS Certain of the components and sub-assemblies included in our products are obtained from a single supplier or a limited group of suppliers. Disruption or termination of these sources could have an adverse effect on our operations. We believe that alternative sources could be obtained and qualified to supply these products, if necessary. Nevertheless, a prolonged inability to obtain certain components could have a material adverse effect on our business, financial condition and results of operations. WE DEPEND UPON SIX DISTRIBUTORSHIPS FOR THE SALE OF OUR PRODUCTS AND ANY DISRUPTION IN THESE RELATIONSHIPS WOULD ADVERSELY AFFECT US We currently sell and support our thin film products through direct sales and customer support organizations in the U.S., Europe, South Korea and Japan and through six independent sales representatives and distributors in the U.S., Europe, South Korea, Taiwan, China and Malaysia. We do not have any long-term contracts with our sales representatives and distributors. Any disruption or termination of our existing distributor relationships could have an adverse effect on our business, financial condition and results of operations. WE ESTABLISHED A DIRECT SALES ORGANIZATION IN JAPAN AND WE MAY NOT SUCCEED IN EFFECTIVELY PENETRATING THE JAPANESE MARKETPLACE We terminated our relationship with our distributor, Innotech Corp. in Japan in 1998. In 2000, we invested significant resources in Japan by establishing a direct sales organization, Genus-Japan, Inc. Although we continue to invest significant resources in our Japan office, we may not be able to attract new customers in the Japanese semiconductor industry, and as a result, we may fail to yield a profit or return on our investment in Japan. THE PRICE OF OUR COMMON STOCK HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO FLUCTUATE SIGNIFICANTLY IN THE FUTURE, WHICH MAY LEAD TO LOSSES BY INVESTORS OR TO SECURITIES LITIGATION Our common stock has experienced substantial price volatility, particularly as a result of quarter-to-quarter variations in our, our competitors or our customers actual or anticipated financial results, our competitors or our customers announcements of technological innovations, revenue recognition policies, changes in earnings estimates by securities analysts and other events or factors. Also, the stock market has experienced extreme price and volume fluctuations which have affected the market price of many technology companies, in particular, and which have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions in the United States and the countries in which we do business, may adversely effect the market price of our common stock. In the past, securities class action litigation has often been instituted against a company following periods of volatility in the company's stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management's attention and resources. BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS. Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. A disaster could severely damage our ability to deliver our products to our customers. Our products depend on our ability to maintain and protect our operating equipment and computer systems, which are primarily located in or near our principal headquarters in Sunnyvale, California. Sunnyvale exists near a known earthquake fault zone. Although our facilities are designed to be fault tolerant, the systems are susceptible to damage from fire, floods, earthquakes, power loss, telecommunications failures, and similar events. Further, our facilities in the State of California are currently subject to electrical blackouts as a consequence of a shortage of available electrical power. In the event these blackouts continue or increase in severity, they could disrupt the operations of our affected facilities. Although we maintain general business insurance against fires, floods and some general business interruptions, there can be no assurance that the amount of coverage will be adequate in any particular case. FORWARD-LOOKING STATEMENTS Some of the information in this Annual Report on Form 10-K and in the documents that are incorporated by reference, including the risk factors, contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In many cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue," or the negative of these terms and other comparable terminology. These statements are only predictions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including the risks faced by us described above and elsewhere in this Annual Report on Form 10-K. We believe it is important to communicate our expectations to our shareholders. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors listed above, as well as any cautionary language in this Annual Report on Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We face exposure to adverse movements in foreign currency exchange rates. These exposures may change over time as our business practices evolve and could seriously harm our financial results. All of our international sales, except spare parts and service sales made by our subsidiary in South Korea, are currently denominated in U.S. dollars. All spare parts and service sales made by the South Korean subsidiary are won denominated. An increase in the value of the U.S. dollar relative to foreign currencies could make our products more expensive and, therefore, reduce the demand for our products. Reduced demand for our products could materially adversely affect our business, results of operations and financial condition. At any time, fluctuations in interest rates could affect interest earnings on our cash, cash equivalents or increase any interest expense owed on the line of credit facility. We believe that the effect, if any, of reasonably possible near term changes in interest rates on our financial position, results of operations and cash flows would not be material. Currently, we do not hedge these interest rates exposures. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP, independent accountants, dated February 12, 2001, except as to the second paragraph of Note 6, which is as of March 28, 2001, are included in a separate section of this Report. SUPPLEMENTARY DATA: SELECTED CONSOLIDATED QUARTERLY DATA The following table presents our consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2000. In our opinion, this information has been presented on the same basis as the audited consolidated financial statements included in a separate section of this report, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts below to present fairly the unaudited quarterly results when read in conjunction with the audited consolidated financial statements and related notes. The operating results for any quarter should not be relied upon as necessarily indicated of results for any future period. We expect our quarterly operating results to fluctuate in future periods due to a variety of reasons, including those discussed in "Business Risks."
FIRST QTR SECOND QTR THIRD QTR FOURTH QTR ------------ ------------ ----------- ------------ (IN THOUSANDS, EXCEPT SHARE DATA) 2000 Sales As originally reported . . . . . . . . . . . . . . $ 12,277 $ 12,356 $ 14,165 $ 8,388 Effect of revenue recognition change . . . . . . . (8,451) (5,770) 378 7,295 ---------- ------------ ----------- ------------ As restated for first three quarters and as reported for fourth quarter . . . . . . . . . 3,826 6,586 14,543 15,683 ---------- ------------ ----------- ------------ Gross profit As originally reported . . . . . . . . . . . . . . 5,465 5,450 6,043 2,515 Effect of revenue recognition change . . . . . . . (4,483) (3,039) 456 3,846 --------- ------------ ----------- ------------ As restated for first three quarters and as reported for fourth quarter . . . . . . . . 982 2,411 6,499 6,361 --------- ------------ ----------- ------------ Cumulative effect of change in accounting principle . . . . . . . . . . . . (6,770) -- -- -- ------- ------------ ----------- ------------ Net income (loss) As originally reported . . . . . . . . . . . . . . 971 955 1,190 (2,830) Effect of revenue recognition change . . . . . . . (11,308) (3,014) 456 3,929 -------- ------------ ----------- ------------ As restated for first three quarters and as reported for fourth quarter . . . . . . . . $ (10,337) $ (2,059) $ 1,646 $ 1,099 ======== ============ =========== ============ Basic income per share: Income before cumulative effect of accounting change As originally reported . . . . . . . . . . . . . . $ 0.05 $ 0.05 $ 0.06 $ (0.15) Effect of revenue recognition change . . . . . . . (0.24) (0.16) 0.03 0.21 ----------- ------------ ----------- ------------ As restated for first three quarters and as reported for fourth quarter . . . . . . (0.19) (0.11) 0.09 0.06 --------- ------------ ----------- ------------ Cumulative effect of change in accounting principle. . . . . . . . . . . . . . . (0.36) -- -- -- ------- ------------ ----------- ------------ Net income As originally reported . . . . . . . . . . . . . . 0.05 0.05 0.06 (0.15) Effect of revenue recognition change . . . . . . . (0.60) (0.16) 0.03 0.21 -------- ------------ ----------- ------------ As restated for first three quarters and as reported for fourth quarter . . . . . . $ (0.55) $ (0.11) $ 0.09 $ 0.06 ======= ============ =========== ============ Diluted income per share: Income before cumulative effect of accounting change As originally reported . . . . . . . . . . . . . . $ 0.05 $ 0.05 $ 0.06 $ (0.15) Effect of revenue recognition change (0.24) (0.16) 0.02 0.20 ------ ------------ ----------- ------------ As restated for first three quarters and as reported for fourth quarter . . . . . . (0.19) (0.11) 0.08 0.05 ------ ------------ ----------- ------------ Cumulative effect of change in accounting principle. . . . . . . . . . . . . . (0.36) -- -- -- ------- ------------ ----------- ------------ Net income (loss) As originally reported . . . . . . . . . . . . . . 0.05 0.05 0.06 (0.15) Effect of revenue recognition change (0.60) (0.16) 0.02 0.20 ------ ------------ ----------- ------------ As restated for first three quarters and as reported for fourth quarter . . . . . . . . $ (0.55) $ (0.11) $ 0.08 $ 0.05 ======== ============ =========== ============ 1999 Sales. . . . . . . . . . . . . . . . . . . . . . . . $ 5,953 $ 7,966 $ 8,818 $ 5,623 Gross profit . . . . . . . . . . . . . . . . . . . . 2,349 3,471 3,797 2,115 Net income (loss). . . . . . . . . . . . . . . . . . (611) 179 313 (1,498) Basic net income (loss) per share. . . . . . . . . . (0.03) 0.01 0.02 (0.08) Diluted net income (loss) per share. . . . . . . . . $ (0.03) $ 0.01 $ 0.02 $ (0.08) Pro forma amounts for 1999 assuming the change in accounting principle related to revenue recognition was applied retroactively: Sales. . . . . . . . . . . . . . . . . . . . . . . $ 6,240 $ 6,346 $ 8,706 $ 6,700 Gross profit . . . . . . . . . . . . . . . . . . . 2,646 2,214 2,938 2,320 Net income (loss). . . . . . . . . . . . . . . . . (314) (1,078) (546) (1,294) Basic net income (loss) per share. . . . . . . . . (0.02) (0.06) (0.03) (0.07) Diluted net income (loss) per share. . . . . . . . $ (0.02) $ (0.06) $ (0.03) $ (0.07)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Certain information required by Part III is omitted from this Annual Report on Form 10-K in that the Registrant will file a definitive proxy statement within 120 days after the end of the fiscal year covered by this Report pursuant to Regulation 14A relating to the Registrant's 2001 Annual Meeting of Shareholders (the "Proxy Statement") to be held on May 24, 2001, and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT As of December 31, 2000, the directors and executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, are as follows:
