-----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, IB/JT1+SYrsXFxHdES9lgKE9Z9Bam6ZZhTy7Y124Cu7pXl8XUSuBV2STiC045pkB bJ4y6U4KvtFCQaUvfwxolQ== 0000912057-96-005847.txt : 19960402 0000912057-96-005847.hdr.sgml : 19960402 ACCESSION NUMBER: 0000912057-96-005847 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-17139 FILM NUMBER: 96543368 BUSINESS ADDRESS: STREET 1: 1139 KARLSTAD DR CITY: SUNNYVALE STATE: CA ZIP: 94089-2117 BUSINESS PHONE: 4087477120 MAIL ADDRESS: STREET 2: 1139 KARLSTAD DR CITY: SUNNYVALE STATE: CA ZIP: 94089-2117 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 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, 1995, 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 94-2790804 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
1139 KARLSTAD DRIVE SUNNYVALE, CA 94089 (Address of principal executive offices) 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 COMMON SHARE PURCHASE RIGHTS (TITLE OF CLASS) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _ Indicate by check mark if 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 on the closing sale price of the Common Stock on March 28, 1996, in the over-the-counter market as reported by the Nasdaq National Market, was approximately $78,512,616. 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 28, 1996, Registrant had 16,249,323 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts of the following documents are incorporated by reference in Parts II, III and IV of this Form 10-K Report: (1) Registrant's 1995 Annual Report to Shareholders -- Items 5, 6, 7, 8 and 14; and (2) Proxy Statement for Registrant's 1995 Annual Meeting of Shareholders -- Items 10, 11, 12 and 13. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL Genus, Inc. ("Genus" or "the Company") designs, manufactures and markets capital equipment and processes for advanced semiconductor manufacturing. The Company's products -- high energy MeV (millions of electron volts) ion implantation systems and chemical vapor deposition ("CVD") equipment are used worldwide to produce integrated circuits ("ICS") for the data processing, communications, medical, military, transportation and consumer electronics industries. Genus was the first to market high energy MeV ion implantation and the chemical vapor deposition of tungsten silicide, which perform two critical steps in the manufacture of semiconductors. The Company's global customer base consists of semiconductor manufacturers in the United States, Europe and Asia/Pacific including Japan, Korea and Taiwan. PRODUCTS The primary products manufactured by Genus include two MeV ion implantation models and three CVD models. Each of these products is available with a variety of options and/or upgrades. MEV ION IMPLANTATION Ion implanters accelerate and drive electrically charged atoms (ions) into the surface of a silicon wafer to convert silicon into semiconductor material as part of the process of manufacturing integrated circuits. The market for ion implanters consists of three primary segments: high current, medium current and high energy (MeV). Currently, high and medium current ion implanters make up approximately 85 percent of the total ion implantation market. However, the Company believes that high energy ion implantation is the fastest growing segment due to its use in emerging advanced technology applications and low cost of ownership. CURRENT MEV ION IMPLANT PRODUCTS. TANDETRON-TM- 1520. In November 1995, Genus introduced the Tandetron-TM- 1520, a third-generation MeV ion implanter which evolved from the Genus 1500 system, introduced in 1988, and the Genus 1510 system, introduced in 1992. Although specifically designed for high energy applications, the Tandetron implants with a wide range of energies from 10keV (thousands of electron volts) to 3 MeV. This broad range allows the system to effectively meet both medium current and high energy application requirements. Key differentiating features of the Tandetron are its small footprint, enhanced performance and low cost-of-ownership. The system also offers significant production throughput advantages for MeV applications including up to 50% higher throughput for single implants and up to 66% increased throughput for chained implants. Genus has a patent application pending on the Buried Implanted Layer for Lateral Isolation ("BILLI") structure. The Company believes that the BILLI technology may offer a significant competitive advantage for process simplification and epi replacement, especially in logic applications. GENUS 1510. The Company's G1510 MeV ion implantation system was designed to meet low and medium dose requirements in the 40 keV to 3 MeV range. Introduced in September 1992, the 1510 is Genus' second generation MeV ion implanter and incorporates the basic design and field experience of its predecessor, the G1500. It is a fully automated, highly reliable implanter with strong beam purity at specified throughput of up to 180 wafers per hour on 200mm wafers. Currently, the Tandetron 1520 and the Genus 1510 are the only commercially viable implanters capable of performing the full range of implants required for the BILLI structure, which Genus believes is critical to the future of MeV technology for advanced memory and logic applications. Ion implant customers include: Fujitsu, LG, Hitachi, Hyundai, IBM, Mitsubishi, Samsung, SGS-Thomson, Sharp and Sony. 2 THIN FILM (CVD) To manufacture an IC, there are a series of steps during which layers of conductive and non-conductive materials are deposited onto the surface of wafers made of semiconducting material. Deposited thin films include those used for interconnect layers (conductors of electrical current) and those used for dielectrics (insulating or nonconductive layers). The interconnect or metal layer is deposited on the