NAME AGE POSITION - -------------------------------------------------------------------- William W.R. Elder. . . 62 Chairman of the Board, President and Chief Executive Officer Thomas E. Seidel, Ph.D. 65 Executive Vice President, Chief Technical Officer Kenneth Schwanda. . . . 42 Vice President, Finance, Chief Financial Officer Robert A. Wilson. . . . 38 Executive Vice President, Worldwide Sales Mario M. Rosati . . . . 54 Secretary and Director Todd S. Myhre . . . . . 56 Director G. Frederick Forsyth. . 56 Director George D. Wells . . . . 65 Director Robert J. Richardson. . 54 Director
Except as set forth below, all of the executive officers have been associated with us in their present or other capacities for more than the past five years. Officers are elected annually by the Board of Directors and serve at the discretion of the Board. There are no family relationships among our executive officers. WILLIAM W.R. ELDER was a founder of Genus and is our Chairman of the Board, President and our Chief Executive Officer. From October 1996 to April 1998, Dr. Elder served only as Chairman of the Board. From April 1990 to September 1996, Dr. Elder was Chairman of the Board, President and Chief Executive Officer of the Company. From November 1981 to April 1990, Dr. Elder was President and a director of the Company. THOMAS E. SEIDEL has served as our Executive Vice President and Chief Technical Officer since January 1996. From July 1988 to January 1996, Dr. Seidel was associated with SEMATECH, a semiconductor-industry consortium, in various senior management positions, most recently as Chief Technologist and Director of Strategic Technology. KENNETH SCHWANDA has served as our Vice President of Finance and Chief Financial Officer since February 1999. Mr. Schwanda joined the Company in December 1992 and has held various financial management positions, most currently as Vice President of Finance. Mr. Schwanda began his professional career in 1979 at Harris Corporation, a global communications company, where he held accounting and finance positions. ROBERT A. WILSON has served as our Vice President of Worldwide Sales since January 1999. Mr. Wilson is also a director of Genus Japan. Mr. Wilson joined the Company in January 1987 and has held several product and technical marketing positions with the Company until his transition to sales in 1992. MARIO M. ROSATI has served as our Secretary since May 1996 and as a director since our inception in November 1981. He has been a member, since 1971, of the law firm Wilson Sonsini Goodrich & Rosati, Professional Corporation, general counsel to the Company. Mr. Rosati is also a director of Aehr Test Systems, a manufacturer of computer hardware testing systems, MyPoints.com, Inc., a web and email-based direct marketing company, Sanmina Corporation, an electronics contract manufacturer, Symyx Technologies, Inc., a combinatorial materials science company, The Management Network Group, Inc., a management consulting firm focused on the telecommunications industry, and Vivus, a specialty pharmaceutical company, all publicly-held companies. He is also a director of a number of privately-held companies. TODD S. MYHRE has served as a director since January 1994. Since September 1999, he served as Interim Chief Executive Officer and a Board member for Ybrain.com, an e-commerce company focused on the college student market. From April 1998 to August 1999 and from September 1995 to January 1996, he served as President, Chief Executive Officer, and a Board member of GameTech International, an electronic gaming manufacturer. From February 1996 to February 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 and as President and a Director of the Company. G. FREDERICK FORSYTH has served as a director since February 1996. Since May 2000, Mr. Forsyth has served as President and CEO of NewRoads, Inc. From March 1999 to May 2000, Mr. Forsyth served as President, Systems Engineering and Services of Solectron Corp. From August 1997 to March 1999, Mr. Forsyth 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. GEORGE D. WELLS has served as a director since March 2000. From July 1992 to October 1996, Mr. Wells served as President and Chief Executive Officer of Exar Corporation. From April 1985 to July 1992, he served as President and Chief Operating Officer of L.S.I. Logic Corporation and became Vice Chairman in March 1992. From May 1983 to April 1985, Mr. Wells was President and Chief Executive Officer of Intersil, Inc., a subsidiary of General Electric Company. ROBERT J. RICHARDSON has served as a director since March 2000. Since January 2000, Mr. Richardson has been a semiconductor industry consultant. From November 1997 to January 2000, Mr. Richardson served as Chairman, Chief Executive Officer and President of Unitrode Corporation. From June 1992 to November 1997, he served in various positions at Silicon Valley Group, Inc. including President Lithography Systems, President Track Systems Division, and Corporate Vice-President New Business Development and Marketing. From October 1988 to June 1992, Mr. Richardson was President and General Manager, Santa Cruz Division at Plantronics, Inc. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the Company's Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: 1. Financial Statements. Report of Independent Accountants Consolidated Balance Sheets-December 31, 2000 and 1999 Consolidated Statements of Operations-Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity and comprehensive income (loss)-Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows-Years Ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements 2. Financial Statement Schedule. Financial statement schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. 3. Exhibits. The Exhibits listed on the accompanying Index to Exhibits immediately following the financial statement schedule are filed as part of, or incorporated by reference into, this Report. Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter ended December 31, 2000. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Genus, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholders' equity and comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of Genus, Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 2 to the consolidated financial statements, effective January 1, 2000, the Company changed its method of recognizing revenue to comply with Securities and Exchange Commission Staff Accounting Bulletin No. 101. /s/ PRICEWATERHOUSECOOPERS LLP - -------------------------------- PricewaterhouseCoopers LLP San Jose, California February 12, 2001, except as to the second paragraph of Note 6, which is as of March 28, 2001 GENUS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------- 2000 1999 --------- --------- ASSETS Current Assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,136 $ 6,739 Accounts receivable (net of allowance for doubtful accounts of $363 in 2000 and $551 in 1999). . . . . . . . . . . . . . . . . . . . . . . . . 8,479 7,629 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,849 7,266 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 675 883 --------- --------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,139 22,517 Equipment, furniture and fixtures, net . . . . . . . . . . . . . . . . . . . . . . . 10,207 4,894 Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 333 --------- --------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,535 $ 27,744 ========= ========= LIABILITIES Current Liabilities: Short-term bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,719 $ 0 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,647 4,146 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,315 3,748 Deferred revenue and customer deposits . . . . . . . . . . . . . . . . . . . . . . . 18,562 420 Current portion of capital lease obligations . . . . . . . . . . . . . . . . . . . . 0 52 --------- --------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,243 8,366 --------- --------- Commitments and contingencies (Note 7) SHAREHOLDERS' EQUITY Preferred stock, no par value: Authorized 2,032,000 shares; Issued and outstanding, none . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 Common stock, no par value: Authorized 50,000,000 shares; Issued and outstanding, 19,319,000 shares in 2000 and 18,469,000 shares in 1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,837 101,042 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89,523) (79,872) Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . (2,022) (1,792) --------- --------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,292 19,378 --------- --------- Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . $ 44,535 $ 27,744 ========= ========= The accompanying notes are an integral part of the consolidated financial statements.
GENUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, --------------------------- 2000 1999 1998 -------- -------- --------- Net sales . . . . . . . . . . . . . . . . . . . . . $40,638 $28,360 $ 32,431 Costs and expenses: Cost of goods sold. . . . . . . . . . . . . . . . 24,385 16,628 24,201 Research and development. . . . . . . . . . . . . 8,659 5,368 8,921 Selling, general and administrative . . . . . . . 10,093 7,930 14,115 Restructuring and other . . . . . . . . . . . . . 0 543 12,707 -------- -------- --------- Loss from operations. . . . . . . . . . . . . . (2,499) (2,109) (27,513) Other income (expense), net . . . . . . . . . . . . 108 669 (86) -------- -------- --------- Loss before provision for income taxes and cumulative effect of change in accounting principle. . . . . . . . . . . . . . . (2,391) (1,440) (27,599) Provision for income taxes. . . . . . . . . . . . . 490 177 1 -------- -------- --------- Loss before cumulative effect of change in accounting principle. . . . . . . . . . . . . . . (2,881) (1,617) (27,600) Cumulative effect of change in accounting principle (6,770) 0 0 -------- -------- --------- Net loss. . . . . . . . . . . . . . . . . . . . . . (9,651) (1,617) (27,600) Deemed dividends on preferred stock . . . . . . . . 0 0 (1,903) -------- -------- --------- Net loss attributable to common shareholders. . . . $(9,651) $(1,617) $(29,503) ======== ======== ========= Per share data: Basic and diluted loss per share before cumulative effect. . . . . . . . . . . . . $ (0.15) $ (0.09) $ (1.71) Cumulative effect of change in accounting principle (0.36) -- -- -------- -------- --------- Basic and diluted net loss per share. . . . . . . . $ (0.51) $ (0.09) $ (1.71) ======== ======== ========= Shares used to compute basic and diluted net loss per share. . . . . . . . . . . . . . . . 18,937 18,134 17,248 ======== ======== =========
Pro forma amounts of the retroactive application of the change in accounting principle under SAB 101:
Net sales . . . . . $ 40,638 $27,992 $ 33,599 Net loss. . . . . . (2,881) (3,232) (25,963) Net loss per share: Basic . . . . . . $ (0.15) $ (0.18) $ (1.51) Diluted . . . . $ (0.15) $ (0.18) $ (1.51)
GENUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) (in thousands)
ACCUM. OTHER PREFERRED COMMON STOCK ACCUMULATED COMPREH. STOCK SHARES AMOUNT DEFICIT LOSS TOTAL -------- ------ -------- --------- -------- --------- Balances, January 1, 1998. . . . . $ 0 17,123 $ 99,149 $(48,863) $(1,929) $ 48,357 Issuance of 100 shares of Series A convertible preferred stock and warrants to purchase shares of common stock . . . . 6,222 0 385 (1,792) 0 4,815 Conversion of 2 shares of Series A convertible preferred stock to common stock . . . . . . . . . (124) 107 124 0 0 0 Redemption of 70 shares of Series A convertible preferred stock. . . . . . . . (4,725) 0 0 0 0 (4,725) Exchange of 28 shares of Series A convertible preferred stock for 28 shares of Series B manditorily redeemable convertible preferred stock. . (1,373) 0 0 0 0 (1,373) Issuance of shares of common stock under stock option plan . . . . . . . . . . . . . 0 5 14 0 0 14 Issuance of shares of common stock under employee stock purchase plan. . . . . . . . . 0 238 177 0 0 177 Net loss . . . . . . . . . . . . 0 0 0 (27,600) 0 Translation adjustments. . . . . 0 0 0 0 288 Comprehensive loss . . . . . . . 0 0 0 0 0 (27,312) -------- ------ -------- --------- -------- --------- Balances, December 31, 1998. . . . 0 17,473 99,849 (78,255) (1,641) 19,953 Conversion of 16 shares of Series B convertible preferred stock to 640 shares of common stock . . . . . . . . . 0 640 773 0 0 773 Issuance of shares of common stock under stock option plan . . . . . . . . . . . . . 0 50 102 0 0 102 Issuance of shares of common stock under employee stock purchase plan. . . . . . . . . 0 306 220 0 0 220 Issuance of warrants to Venture Bank to purchase 25 shares of common stock . . . . . . . . . 0 0 53 0 0 53 Amortization of deferred stock compensation . . . . . . . . . 0 0 45 0 0 45 Net loss . . . . . . . . . . . . 0 0 0 (1,617) 0 Translation adjustments. . . . . 0 0 0 0 (151) Comprehensive loss . . . . . . . 0 0 0 0 0 (1,768) -------- ------ -------- --------- -------- --------- Balances, December 31, 1999. . . . 0 18,469 101,042 (79,872) (1,792) 19,378 Issuance of shares of common Stock under stock option plan . . . . . . . . . . . . . 0 490 1,023 0 0 1,023 Issuance of shares of common stock from warrants and options. . . . . . . . . . . . 0 72 0 0 0 0 Issuance of shares of common stock under employee stock purchase plan. . . . . . . . . 0 288 282 0 0 282 Stock-based compensation . . . . 0 0 490 0 0 490 Net loss . . . . . . . . . . . . 0 0 0 (9,651) 0 Translation adjustments. . . . . 0 0 0 0 (230) Comprehensive loss . . . . . . . 0 0 0 0 0 (9,881) -------- ------ -------- --------- -------- --------- Balances, December 31, 2000. . . . $ 0 19,319 $102,837 $(89,523) $(2,022) $ 11,292 ======== ====== ======== ========= ======== =========
The accompanying notes are an integral part of the consolidated financial statements. GENUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------- 2000 1999 1998 --------- -------- --------- Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9,651) $(1,617) $(27,600) Adjustments to reconcile net loss to net cash from operating activities: Cumulative effect of change in accounting principle. . . . . . . . . . 6,770 0 0 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,740 1,805 2,480 Provision for doubtful accounts. . . . . . . . . . . . . . . . . . . . (188) 51 1,670 Restructuring and other. . . . . . . . . . . . . . . . . . . . . . . . 0 543 12,707 Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . 490 98 0 Changes in assets and liabilities: Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . (662) 4,785 4,781 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,414) (1,928) (2,461) Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352 (519) 650 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 4,501 1,953 (6,530) Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 111 (626) (5,153) Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 4,659 0 0 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 626 --------- -------- --------- Net cash provided by (used in) operating activities. . . . . . . . . (2,292) 4,545 (18,830) --------- -------- --------- Cash flows from investing activities: Acquisition of equipment, furniture and fixtures . . . . . . . . . . . . (5,053) (2,040) (919) Sale of MeV ion implant products . . . . . . . . . . . . . . . . . . . . 0 0 23,151 --------- -------- --------- Net cash provided by (used in) investing activities. . . . . . . . . (5,053) (2,040) 22,232 --------- -------- --------- Cash flows from financing activities: Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . 1,305 322 191 Proceeds from issuance of preferred stock and warrants . . . . . . . . . 0 0 4,815 Redemption of preferred stock. . . . . . . . . . . . . . . . . . . . . . 0 0 (5,325) Proceeds from short-term bank borrowings . . . . . . . . . . . . . . . . 6,719 0 4,000 Payments of short-term bank borrowings . . . . . . . . . . . . . . . . . (4,000) (4,000) (7,200) Payments of long-term debt and capital leases. . . . . . . . . . . . . . (52) (62) (761) --------- -------- --------- Net cash provided by (used in) financing activities. . . . . . . . . 3,972 (3,740) (4,280) --------- -------- --------- Effect of exchange rate changes on cash (230) (151) 303 --------- -------- --------- Net decrease in cash and cash equivalents (3,603) (1,386) (575) Cash and cash equivalents, beginning of year 6,739 8,125 8,700 --------- -------- --------- Cash and cash equivalents, end of year $ 3,136 $ 6,739 $ 8,125 ========= ======== ========= Supplemental Cash Flow Information Cash paid for interest $ 76 $ 4 $ 186 Cash paid for income taxes 177 0 6 Non-cash investing and financing activities: Deemed dividends on preferred stock. . . . . . . . . . . . . . . . . . . 0 0 1,903 Conversion of Series A preferred stock to common stock . . . . . . . . . 0 0 124 Conversion of Series B preferred stock to common stock . . . . . . . . . 0 773 0
The accompanying notes are an integral part of the consolidated financial statements. GENUS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations. Genus, Inc. (the "Company") was incorporated in California in 1982. The Company designs, manufactures and markets capital equipment and deposition processes for advanced semiconductor manufacturing. The Company's products are marketed worldwide either directly to end-users or through exclusive sales representative arrangements. In January 1996, the Company opened a subsidiary in South Korea to provide sales and service support to Korean customers. The Company's customers include semiconductor manufacturers located throughout the United States, Europe and in the Pacific Rim including Japan, South Korea and Taiwan. The following is a summary of the Company's significant accounting policies. Basis of Presentation. The consolidated financial statements include the accounts of Genus, Inc. and its wholly owned subsidiaries after elimination of significant intercompany accounts and transactions. 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. Liquidity. During the year ended December 31, 2000, the Company was in the process of executing its business strategy and has plans to eventually achieve profitable operations. Management believes that existing cash and available financing will be sufficient to meet projected working capital, capital expenditures and other cash requirements for the next twelve months. Accordingly, these financial statements have been prepared on a going concern basis. Cash and Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents consist primarily of money market funds. Fair Value of Financial Instruments. The carrying amounts of cash and cash equivalents, accounts receivable, short term bank borrowings and accounts payable approximate estimated fair value because of the short maturity of those financial instruments. Concentration of Credit Risk. Financial instruments which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and trade receivables. The Company places cash not required for current disbursement in money market funds in the United States. The Company does not require collateral from its customers and maintains an allowance for credit losses. Two customers accounted for an aggregate of 91% of accounts receivable at December 31, 2000. Two customers accounted for an aggregate of 92% of accounts receivable at December 31, 1999. Three customers accounted for an aggregate of 78% of accounts receivable at December 31, 1998. South Korean headquartered customers accounted for an aggregate of 85% and 71% of accounts receivable at December 31, 2000 and 1999, respectively. The Company has written off bad debts of none, none, and $2,267,000 in 2000, 1999, and 1998, respectively. Inventories. Inventories are stated at the lower of cost or market, using standard costs that approximate actual costs, under the first-in, first-out method. Long-Lived Assets. Equipment, furniture and fixtures are stated at cost and depreciated using the straight-line method over their estimated useful lives, which range from three to ten years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining lease term, whichever is less. Whenever events or changes in circumstances indicate that the carrying amounts of long-lived assets related to those assets may not be recoverable, the Company estimates the future cash flows, undiscounted and without interest charges, expected to result from the use of those assets and their eventual disposition. If the sum of the future cash flows is less than the carrying amounts of those assets, the Company recognizes an impairment loss based on the excess of the carrying amounts over the fair values of the assets. Revenue Recognition. The Company's selling arrangements generally involve contractual customer acceptance provisions and installation of the product occurs after shipment and transfer of title. As a result, effective January 1, 2000, to comply with the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 101, the Company defers recognition of revenue from such equipment sales until installation is complete and the product is accepted by the customer. Prior to January 1, 2000, revenue related to systems was generally recognized upon shipment. A provision for the estimated future cost of system installation, warranty and commissions was recorded when revenue was recognized. Service revenue is recognized when service has been completed. Income Taxes. The Company accounts for income taxes using a method that requires deferred tax assets to be computed annually on an asset and liability method and adjusted when new tax laws or rates are enacted. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized. Income tax expense (benefit) is the tax payable (refundable) for the period plus or minus the change in deferred tax assets and liabilities during the period. Foreign Currency. The Company has foreign sales and service operations. With respect to all foreign subsidiaries excluding South Korea and Japan, the functional currency is the U.S. dollar, and transaction and translation gains and losses are included in results of operations. The functional currency of the Company's South Korean subsidiary is the won, and the functional currency of the Company's Japanese subsidiary is the yen. The translation from the applicable foreign currency to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using the weighted average exchange rate during the period. Adjustments resulting from such translation are reflected as other comprehensive income/loss. Net Loss Per Share. Basic net loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing loss available to common shareholders, adjusted for convertible preferred dividends and after-tax interest expense on convertible debt, if any, by the sum of the weighted average number of common shares outstanding and potential common shares (when dilutive). Stock Compensation. The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" and Financial Accounting Standards Board Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation." Generally, the Company's policy is to grant options with an exercise price equal to the quoted market price of the Company's stock on the date of the grant. Accordingly, no compensation cost has been recognized in the Company's statements of operations. The Company provides additional pro forma disclosures as required under Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." Comprehensive Income/loss. In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for disclosure and financial statement display for reporting total comprehensive income and its individual components. Comprehensive income, as defined, includes all changes in equity during a period from non-owner sources. The Company's comprehensive income/loss includes net income/loss and foreign currency translation adjustments and is displayed in the statement of shareholders' equity and comprehensive income/loss. Recent Accounting Pronouncements. In June 1998, the Financial Accounting Standards Boards ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" which deferred the effective date until the first fiscal year beginning after June 15, 2000. In June 2000, the FASB issued SFAS Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS 133." SFAS No. 138 amends certain terms and conditions of SFAS 133. SFAS 133 requires that all derivative instruments be recognized at fair value as either assets or liabilities in the statement of the financial position. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. We adopted SFAS No. 133, as amended, on January 1, 2001. The adoption of SFAS No. 133 did not have a material impact on the Company's consolidated financial statements. NOTE 2. ACCOUNTING CHANGE - REVENUE RECOGNITION In December 2000, the Company changed its accounting method for recognizing revenue on sales with an effective date of January 1, 2000. The Company's selling arrangements generally involve contractual customer acceptance provisions and installation of the product occurs after shipment and transfer of title. As a result, effective January 1, 2000, to comply with the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 101, the Company defers recognition of revenue from such equipment sales until installation is complete and the product is accepted by the customer. The Company previously recognized revenue related to systems upon shipment. A provision for the estimated future cost of system installation, warranty and commissions was recorded when revenue was recognized. The cumulative effect on prior years of the change in accounting method was a charge of $6.77 million or $0.36 per basic and diluted share. NOTE 3. INVENTORIES Inventories comprise the following (in thousands):
DECEMBER 31, ------------- 2000 1999 ------- ------ Raw materials and purchased parts $ 6,081 $5,439 Work in process . . . . . . . . . 5,624 1,055 Finished goods. . . . . . . . . . 647 772 Inventory at customers' locations 9,497 0 ------- ------ $21,849 $7,266 ======= ======
NOTE 4. EQUIPMENT, FURNITURE AND FIXTURES Equipment, furniture and fixtures are stated at cost and comprise the following (in thousands):
DECEMBER 31, ------------- 2000 1999 --------- --------- Equipment (useful life of 3 years). . . . . . . . . . . . . $ 8,698 $ 8,048 Demonstration equipment (useful life ranges from 3-5 years) 18,089 14,658 Furniture and fixtures (useful life of 3 years) . . . . . . 1,029 1,021 Leasehold improvements (useful life ranges from 4-10 years) 3,694 3,056 --------- --------- 31,510 26,783 Less accumulated depreciation and amortization. . . . . . . (24,740) (23,048) --------- --------- 6,770 3,735 Construction in process . . . . . . . . . . . . . . . . . . 3,437 1,159 --------- --------- $ 10,207 $ 4,894 ========= =========