wafer surface to provide the electrical connection between the various circuit elements, while the dielectric layer is deposited between the interconnect layers to provide electrical insulation between conductive interconnect layers. CURRENT THIN FILM PRODUCTS Genus' CVD products are designed for the deposition of tungsten silicide on gate interconnects to increase speed. The Company offers three basic hardware architectures. The most recent hardware architecture is the 7000 series, a single wafer, tungsten silicide cluster tool. The Company's two other hardware architectures, the 8700 Series and the 6000 Series, also deposit tungsten silicide. GENUS 7000 SYSTEM. To meet the advanced technology requirements of the 64M DRAM generation and beyond, in December 1994, the Company introduced the Genus 7000, a single wafer, open architecture cluster tool. The initial processes on this platform are silane and DCS (dichlorosilane) tungsten silicide. The modular design of the 7000 provides customers with the flexibility of multiple process configurations while offering standard mechanical interfaces, statistical process control, diagnostics and industry standard interfaces for factory host computers. The 7000 uses a small volume, computer-modeled process chamber with specialized gas distribution which yields a high productivity process and low downtime. GENUS 8700 SERIES. A batch CVD tungsten silicide product, the 8700 Series incorporates six heated chucks in the batch chamber and six gas injection ports, which enable individual wafer process adjustment of gas flows and chuck temperature for superior wafer-to-wafer repeatability. The dual cassette load lock system provides continuous wafer loading and unloading capability, which results in high system throughput (wafers per hour). The cold wall reaction chamber and robotic wafer handling system are designed to ensure highly reliable operation with a minimum of foreign material generation. The system's through-the-wall mounted main frame design is ideally suited for use in Class 1 or above cleanrooms. All models of the 8700 can be configured to process from 100mm (4") to 200mm (8") wafers. GENUS 6000 SERIES. Similar in design to the 8700 Series, the 6000 Series is a third-generation tool incorporating new designs to ensure reliability and ease of maintenance. It was designed to meet the factory automation needs of the industry. The 6000 Series consists of a closed architecture cluster system which incorporates the 8700-style six-chuck batch CVD chamber. This system also offers dual cassette load lock architecture which enables continuous batch processing. A new robotic handling system allows mechanical set-up through computer-controlled recipes. The overall design features component upgrades which provide production-worthy processing of 100mm (4") to 200mm (8") wafers. Genus' thin film customers include: AMD, Fujitsu, LG, Hitachi, Hyundai, IBM, Samsung, Sanyo, SGS-Thomson and Sharp. MARKETING, SALES AND SERVICE Genus sells and supports its ion implantation and CVD products through direct sales and customer support organizations in the U.S., Western Europe and Korea and through six exclusive sales representatives and distributors in the U.S., Japan, Korea, Taiwan and Hong Kong. Yarbrough Southwest provides sales distribution in the southwestern region of the United States, and Semifore in the Northwest. Innotech Corporation, a value-added distributor, offers sales distribution and field service in Japan. Genus Korea, Ltd., established in January 1996, provides in-country field service and support. Sales in the Korean and Taiwanese markets are served by the representative organizations of Aju-Exim and Spirox, respectively. Hong Kong, Singapore and the Peoples Republic of China are 3 served by Katech International, LTD., based in Hong Kong. The Asia/Pacific organizations provide sales and service, as well as distribution assistance for spare parts. Genus distributes spare parts from several worldwide depots including: Sunnyvale, California; Tokyo, Japan; Seoul, Korea; Hsin-Chu City, Taiwan; and Evry, France. To facilitate its marketing efforts, the Company has a clean room applications laboratory in Sunnyvale, California. Genus' products are sold primarily to domestic and foreign device manufacturers, including both foundries (companies producing semiconductors principally for other semiconductor manufacturers) and companies producing semiconductors mainly for outside sales. Genus has sold, installed and supported equipment to almost every major semiconductor manufacturer in the world. The Company maintains sales, technical support and service personnel at its principal executive offices located in Sunnyvale, California, and in Newburyport, Massachusetts. Genus has also established several foreign subsidiaries to facilitate its sales and service activities abroad: Genus Korea, Ltd. in Seoul Korea; Genus KK in Tokyo Japan; Genus Europa SARL in Evry, France; Genus Europa Ltd. in Melbourn, Herts, England; Genus Europa GmbH in Stuttgart, Germany; and Genus Europa Srl. in Milan, Italy. These subsidiaries provide installation, field service, and maintenance, as well as additional technical support to assist Genus' customers in effectively utilizing the Company's products. Such services are also provided by the Company's distributors in Tokyo, Seoul, Taipei and Hong Kong. The Company warrants its products against defects in material and workmanship for twelve months. In 1995, one customer accounted for 63% of the Company's net sales. Three customers accounted for 33%, 19% and 14% of net sales in 1994. In 1993, three customers accounted for 26%, 23% and 14% of net sales. See Note 14 of Notes to Consolidated Financial Statements. Although export sales are subject to certain control restrictions, including approval by the Office of Export and Administration of the U.S. Department of Commerce, Genus has not experienced any significant difficulties related to such limitations. BACKLOG. The Company's backlog at December 31, 1995, was approximately $45.0 million, compared with approximately $44.0 million at December 31, 1994. Genus includes in its backlog only those orders for which a customer purchase order has been received and a delivery date within twelve months has been specified. The Company's backlog at December 31, 1995 consisted of product shipments expected to be delivered during calendar year 1996. However, because of the possibility of customer changes in delivery schedules or cancellations of orders, the Company's backlog as of any particular date may not be representative of actual sales for any succeeding period. RESEARCH AND DEVELOPMENT Constant technological change, fierce competition and a high rate of technical obsolescence are key characteristics of the semiconductor equipment industry. Genus' future prospects depend in part on the Company's ability to broaden its market acceptance by differentiating its products on the basis of production-worthiness, technical capability, productivity, particle control, and customer support. To maintain close relationships with its customers and remain responsive to their requirements, continued investment is needed for research and development. In 1993, 1994 and 1995, the Company's research and development expenditures were approximately $7.8 million, $9.0 million and $12.3 million, respectively. As part of its research and development program, the Company has established technical research relationships with certain major semiconductor manufacturers to further enhance its products for advanced ULSI devices. COMPETITION The Company believes that the principal competitive factors in the semiconductor equipment market are product performance, quality and reliability, wafer throughput, customer support, equipment automation, price and relationships. 4 Genus competes with a number of companies which historically have had wider name recognition, broader product acceptance within the industry and substantially greater resources. In addition, the rapid rate of technological change in the industry creates opportunities for firms to enter this market and apply new technologies to meet its needs. Accordingly, the Company anticipates that it will face competition in the domestic as well as foreign marketplace from both well-established and new competitors. In the ion implantation marketplace, the Company's MeV ion implantation system competes with one other MeV system. The Company believes that its high energy MeV system currently has certain technological advantages over the competing MeV system. Genus has new applications for MeV ion implantation technology which it believes will see widespread use in the future since they enable significant manufacturing cost reduction and improved integrated circuit performance. The Company faces direct competition from Eaton Corporation. The presence of Eaton in the MeV market place has continued to increase during 1995. There can be no assurance that competition in the Company's particular MeV product market will not intensify or that Genus' technical advantages may not be reduced or lost as a result of technical advances made by competitors or changes in semiconductor processing technology. In the CVD market, Genus competes with other producers of CVD systems, as well as alternative methods of deposition, such as sputtering, and thin films other than tungsten silicide. The Company faces direct competition in tungsten silicide from Applied Materials, Inc. and Tokyo Electron, Ltd. The impact of their presence in the CVD tungsten silicide market continued to increase during 1995. There can be no assurance that levels of competition in the Company's particular CVD product market will not intensify or that Genus' technical advantages may not be reduced or lost as a result of technical advances made by competitors or changes in semiconductor processing technology. MANUFACTURING AND SUPPLIERS Most of the components for the Company's CVD tungsten silicide systems are produced in subassemblies by independent domestic suppliers according to the Company's design and procurement specifications. Many components of the Company's MeV ion implantation systems are also acquired as subassemblies from outside domestic vendors. The Company anticipates that the use of such subassemblies will continue to increase in order to achieve additional manufacturing efficiencies. The Company has alternate sources of supply for the components and parts purchased from outside suppliers, except for certain components used in its CVD tungsten and MeV ion implantation products which are presently available only from single sources. To date, the Company has been able to obtain adequate supplies of such components in a timely manner from existing sources. 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 which could have a material adverse affect on the Company's operating results. The Company's thin film CVD operation is located in Sunnyvale, California, while its MeV ion implantation technology manufacturing operation is located in Newburyport, Massachusetts. INTELLECTUAL PROPERTY The Company believes that because of the rapid technological change in the industry its future prospects will depend primarily upon the expertise and creative skills of its personnel in process technology, new product development, marketing, application engineering, and product engineering, rather than on patent protection. Nevertheless, the Company has a policy to actively pursue domestic and foreign patent protection to cover technology developed by the Company. The Company's current patents include technology relating to cold wall CVD of tungsten silicide, ion beam formation, high energy ion acceleration, ion implant angle control, wafer cleaning, and wafer heating and handling in vacuum. 