NOTE 5. ACCRUED EXPENSES Accrued expenses comprise the following (in thousands):
DECEMBER 31, ------------- 2000 1999 ------ ------ System installation and warranty. . . . $ 757 $ 817 Accrued commissions and incentives. . . 242 364 Accrued compensation and related items. 615 872 Federal, state and foreign income taxes 828 622 Other . . . . . . . . . . . . . . . . . 873 1,073 ------ ------ $3,315 $3,748 ====== ======
NOTE 6. SHORT-TERM BANK BORROWING In November 1999, the Company entered into a $10 million revolving line of credit with Venture Bank. Amounts available under the line are based on 80% of eligible accounts receivable, and borrowings under the line of credit are secured by all corporate assets and bear interest at prime plus 0.25%. The line of credit expires in November 2001. The line of credit contains covenants that require the Company to maintain a minimum quick ratio and a maximum debt to tangible net equity ratio. In addition, the line requires the Company to have annual profitability beginning in 2000 and a maximum quarterly loss of $1 million with no two consecutive quarterly losses. Additionally, the Company is prohibited from distributing dividends. At December 31, 2000, the Company was in default of certain of the covenants and Venture Bank has granted the Company a waiver of the default. The amount available to borrow at December 31, 2000 was $4.4 million at a rate of 9.75%. There was $2.7 million outstanding at December 31, 2000. On March 28, 2001, the Company converted its existing $10 million Venture Bank line of credit to an asset-based line of credit. Amounts available under the line are based on 80% of eligible accounts receivable, and borrowings under the line are secured by all corporate assets and bear interest at 9.6% per annum and an administrative fee of a quarter of one percent on all advances. This line will not have accounts receivable customer concentration limitations, will allow borrowing against foreign receivables, and will have no financial covenants. It will expire in March, 2002. NOTE 7. COMMITMENTS AND CONTINGENCIES The Company leases certain of its facilities and various office equipment under operating leases expiring through 2002. The Sunnyvale facility lease expires in October, 2002, but we have an option to renew the lease for five more years at 95% of current market prices. The Company is responsible for property taxes, insurance and maintenance under the facility leases. Certain of these leases contain renewal options. In 2000 we subleased approximately 38,000 square feet to a third parties. In December, 2000, one of the parties terminated their sublease, and we reclaimed 11,000 square feet of office space. We currently sublease approximately 27,000 square feet to a third party. We also lease sales and support offices in Seoul, South Korea, Tokyo, Japan. At December 31, 2000, minimum lease payments required and sublease income under these operating leases are as follows (in thousands):
LEASE PAYMENTS SUBLEASE INCOME --------------- ---------------- 2001 . $ 815 $ 625 2002 . 643 468 --------------- -------- $ 1,458 $ 1,093 ====== ========
Rent expense was $806,000, $ 713,000 and $1,315,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Sublease rental income was $1,104,000, $820,000 and $146,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Legal Proceedings In July 1999, the Company was named as a co-defendant in a claim filed at the Superior Court of the state of California for the county of Santa Clara, involving an automobile accident by a former employee which resulted in the death of an individual. Significant general, punitive and exemplary damages are being sought by the plaintiffs. Recently, a demand was placed by the plaintiff that is within the Company's insurance policy limits. While the Company believes it is not at fault in this matter, the Company has instructed its insurance carrier to pay the demand in an effort to avoid the costs associated with going to trial. Although the outcome of this matter is not presently determinable, management does not believe that resolution of this matter will have a material adverse effect on its financial position or results of operations. NOTE 8. SHAREHOLDERS' EQUITY Private Placement of Convertible Preferred Stock In February 1998, the Company issued an aggregate of 100,000 shares of 6% Series A Convertible Preferred Stock (the "Series A Stock") and warrants to purchase an aggregate of up to 400,000 shares of its common stock, all for an aggregate purchase price of $5,000,000 in cash. In 1998, the Company recorded deemed dividends on preferred stock of approximately $1,903,000 reflecting the beneficial conversion feature, which is the difference between the proceeds allocated to the Series A Stock and the fair value of the Series A Stock (assuming immediate conversion) upon issuance, and the accrual of the 6% dividends thereon. In June 1998, 2,000 shares of the Series A Stock were converted into common stock of the Company. In July 1998, the Company redeemed 70,000 shares of the outstanding Series A Stock for $4,725,000 in cash (the "Redemption"), and the remaining 28,000 shares of Series A Stock were exchanged for 28,000 shares of Redeemable Series B Convertible Preferred Stock (the "Series B Stock") by the existing holders of the Series A Stock (the "Exchange"). The Redemption and Exchange were accounted for by comparing the fair value of the Series B Stock and the $4,725,000 in cash with the carrying amount of the Series A Stock redeemed and with the fair value of the Series A Stock converted (pursuant to the original conversion terms of the Series A Stock); there was no material difference between these amounts. In November 1998, the Company redeemed 12,000 shares of the Series B Stock for approximately $600,000 in cash. As of December 31, 1998, there were 16,000 shares of Series B Stock outstanding, all of which were converted into 640,000 shares of common stock of the Company in February 1999. Warrants and Options In connection with the issuance of the Series A Stock, the Company issued warrants for 400,000 shares of the Company's common stock to the holders of the Series A Stock. The warrants were exercisable at any time until February 11, 2001 for 300,000 shares of common stock at a price of $3.67 per share and for 100,000 shares at a price of $4.50 per share. The warrants for 300,000 shares at $3.67 per share expired unexercised on February 11, 2001. During May 2000, a grantee elected to exercise its warrants to purchase 100,000 shares. As provided in the warrant agreement, the grantee received a reduced number of shares in exchange for the aggregate exercise price due, resulting in the issuance by the Company of 55,000 shares. In connection with a private placement in April 1995, the Company granted options for 118,000 shares of the Company's common stock to the investors. On April 25, 2000, the grantees elected to exercise their options to purchase all 118,000 shares. As provided in the option agreements, the grantees received a reduced number of shares in exchange for the aggregate exercise price due, resulting in the issuance by the Company of 17,000 shares. In connection with the $10 million revolving line of credit, the Company issued to Venture Bank warrants to purchase 25,000 shares of the Company's common stock at a price of $2.39 per share. Based on the Black-Scholes option pricing model, the fair market value of the warrants at the date of the grant was $53,000, which is being amortized to interest expense over the two-year life of the line. Net Loss Per Share A reconciliation of the numerator and denominator of basic and diluted loss per share is as follows (in thousands, except per share data):
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 -------- -------- --------- Income available to common shareholders before cumulative effect of change in accounting principle: Numerator-Basic and diluted: Net loss. . . . . . . . . . . . . . . . . . $(2,881) $(1,617) $(27,600) Deemed dividends on preferred stock . . . . . 0 0 (1,903) -------- -------- --------- Net loss available to common shareholders $(2,881) $(1,617) $(29,503) ======== ======== ========= Denominator-Basic and diluted: Weighted average common stock outstanding . 18,937 18,134 17,248 ======== ======== ========= Basic net loss per share. . . . . . . . . . . $ (0.15) $ (0.09) $ (1.71) ======== ======== ========= Net income available to common shareholders: Numerator-Basic and diluted: Net loss. . . . . . . . . . . . . . . . . . $(9,651) $(1,617) $(27,600) Deemed dividends on preferred stock . . . . . 0 0 (1,903) -------- -------- --------- Net loss available to common shareholders $(9,651) $(1,617) $(29,503) ======== ======== ========= Denominator-Basic and diluted: Weighted average common stock outstanding . 18,937 18,134 17,248 ======== ======== ========= Basic net loss per share. . . . . . . . . . . $ (0.51) $ (0.09) $ (1.71) ======== ======== =========