5 In 1987, the Company's Ion Technology Division (formerly General Ionex) and Eaton Corporation entered into a licensing agreement whereby the Company uses certain ion implantation related technology. EMPLOYEES As of December 31, 1995, the Company employed 319 people on a full-time basis. The Company believes that its relations with its employees are satisfactory. None of the employees are covered by a collective bargaining agreement. ENVIRONMENTAL REGULATION Federal, state and local regulations impose various environmental controls on the discharge of chemicals and gases used in the manufacturing process. The Company believes that its activities conform to present environmental regulations. Increasing public attention has, however, been focused on the environmental impact of semiconductor operations. While the Company has not experienced any materially adverse effects on its operations from governmental regulations, there can be no assurance that changes in such regulations will not impose the need for additional capital equipment or other requirements. Any failure by the Company to adequately restrict the discharge of hazardous substances could subject it to future liabilities or could cause its manufacturing operations to be suspended. ITEM 2. PROPERTIES The Company's executive offices and thin film manufacturing and research and development operations are presently located in one building in Sunnyvale, California, totalling approximately 100,500 square feet. The California facilities are occupied under a lease expiring in October 2002, with a current annual rental expense of approximately $650,000. Genus' Ion Technology Division is located in Newburyport, Massachusetts. This facility, totalling approximately 25,000 square feet, is occupied by the Company under a month-to-month lease, with a current annual rental expense of approximately $175,000. In September 1995, the Company entered into an agreement to lease a new facility for the Ion Technology Division. The Division expects to move to the new facility by May 1996. This facility, totalling approximately 70,000 square feet, will be occupied under a lease expiring in May 2017, with an annual rental expense of approximately $805,000. The Company also leases sales and support offices in Seoul, South Korea; Tokyo, Japan; Melbourn, Herts, England; Evry, France; and Rockville Center, New York. The Company owns substantially all of the machinery and equipment used in its facilities. See Notes 3 and 8 of Notes to Consolidated Financial Statements. The Company believes that its existing facilities and capital equipment are adequate to meet its current requirements and that suitable additional or substitute space will be available as needed. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The principal market in which the Company's common stock is traded and the related security holder matters are set forth under the caption "Common Stock Information" on page 28 of the Company's 1995 Annual Report to Shareholders. This information is incorporated herein by this reference thereto. The market value of the Company's common stock on March 28, 1996 was $5.75 per share. ITEM 6. SELECTED FINANCIAL DATA. Selected financial data of the Company for the years 1991 through 1995 is included under the caption "Selected Consolidated Financial Data" on page 10 of the Company's 1995 Annual Report to Shareholders. This information is incorporated herein by this reference thereto. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this Item is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 11 to 13 of the Company's 1995 Annual Report to Shareholders. This information is incorporated herein by this reference thereto. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements and related notes thereto, together with the Report of Independent Accountants and the selected quarterly financial data of the Company are presented on pages 14 to 27 of the Company's 1995 Annual Report to Shareholders. This information is incorporated herein by this reference thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ------------------------ With the exception of the information incorporated by reference from the Company's 1995 Annual Report to Shareholders in Parts II and IV of this Form 10-K, the Company's 1995 Annual Report to Shareholders is not to be deemed filed as a part of this Report. ------------------------ 7 PART III Certain information required by Part III is omitted from this Report in that the Registrant will file a definitive proxy statement pursuant to Regulation 14A relating to the Registrant's 1996 Annual Meeting of Shareholders (the "Proxy Statement") not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors and nominees for directors of the Company is incorporated by reference to the Company's Proxy Statement. The executive officers of the Company, who are elected by and serve at the discretion of the Board of Directors, and their ages at March 28, 1996, are as follows:
NAME AGE POSITION - ------------------------------------ --- --------------------------------------------------------------- William W. R. Elder................. 57 Chairman and Chief Executive Officer Kent L. Robertson................... 54 Executive Vice President, Chief Financial Officer and Secretary James M. Burns...................... 49 Executive Vice President and General Manager, Thin Films Division John E. Aldeborgh................... 39 Vice President and General Manager, Ion Division William D. Cole..................... 41 Vice President, Sales Kevin C. Conlon..................... 42 Vice President, Marketing Thomas E. Seidel.................... 60 Vice President, Chief Technical Officer Ernest P. Quinones.................. 36 Corporate Controller, Chief Accounting Officer, and Treasurer Mario M. Rosati..................... 49 Assistant Secretary
Except as set forth below, all of the executive officers have been associated with the Company 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 executive officers of the Company. Mr. Elder, a founder of the Company, served as President and as a director of the Company from its organization in November 1981 through April 1990. In April 1990, he was named Chairman of the Board, President and Chief Executive Officer. Mr. Elder currently serves as Chairman of the Board and Chief Executive Officer of the Company. Mr. Robertson joined the Company in June 1995 as Executive Vice President, Chief Financial Officer and Secretary of the Company. From January 1994 to June 1995 and from February 1987 to March 1992, Mr. Robertson was Senior Vice President, Chief Financial Officer and Secretary of Pyramid Technology Corporation, a manufacturer of computer servers. From March 1992 to December 1993, he was associated with RasterOps Corporation, a manufacturer of truecolor photo realistic imaging systems, as Executive Vice President, Chief Financial Officer and Secretary. From September 1980 to January 1987 he served as Vice President, Chief Financial Officer and Secretary of Telco Systems Inc., a manufacturer of telecommunications equipment. Mr. Burns joined the Company in February 1995 as Executive Vice President and General Manager of the Company's Thin Films Division. From August 1992 to January 1995, Mr. Burns was with Hughes Network Systems, a manufacturer of advance commercial telecommunications, as Assistant Vice President, Operations. From December 1991 to July 1992, he was associated with Trimble Navigation, LTD, a manufacturer of navigational systems, as Director of Customer Satisfaction and Quality. From November 1990 to July 1991, Mr. Burns was Vice President of Operations with 8 Domestic Automation Company, a manufacturer of computerized metering and communication products. From May 1972 to October 1990, he served in various positions at Hewlett-Packard Company, a computer and instrumentation manufacturer, most recently as Group Manufacturing Manager, Peripherals Group. Mr. Aldeborgh joined the Company in June 1989 as Director of Operations of the Company's Ion Technology Division. Mr. Aldeborgh has served as Vice President and General Manager of this Division since January 1993. Prior to joining the Company, Mr. Aldeborgh was with LTX Corporation, a manufacturer of semiconductor test equipment, from May 1983 to May 1989, in various management positions, most recently as Director of Manufacturing for its Linear Manufacturing Division. Mr. Cole joined the Company in January 1993 as Vice President of Sales. From December 1984 to December 1992, he was associated with Teradyne, Inc., a semiconductor equipment manufacturer, in various sales positions, most recently as National Sales Manager. Mr. Conlon joined the Company in April 1992 as Vice President of Marketing. From February 1990 to April 1992, Mr. Conlon held marketing and operations management positions at Novellus Systems, Inc., a semiconductor equipment manufacturer, most recently as Director of Manufacturing. From April 1980 to February 1990, he served in various positions at Applied Materials, Inc., a semiconductor equipment manufacturer, most recently as Product Marketing Manager, Implant Division. Mr. Seidel joined the Company in January 1996, as Vice President and Chief Technical Officer. From July 1988 to January 1996, Mr. Seidel was associated with SEMATECH, a Semiconductor-Industry Consortium, in various senior management positions, most recently as Chief Technologist and Director of Strategic Technology. From March 1987 to July 1988, Mr. Seidel was associated with the University of California at Santa Barbara, as head of the Microelectronics department. From February 1985 to March 1987, Mr. Seidel was employed with J.C. Schumacher Co., a semiconductor equipment manufacturer, most recently as Senior Vice President of Technology. From June 1966 to February 1985, Mr. Seidel was associated with AT&T Bell Laboratories in various technical management positions. Mr. Quinones joined the Company in June 1989 as the Company's Director of Corporate Finance. From October 1991 through February 1995, he served as the Company's Corporate and Thin Films Division Controller. Mr. Quinones was appointed Genus' Corporate Controller, Chief Accounting Officer and Treasurer in March 1995. Prior to joining the Company, Mr. Quinones was with Coopers & Lybrand L.L.P., a public accounting firm, from July 1982 to May 1989, in various audit positions, most recently as Audit Manager. Mr. Rosati has been Assistant Secretary and a director of the Company since the Company's inception in November 1981 to June 1995. From July 1995 to the present, Mr. Rosati has been the Company's Assistant Secretary. He is a member of Wilson, Sonsini, Goodrich & Rosati, P.C., general counsel to the Company. 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. 9 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: 1. FINANCIAL STATEMENTS. The following Consolidated Financial Statements of Genus, Inc. and Report of Independent Accountants are incorporated by reference to pages 14 through 27 of the Registrant's 1995 Annual Report to Shareholders: Consolidated Balance Sheets - December 31, 1995 and 1994 Consolidated Statements of Operations - Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Accountants 2. FINANCIAL STATEMENT SCHEDULES. The following financial statement schedules of Genus, Inc. for the years ended December 31, 1995, 1994 and 1993 are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of Genus, Inc.