Stock options to purchase 2,972,386 shares of common stock were outstanding in 2000, but were not included in the computation of diluted loss per share because the Company has a net loss for 2000. Warrants for the purchase of 325,000 shares of common stock were outstanding at December 31, 2000, but were not included in the computation of diluted loss per share because the Company has a net loss for 2000. Stock options to purchase 2,639,219 shares of common stock were outstanding in 1999, but were not included in the computation of diluted loss per share because the Company has a net loss for 1999. Warrants for the purchase of 425,000 shares of common stock were outstanding at December 31, 1999, but were not included in the computation of diluted loss per share because the Company has a net loss for 1999. Stock options to purchase 2,301,190 shares of common stock were outstanding in 1998, but were not included in the computation of diluted loss per share because the Company has a net loss for 1998. A total of 16,000 shares of Series B Convertible Preferred Stock and warrants for the purchase of 400,000 shares of common stock were outstanding at December 31, 1998, but were not included in the computation of diluted loss per share because the Company has a net loss for 1998. Stock Option Plan In March of 2000, the Company adopted the 2000 Incentive Stock Option Plan to replace the 1991 Incentive Stock Option Plan. The 1991 Incentive Stock Option Plan was scheduled to expire ten years after its adoption in 1991. Under the 2000 Incentive Stock Option Plan, the Board of Directors can grant incentive and nonstatutory stock options. The Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term and exercise price. The options are exercisable at times and increments as specified by the Board of Directors, and generally vest over a three-year period and expire five years from the date of grant. At December 31, 2000, the Company had reserved 4,803,006 shares of common stock for issuance under the 2000 Incentive Stock Option Plan, which included 800,000 shares added to the plan in 2000. A total of 418,049 shares remained available for future grants at December 31, 2000. At December 31, 1998, 573,484 options were exercisable at a weighted average exercise price of $3.094. At December 31, 1999, 1,128,992 options were exercisable at a weighted average exercise price of $2.34. At December 31, 2000, 1,285,017 options were exercisable at a weighted average exercise price of $2.31. Employee Stock Purchase Plan The Company has reserved a total of 2,650,000 shares of common stock for issuance under a qualified stock purchase plan, which provides substantially all Company employees with the right to acquire shares of the Company's common stock through payroll deductions. This total includes an additional 300,000 shares added to the plan in 2000. Under the plan, the Company's employees, subject to certain restrictions, may purchase shares of common stock at the lesser of 85% of fair market value at either the beginning of each two-year offering period or the end of each six-month purchase period within the two-year offering period. At December 31, 2000, 2,456,765 shares have been issued under the plan. At December 31, 2000, shares available for purchase under this plan were 193,235. Share Purchase Rights Plan On September 7, 2000, the Company's Board of Directors declared a dividend pursuant to a newly adopted Share Purchase Rights Plan which replaced a similar earlier plan that had expired on July 3, 2000. The intended purpose of the Rights Plan is to protect shareholders' rights and to maximize share value in the event of an unfriendly takeover attempt. As of the record date of October 13, 2000, each share of common stock of Genus, Inc. outstanding was granted one right under the new plan. Each right is exercisable only under certain circumstances and upon the occurrence of certain events and permits the holder to purchase from the Company one one-thousandth (0.001) of a share of Series C Participating Preferred Stock at an initial exercise price of forty dollars ($40.00) per one one-thousandth share. The 50,000 shares of Series C preferred stock authorized in connection with the Rights Plan will be used for the exercise of any preferred share purchase rights in the event that any person or group (the Acquiring Person) acquires beneficial ownership of 15% or more of the outstanding common stock. In such event, the shareholders (other than the Acquiring Person) would receive common stock of the Company having a market value of twice the exercise price. Subject to certain restrictions, the Company may redeem the rights issued under the Rights Plan for $0.001 per right and may amend the Rights Plan without the consent of rights holders. The rights will expire on October 13, 2010, unless redeemed by the Company. Option Repricing On January 28, 1998 the Board of Directors offered employees the opportunity to reprice outstanding stock options as of February 9, 1998. The repriced options, both vested and unvested, were precluded from exercise for a period of one year from the repricing date. Approximately 1,544,750 options with original exercise prices ranging from $3.88 to $8.63 were repriced at $3.03, the fair market value as of February 9, 1998. Activity under the 1991 and 2000 Incentive Stock Option Plans is set forth in the table below:
WEIGHTED OPTIONS AVERAGE OUTSTANDING TOTAL EXERCISE (IN 000'S) PRICE PER SHARE (IN 000'S) PRICE ---------- ------------------ ----------- ------ Balance, January 1, 1998 . 1,851 $ 2.25 to $ 8.63 $ 11,621 $ 6.28 Granted. . . . . . . . . 3,764 0.88 to 3.21 8,500 2.26 Exercised. . . . . . . . (5) 2.87 to 2.87 (14) 2.87 Terminated . . . . . . . (3,309) 1.63 to 8.63 (15,600) 4.71 ---------- ------------------ ----------- ------ Balance, December 31, 1998 2,301 0.88 to 8.00 4,507 1.96 Granted. . . . . . . . . 532 1.87 to 4.34 1,384 2.88 Exercised. . . . . . . . (50) 0.88 to 3.03 (102) 2.05 Terminated . . . . . . . (144) 0.88 to 4.00 (226) 1.57 ---------- ------------------ ----------- ------ Balance, December 31, 1999 2,639 0.88 to 8.00 5,563 2.11 Granted. . . . . . . . . 1,052 2.25 to 15.75 8,795 8.36 Exercised. . . . . . . . (490) 0.88 to 3.22 (1,023) 2.09 Terminated . . . . . . . (229) 0.88 to 15.75 (602) 2.63 ---------- ------------------ ----------- ------ Balance, December 31, 2000 2,972 $ 0.88 to $ 15.75 $ 12,733 $ 4.28 ========== ================== =========== ======
Options outstanding and currently exercisable by exercise price under the option plan at December 31, 2000 are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- ------------------- WEIGHTED AVG. RANGE OF NUMBER REMAINING WEIGHTED AVG. NUMBER WEIGHTED AVG. EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE ------------------- ------------------- ----------------- -------------- ------------ -------------- 0.8750 - $0.8750. 555,366 2.72 $ 0.8750 368,703 $ 0.8750 1.2500 - 1.3130. . 95,462 2.65 1.2588 54,802 1.2569 1.6250 - 1.6250. . 308,823 2.37 1.6250 172,512 1.6250 1.8750 - 2.6250. . 169,833 3.28 2.3035 63,171 2.3114 3.0310 - 3.0310. . 454,402 1.21 3.0310 454,402 3.0310 3.0940 - 3.0940. . 320,000 3.56 3.0940 106,675 3.0940 3.2190 - 5.2812. . 83,500 3.77 3.8300 29,001 3.6004 5.3440 - 5.3440. . 340,000 4.61 5.3440 0 0.0000 5.6250 - 8.8750. . 395,000 4.11 7.9019 28,251 7.6493 10.0000 - 15.7500. 250,000 4.21 14.4330 7,500 15.7500 - ------------------ ------------------- ------------------- ----------------- -------------- ------------ 0.8750 - $15.7500 2,972,386 3.13 $ 4.2837 1,285,017 $ 2.31 ================== =================== =================== ================= ============== ============
Pro Forma Disclosures Pro forma information regarding net income (loss) and net income (loss) per share is presented in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which requires that the information be disclosed as if the Company had accounted for its employee stock-based compensation plans under the fair value method prescribed by SFAS 123. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 2000, 1999 and 1998:
2000 1999 1998 ---------- ---------- ---------- Risk free interest rates 5.17% 5.62% 5.34% Expected life. . . . . . 3.3 years 3.3 years 3.3 years Expected volatility. . . 222.25% 221.48% 61.4% Expected dividend yield. 0% 0% 0%
The weighted average fair value of options granted in 2000, 1999 and 1998 was $8.09, $2.76, and $1.60, respectively. Under the 1989 Employee Stock Purchase Plan, the Company does not recognize compensation cost related to employee purchase rights under the Stock Purchase Plan. To comply with the pro forma reporting requirements of SFAS 123, compensation cost is estimated for the fair value of the employees' purchase rights using the Black-Scholes model with the following assumptions for those rights granted in 2000, 1999 and 1998.