SCHEDULE PAGE --------------------------------------------------------- ----- Report of Independent Accountants........................ S-1 II -- Valuation and Qualifying Accounts........................ S-2
Schedules not listed above 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 schedules are filed as part of, or incorporated by reference into, this Report. 4. REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company during the fiscal quarter ended December 31, 1995. 10 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 28th day of March, 1996. GENUS, INC. By: /s/ WILLIAM W. R. ELDER ----------------------------------- William W. R. Elder CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, William W. R. Elder and Kent L. Robertson, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. 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, Chief Executive ------------------------------------------- Officer and Director (Principal March 28, 1996 William W. R. Elder Executive Officer) /s/ KENT L. ROBERTSON Executive Vice President, Chief ------------------------------------------- Financial Officer, Secretary March 28, 1996 Kent L. Robertson (Principal Financial Officer) Corporate Controller, Chief ERNEST P. QUINONES Accounting Officer and ------------------------------------------- Treasurer (Principal Accounting March 28, 1996 Ernest P. Quinones Officer) STEPHEN F. FISHER ------------------------------------------- Director March 25, 1996 Stephen F. Fisher G. FREDERICK FORSYTH ------------------------------------------- Director March 28, 1996 G. Frederick Forsyth TODD S. MYHRE ------------------------------------------- Director March 28, 1996 Todd S. Myhre MARIO M. ROSATI ------------------------------------------- Director March 28, 1996 Mario M. Rosati
11 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Genus, Inc. and subsidiaries on Form S-8 (File Nos. 33-28394 and 33-38657) of our reports dated January 26, 1996, on our audits of the consolidated financial statements and financial statement schedules of Genus, Inc. and subsidiaries as of December 31, 1995 and 1994, and for each of the three years in the period ended December 31, 1995, which reports are included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. San Jose, California March 27, 1996 12 GENUS, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1995 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ----------- ----------------------------------------------------------------------------------------- --------------- 3.1 Restated Articles of Incorporation of Registrant(2)...................................... -- 3.2 By-laws of Registrant, as amended (4).................................................... -- 4.1 Common Shares Rights Agreement, dated as of April 27, 1990, between Registrant and Bank of America, N.T. and S.A., as Rights Agent(6)........................................... -- 10.3 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)............. -- 10.6 Lease dated June 15, 1988 for Registrant's facilities at 100 Merrick Road, West Building, Rockville Center, New York (1).......................................................... -- 10.7 Assignment of Lease dated April 1986 for Registrant's facilities at Unit 11A Melbourn Science Park, Melbourn, Hertz, England(1)............................................... -- 10.8 Registrant's 1981 Incentive Stock Option Plan, as amended (3)............................ -- 10.10 Registrant's 1989 Employee Stock Purchase Plan, as amended (7)........................... -- 10.11 International Distributor Agreement dated November 23, 1987 between General Ionex Corporation and Innotech Corporation(1)................................................. -- 10.12 Distributor/Representative Agreement dated August 1, 1984 between Registrant and Aju Exim (formerly Spirox Holding Co./You One Co. Ltd.)(1)....................................... -- 10.15 Exclusive Sales and Service Representative Agreement dated October 1, 1989 between Registrant and AVBA Engineering Ltd(5).................................................. -- 10.16 Exclusive Sales and Service Representative Agreement dated as of April 1, 1990 between Registrant and Indosale PVT Ltd(5)...................................................... -- 10.18 License Agreement dated November 23, 1987 between Registrant and Eaton Corporation(1).... --
I-1
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION PAGE - ----------- ----------------------------------------------------------------------------------------- --------------- 10.21 EXCLUSIVE SALES AND SERVICE REPRESENTATIVE AGREEMENT DATED MAY 1, 1989 BETWEEN REGISTRANT AND SPIROX TAIWAN, LTD.(4).............................................................. -- 10.22 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(8)........... -- 10.24 TERM LOAN AGREEMENT DATED APRIL 17, 1992 BETWEEN THE REGISTRANT AND SILICON VALLEY BANK(8)................................................................................. -- 10.25 ASSET PURCHASE AGREEMENT, DATED MAY 28, 1992, BY AND BETWEEN THE REGISTRANT AND ADVANTAGE PRODUCTION TECHNOLOGY, INC.(9).......................................................... -- 10.26 LICENSE AND DISTRIBUTION AGREEMENT, DATED SEPTEMBER 8, 1992, BETWEEN THE REGISTRANT AND SUMITOMO MUTUAL INDUSTRIES, LTD.(10).................................................. . -- 10.28 MORTGAGE DATED FEBRUARY 1, 1993 WITH BAY BANK MIDDLESEX FOR REGISTRANT'S FACILITIES AT ONE MERRIMACK LANDING, UNIT 26, NEWBURYPORT, MASSACHUSETTS (11)......................... -- 10.29 REVOLVING LOAN AGREEMENT BETWEEN THE REGISTRANT AND SILICON VALLEY BANK DATED MAY 15, 1994 (12)............................................................................... -- 10.30 LEASE AGREEMENT DATED AS OF OCTOBER 1995 FOR REGISTRANT'S FACILITIES AT LOT 62 STANLEY TUCKER DRIVE, NEWBURYPORT, MASSACHUSETTS................................................ -- 11.1 COMPUTATION OF NET INCOME/LOSS PER SHARE................................................. -- 13.1 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995 (TO BE DEEMED FILED ONLY TO THE EXTENT REQUIRED BY THE INSTRUCTIONS TO EXHIBITS FOR REPORTS ON FORM 10-K)... -- 22.1 SUBSIDIARIES OF REGISTRANT(10)........................................................... -- 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS (INCLUDED ON PAGE 12)................................. -- 24.1 POWER OF ATTORNEY (INCLUDED ON PAGE 11).................................................. -- 27.1 FINANCIAL DATA SCHEDULE
- ------------------------ (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 Annual Report on Form 10-K for the year ended December 31, 1988. (3) Incorporated by reference to the exhibit filed with the Registrant's Registration Statement on Form S-8 filed January 17, 1991. (4) 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. (5) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. (6) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990. (7) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990. I-2 (8) Incorporated by reference to the exhibit filed with the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992. (9) Incorporated by reference to the exhibit filed with the Registrant's Report on Form 8-K dated June 12, 1992. (10) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 21, 1992. (11) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. (12) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. I-3 EX-10.30 2 EXHIBIT 10.30 EXHIBIT 10.30 LEASE THIS LEASE is made this 30 day of October 1995, by and between BERKSHIRE-NEWBURY LIMITED PARTNERSHIP, a Massachusetts limited partnership with a principal office at 1500 Main Street, Springfield, Massachusetts, or its Assignee, ("Landlord"), and GENUS, INC., a California corporation with a place of business at 4 Mulliken Way, Newburyport, Massachusetts ("Tenant"). W I T N E S S E T H: 1. PREMISES Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, upon and subject to the terms and provisions of this Lease, the building premises consisting of approximately Seventy Thousand (70,000) square feet (the "Building") and the real estate on which the building is to be located, which is Lot 62 Stanley Tucker Drive, Newburyport, Massachusetts (the "Property"), as more particularly described on EXHIBIT A attached hereto and incorporated herein (the Building and the Property are collectively called the "Premises"). 2. TERM OF LEASE The primary term of this Lease ("Initial Term") shall be for seventeen (17) years commencing on the Commencement Date (as hereinafter defined) and ending on the day immediately preceding the 18th anniversary of the Commencement Date. Provided Tenant is not in default under this Lease at the time of its exercise of any option to extend. Tenant shall have the option of extending the term of this Lease for four (4) additional periods of five (5) years each upon written notice to Landlord at least nine (9) months prior to the end of the Initial Term of this Lease and upon not less than three (3) months written notice prior to the expiration of each option period hereunder. As used herein the term "Lease Term" shall mean the Initial Term plus any extension of the term of this Lease in accordance with this paragraph. If the rent during any extended term is determined by appraisal and if Tenant does not, in its sole discretion, approve the rental amount established by such appraisal, Tenant may rescind its exercise of the Option by giving Landlord written notice of such election to rescind within ten (10) days after receipt of all appraisals, but only if all of the following are met: If Tenant rescinds its exercise of the Option, then (i) the Lease shall terminate on the ninetieth (90th) day after Tenant's notice of rescission or on the date the Lease would have otherwise terminated absent Tenant's exercise of the Option, whichever date is later; and (ii) Tenant shall pay all costs and expenses of the appraisal, and (iii) Tenant shall pay rent during that ninety (90) day period in the amount Tenant would have paid for that period, had Tenant not rescinded the extension. 3. RENT (a) BASE RENT. From and after the Commencement Date (as defined herein), Tenant agrees to pay to Landlord at the following address: 1500 Main Street, Suite 2012, Springfield, MA 01115, or as directed by Landlord, without notice, demand, offset or deduction except as provided herein, on the Commencement Date and thereafter, semiannually, in advance, on the first day of January and July of each and every calendar year during the Lease Term, prorated for any partial year, one-half of the following sums equal to the annual base rent ("Base Rent"):