2000 1999 1998 ---------- ---------- ---------- Risk free interest rates 5.17% 4.95% 5.42% Expected life. . . . . . 0.5 years 0.5 years 0.5 years Expected volatility. . . 222.25% 221.48% 61.4% Expected dividend yield. 0% 0% 0%
The weighted average fair value of those purchase rights granted in 2000, 1999 and 1998 was $4.66, $1.31 and $0.48, respectively. 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 SFAS 123, the Company's net loss and basic and diluted net loss per share would have been the pro forma amounts indicated below (in thousands, except per share data):
2000 1999 1998 --------- -------- --------- Pro forma net loss available to common shareholders . . . . . . . . . . . . . . . . $(12,578) $(2,781) $(32,380) Pro forma net loss per share-basic and diluted $ (0.66) $ (0.15) $ (1.88)
The above pro forma effects on net loss may not be representative of the effects on future results as options granted typically vest over several years and additional option grants are expected to be made in future years. Stock Compensation In 1998 and 1999, the Company granted options to outside consultants to purchase 23,000 and 5,000 shares of common stock, respectively. These options have exercise prices between $0.875 and $3.03 per share. The options vest over three years and expire between February 2001 and March 2002. The Company is required to record the change in the fair value of these options at each reporting date prior to vesting and then finally at the vesting date of the option. Changes in the estimated fair value of these options will be recognized as compensation expense in the period of the change. The Company recorded none, $45,000 and $218,000 as compensation expense relating to these options in 1998, 1999 and 2000, respectively. In addition, the Company recorded $272,000 of stock compensation in 2000 resulting from certain shares granted under the Employee Stock Purchase Plan. NOTE 9. EMPLOYEE BENEFIT PLAN During 1988, the Company adopted the Genus, Inc. 401(k) Plan (the "Benefit Plan") to provide retirement and incidental benefits for eligible employees. The Benefit Plan provides for Company contributions as determined by the Board of Directors that may not exceed 6% of the annual aggregate salaries of those employees eligible for participation. In 2000, 1999 and 1998, the Company contributed $142,002, $30,000 and $62,000, respectively, to the Benefit Plan. NOTE 10. OTHER INCOME (EXPENSE), NET Other income (expense), net, comprises the following (in thousands):
YEAR ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ------ ------ ------ Interest income. $ 252 $ 336 $ 77 Interest expense (118) (4) (186) Foreign exchange (58) 330 301 Other, net . . . 32 7 (278) ------ ------ ------ $ 108 $ 669 $ (86) ====== ====== ======
NOTE 11. INCOME TAXES Income tax expense for the years ended December 31, 2000, 1999 and 1998 was $490,000, $177,000 and $1,000 respectively. The components of income (loss) before income taxes were as follows (in thousands):
2000 1999 1998 -------- -------- --------- Domestic loss before taxes . . . . . . . . . . . . . $(3,829) $(2,231) $(26,829) Foreign income (loss) before taxes . . . . . . . . . 1,438 791 (770) -------- -------- --------- Loss before taxes and cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . $(2,391) $(1,440) $(27,599) ======== ======== =========
In 1998, the income tax expense consisted of current state tax. In 1999 and 2000, the income tax expense was due to current foreign taxes. The Company's effective tax rate for the years ended December 31, 2000, 1999 and 1998 differs from the U.S. federal statutory income tax rate as follows:
2000 1999 1998 ----- ----- ----- Federal income tax at statutory rate 35% 35% 35% Foreign income taxes . . . . . . . . (20) (18) 0 Net operating loss not benefited . . (35) (29) (35) ----- ----- ----- (20)% (12)% (0)% ===== ===== =====
The components of the net deferred tax asset comprise the following (in thousands):
2000 1999 --------- --------- Deferred tax assets (liabilities): Net operating loss carry-forwards . . . . . . . . $ 28,682 $ 27,635 Tax credit carry-forwards . . . . . . . . . . . . 1,161 1,999 Inventory, accounts receivable and other reserves 1,556 1,455 Non-deductible accrued expenses and reserves. . . 855 422 Depreciation and amortization . . . . . . . . . . 2,182 1,411 Deferred income . . . . . . . . . . . . . . . . . (3,610) 0 Valuation allowance . . . . . . . . . . . . . . . (30,826) (32,923) --------- --------- Net deferred tax assets . . . . . . . . . . . . . . $ 0 $ 0 ========= =========
The deferred tax assets valuation allowance at December 31, 2000 and 1999 is attributable to federal and state deferred tax assets. Management believes that sufficient uncertainty exists with regard to the realizability of these tax assets such that a full valuation allowance is necessary. These factors include the lack of a significant history of consistent profits and the lack of carry-back capacity to realize these assets. Based on these factors, management is unable to assert that it is more likely than not that the Company will generate sufficient taxable income to realize the Company's net deferred tax assets. At December 31, 2000, the Company had the following income tax carry-forwards available (in thousands):
TAX REPORTING EXPIRATION DATES -------------- ---------------- U.S. regular tax operating losses $ 80,509 2005-2020 U.S. business tax credits . . . . $ 1,610 2002-2020 State net operating losses. . . . $ 6,730 2001-2005
Utilization of the net operating losses and credits may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of net operating loss carry-forwards and credits before utilization. NOTE 12. SEGMENT INFORMATION Effective for 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information." Management of the Company has identified its operating segments based on differences in products and services. The Company's operations have consisted of thin film and MeV ion implant product lines. The Company sold its MeV ion implant product line to Varian in July 1998. The Company has aggregated its two product lines for financial reporting purposes because its product lines have similar long-term economic characteristics and because the products and services, production processes, types of customers, and the methods used to distribute the products and provide the services of the product lines are similar. All reportable segment information is equal to the financial information reported in the Company's consolidated financial statements and notes thereto. Currently, the Company operates in one industry segment. The Company is engaged in the design, manufacture, marketing and servicing of advanced thin film deposition systems used in the semiconductor manufacturing industry. Net sales from thin film products and services accounted for 100%, 100%, and 35% of the Company's net sales for 2000, 1999 and 1998, respectively. Net sales from MeV ion implant products and services accounted for 65% of the Company's net sales in 1998. Export Sales For reporting purposes, export sales are determined by the location of the parent company of the Company's customer, regardless of where the delivery was made by the Company. Net sales by geographical region for the years ended December 31, 2000, 1999, and 1998 were as follows (in thousands):
2000 1999 1998 ------- ------- ------- United States $ 3,095 $ 3,830 $14,318 South Korea . 37,123 23,819 9,602 Japan . . . . 149 216 4,566 Rest of world 271 495 3,945 ------- ------- ------- $40,638 $28,360 $32,431 ======= ======= =======
The Company did not hold any material long-lived assets in countries other than the United States at December 31, 2000 or 1999. Major Customers In 2000, Samsung Electronics Company, Ltd. and Micron Technology, Inc accounted for 91% and 5% of net sales, respectively. In 1999, Samsung Electronics Company, Ltd. and Micron Technology, Inc accounted for 84% and 11% of net sales, respectively. In 1998, three customers, Samsung Electronics Company, Ltd., Advanced Micro Devices and Micron Technology, Inc. accounted for 28%, 15% and 12%, respectively, of net sales. NOTE 13. SALE OF ION IMPLANT PRODUCT LINE In July 1998, the Company sold selected assets and transferred selected liabilities related to the MeV ion implant equipment product line to Varian Associates, Inc. for approximately $24.1 million. The net assets and liabilities transferred to Varian included inventory of $18.9 million, capital equipment and other assets of $9.7 million, and warranty and installation liabilities of $3.6 million. As a result of the Varian transaction, the Company no longer engages in the ion implant business and has refocused its efforts on thin film deposition. The Company used a portion of the net proceeds for repayment for certain outstanding indebtedness and the redemption of 70,000 shares of Series A Convertible Preferred Stock, with the remaining proceeds to be used for working capital and general corporate purposes, including investment in research and development of thin film products. In connection with the Varian transaction and the refocusing of the Company's business on thin film products, the Company significantly reduced the workforce at its Sunnyvale, California location. NOTE 14. RESTRUCTURING AND OTHER In 1998, the Company recorded restructuring and other charges of $12,707,000 related to the Varian transaction and the restructuring of the thin film operation. Actual costs recorded against this restructuring accrual were as follows (in thousands):
CLOSING LEGAL OFFICES AND ACCOUNTING PERSONNEL INVENTORY LEASEHOLD TRANSACTION AND BANKING CHARGES WRITEDOWNS IMPROVEMENTS LOSSES FEES (CASH) (NON-CASH) (NON-CASH) (NON-CASH) (CASH) TOTAL -------- ----------- ----------- ----------- -------- --------- Restructuring and other accrual . . . . . $ 1,746 $ 7,393 $ 1,113 $ 1,402 $ 1,053 $ 12,707 Amounts incurred in 1998. . . . . . . . . (1,446) (7,393) (1,113) (1,182) (333) (11,467) -------- ----------- ----------- ----------- -------- --------- Balance at December 31, 1998. . . . . . . 300 0 0 220 720 1,240 Amounts incurred in 1999. . . . . . . . . (136) 0 0 (77) (1,027) (1,240) (Release of reserves) additional reserves (164) 0 0 (143) 307 0 -------- ----------- ----------- ----------- -------- --------- Balance at December 31, 1999. . . . . . . $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ======== =========== =========== =========== ======== =========
In 1999, the Company recorded an additional charge of $543,000 for the final settlement of a dispute with Varian that arose in connection with the Varian transaction. This charge related to funds that were held in escrow for possible claims made under the Company's change of control agreements with key ion implant employees who transferred to Varian as part of the Varian transaction. No funds were distributed from this escrow account, and the final change of control agreement expired in July 1999. There was no restructuring reserve remaining as of December 31, 1999. GENUS, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 2000 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION --- ----------- 2.1 Asset Purchase Agreement, dated April 15, 1998, by and between Varian Associates, Inc. and Registrant and exhibits thereto (15) 3.1 Amended and Restated Articles of Incorporation of Registrant as filed June 6, 1997 (11) 3.2 By-laws of Registrant, as amended (13) 4.1 Common Shares Rights Agreement, dated as of April 27, 1990, between Registrant and Bank of America, N.T. and .A., as Rights Agent (4) 4.2 Convertible Preferred Stock Purchase Agreement, dated February 2, 1998, among the Registrant and the Investors (14) 4.3 Registration Rights Agreement, dated February 2, 1998, among the Registrant and the Investors (14) 4.4 Certificate of Determination of Rights, Preferences and Privileges of Series A Convertible Preferred Stock (14) 4.5 Certificate of Determination of Rights, Preferences and Privileges of Series B Convertible Preferred Stock (17) 4.6 Redemption and Exchange Agreement, dated July 16, 1998, among the Registrant and the Investors (17) 10.1 Lease, dated December 6, 1985, for Registrant's facilities at 4 Mulliken Way, Newburyport, Massachusetts, and amendment and extension of lease, dated March 17, 1987 (1) 10.2 Assignment of Lease, dated April 1986, for Registrant's facilities at Unit 11A, Melbourn Science Park, Melbourn, Hertz, England (1) 10.3 Registrant's 1989 Employee Stock Purchase Plan, as amended (5) 10.4 Registrant's 1991 Incentive Stock Option Plan, as amended (10) 10.5 Registrant's 2000 Stock Plan 10.7 Distributor/Representative Agreement, dated August 1, 1984, between Registrant and Aju Exim (formerly Spirox Holding Co./You One Co. Ltd.) (1) 10.8 Exclusive Sales and Service Representative Agreement, dated October 1, 1989, between Registrant and AVBA Engineering Ltd. (3) 10.9 Exclusive Sales and Service Representative Agreement, dated as of April 1, 1990, between Registrant and Indosale PVT Ltd. (3) 10.10 License Agreement, dated November 23, 1987, between Registrant and Eaton Corporation (1) 10.11 Exclusive Sales and Service Representative Agreement, dated May 1, 1989, between Registrant and Spirox Taiwan, Ltd. (2) 10.12 Lease, dated April 7, 1992, between Registrant and The John A. and Susan R. Sobrato 1979 Revocable Trust for property at 1139 Karlstad Drive, Sunnyvale, California (6) 10.13 Asset Purchase Agreement, dated May 28, 1992, by and between the Registrant and Advantage Production Technology, Inc. (7) 10.14 License and Distribution Agreement, dated September 8, 1992, between the Registrant and Sumitomo Mutual Industries, Ltd. (8) 10.15 Lease Agreement, dated October 1995, for Registrant's facilities at Lot 62, Four Stanley Tucker Drive, Newburyport, Massachusetts (9) 10.16 International Distributor Agreement, dated July 18, 1997, between Registrant and Macrotron Systems GmbH (12) 10.17 Credit Agreement, dated August 18, 1997, between Registrant and Sumitomo Bank of California (12) 10.18 Settlement Agreement and Mutual Release, dated April 20, 1998, between Registrant and James T. Healy (16) 10.19 Form of Change of Control Severance Agreement (16) 10.20 Settlement Agreement and Mutual Release, dated January 1998, between the Registrant and John Aldeborgh (18) 10.21 Settlement Agreement and Mutual Release, dated May 1998, between the Registrant and Mary Bobel (18) 21.1 Subsidiaries of Registrant 23.1 Consent of Independent Accountants - -------------------------------------------------------------------------------- (1) Incorporated by reference to the exhibit filed with Registrant's Registration Statement on Form S-1 (No. 33-23861) filed August 18, 1988, and amended on September 21, 1988, October 5, 1988, November 3, 1988, November 10, 1988, and December 15, 1988, which Registration Statement became effective November 10, 1988. (2) Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on Form S-1 (No. 33-28755) filed on May 17, 1989, and amended May 24, 1989, which Registration Statement became effective May 24, 1989. (3) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. (4) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. (5) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. (6) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992. (7) Incorporated by reference to the exhibit filed with the Registrant's Report on Form 8-K dated June 12, 1992. (8) Incorporated by ref erence to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 21, 1992. (9) Incorporated by ref erence to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995. (10) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997. (11) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (12) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. (13) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. (14) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated February 12, 1998. (15) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated April 15, 1998. (16) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1997. (17) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated July 29, 1998. (18) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q/A for the quarter ended June 30, 1998. 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, in the City of Sunnyvale, State of California, on the 30th day of March 2001. GENUS, INC. By: /s/Kenneth Schwanda -------------------- Kenneth Schwanda Vice President, Finance Chief Financial Officer Pursuant to the requirements of 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. NAME TITLE DATE ---- ----- ---- /s/William W.R. Elder Chairman of the Board, President March 30, ----------------------- and Chief Executive Officer 2001 William W.R. Elder /s/Kenneth Schwanda Vice President, Finance March 30, 2001 -------------------- Kenneth Schwanda Chief Financial Officer /s/G. Frederick Forsyth Director March 30, 2001 ------------------------- G. Frederick Forsyth /s/Todd S. Myhre Director March 30, 2001 ------------------ Todd S. Myhre /s/Mario M. Rosati Director March 30, 2001 -------------------- Mario M. Rosati /s/George D. Wells Director March 30, 2001 -------------------- George D. Wells /s/Robert J. Richardson Director March 30, 2001 ------------------------- Robert J. Richardson EX-10.5 2 doc2.txt GENUS, INC. 2000 STOCK PLAN EXHIBIT 10.5 GENUS, INC 2000 STOCK PLAN 1. PURPOSES OF THE PLAN. The purposes of this 2000 Stock Plan are: * to attract and retain the best available personnel for positions of substantial responsibility, * to provide additional incentive to Employees, Directors and Consultants, and * to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (f) "Common Stock" means the common stock of the Company. (g) "Company" means Genus, Inc., a California corporation. (h) "Consultant" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "Director" means a member of the Board. (j) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (m) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any estab-lished stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (p) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (q) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "Option" means a stock option granted pursuant to the Plan. (s) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "Option Exchange Program" means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price. (u) "Optioned Stock" means the Common Stock subject to an Option or Stock Purchase Right. (v) "Optionee" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (w) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (x) "Plan" means this Genus, Inc. 2000 Stock Plan. (y) "Restricted Stock" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan. (z) "Restricted Stock Purchase Agreement" means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (bb) "Section 16(b) " means Section 16(b) of the Exchange Act. (cc) "Service Provider" means an Employee, Director or Consultant. (dd) "Share" means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan. (ee) "Stock Purchase Right" means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. (ff) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 4,803,006 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) Procedure. (i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discre-tion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. 5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. LIMITATIONS. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 750,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 750,000 Shares, which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. OPTION EXERCISE PRICE AND CONSIDERATION. (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any con-ditions that must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. EXERCISE OF OPTION. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) Buyout Provisions. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. STOCK PURCHASE RIGHTS. (a) Rights to Purchase. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, includ-ing the number of Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) Repurchase Option. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. (c) Other Provisions. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. (a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. AMENDMENT AND TERMINATION OF THE PLAN. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 16. CONDITIONS UPON ISSUANCE OF SHARES. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. SHAREHOLDER APPROVAL. The plan shall be subject to approval by the Shareholders of the company within twelve (12) months after the date the plan is Adopted. Such shareholder approval shall be obtained in the manner and to the Degree required under applicable laws. EX-21.1 3 doc3.txt SUBSIDIARIES OF GENUS, INC. EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT Genus Korea Co., Ltd. 3F, KEC Bldg., #275-7 Yangjae-dong, Seocho-ku Seoul, KOREA 137-130 Genus-Japan, Inc. 8F Parele-Mitsui-Building, 8, Higashida,-cho, Kawasaki-ku Kawasaki-city, Kanagawa, 210-0005, JAPAN EX-23.1 4 doc4.txt CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-29999, 333-70815, 333-84837 and 333-40332) of Genus, Inc. of our report dated February 12, 2001, except as to the second paragraph of Note 6, which is as of March 28, 2001, relating to financial statements, which appears in this Form 10-K. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP San Jose, California March 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----