LEASE YEAR* INITIAL TERM ANNUAL BASE RENT - -------------------------------------------------------- -------------------------------------------------------- For Lease Years 1-5 $805,000 +/- (12.3846% times (Construction Cost** minus $6,500,000))*** For Lease Years 6-10 $925,750 +/- (14.2423% times (Construction Cost** minus $6,500,000))*** For Lease Years 11-15 $975,038 +/- (14.9544% times (Construction Cost** minus $6,500,000))*** For Lease Years 16-17 $805,000 +/- (12.3846% times (Construction Cost** minus $6,500,000))***
3. RENT (CONTINUED)
LEASE YEAR* OPTION TERM ANNUAL BASE RENT - -------------------------------------------------------- -------------------------------------------------------- For First Option Term (Lease Years 18-22) Greater of (a) 95% of fair market value**** For Second Option Term (Lease Years 23-27) For Third Option Term (Lease Years 28-32) (as determined on the first day of each option term), or For Fourth Option Term (Lease Years 33-37) (b) the Base Rent payable for the 1st year of the Initial Term
As used in this Section the following terms shall have the following meanings: *"LEASE YEAR" is a year commencing on the Commencement Date (or an anniversary thereof) and ending on the date immediately preceding the next succeeding anniversary of the Commencement Date. **"CONSTRUCTION COST" is defined in the Improvement Agreement executed concurrently herewith by Landlord and Tenant. ***When the Construction Cost has been determined, the total thereof shall be compared to $6,500,000 and the Annual Rent for the Initial Term shall be adjusted in accordance with the foregoing formulas, upward if the Construction Cost exceeds $6,500,000, and downward, if the Construction Cost is less than $6,500,000. ****"FAIR MARKET VALUE" shall be determined at the time of Tenant's exercise of each option to extend. Upon Tenant's written notice of the exercise of an option to extend, Landlord and Tenant shall attempt to determine and agree on fair market value rental for the Premises. Fair market value shall mean that rental rate currently being charged for comparable manufacturing facilities in the region, exclusive of the Specialized Improvements, as defined in EXHIBIT B or as otherwise designated pursuant to the Improvement Agreement (which are constructed by Landlord, but amortized in the Annual Rent during the Initial Term), and exclusive of any other improvements in the Premises that are installed after the Substantial Completion of the Improvements (as defined in the Improvements Agreement) at Tenant's cost. In the event Landlord and Tenant cannot agree on said fair market value, each party shall select a MAI appraiser with experience in commercial valuations of this nature in the region who shall attempt to agree upon the fair market value within 20 days and, if they cannot agree the two (2) appraisers selected shall select a third. In such events the three (3) appraisers shall each determine fair market value rental for the Premises and the average of the three (3) shall constitute fair market value for purposes of Base Rent during said option term. The costs of such appraisers shall be borne equally by each party. (b) COMMENCEMENT DATE. Tenant's obligation to pay rent hereunder shall commence on the earlier of when Landlord delivers to Tenant the Premises with the Improvements Substantially Completed as defined in the Improvement Agreement or Tenant actually occupies the Premises for the purposes of conducting its manufacturing business (herein the "Commencement Date"). (c) ADDITIONAL RENT. Tenant shall pay all expenses related to the repair, replacement (structural or otherwise), the operation and maintenance of the Premises, including without limitation real property taxes and insurance premiums, as additional rent hereunder (the "Additional Rent"). (d) ABSOLUTE NET LEASE. It is the intention of the parties that the rent payable hereunder shall be absolutely net to Landlord, so that this Lease shall yield to Landlord the net annual rent specified herein during the Lease Term, and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Premises and its physical structures shall be paid by Tenant. Without limiting any other provision of this Lease, it is expressly understood and agreed that all repairs, replacements, real estate taxes, operating expenses, insurance premiums, and all other amounts that Tenant is required to pay hereunder, together with all interest and penalties that may accrue thereon, shall be deemed to be Additional Rent, and in the event of nonpayment thereof by Tenant, Landlord 2 3. RENT (CONTINUED) shall have all of the rights and remedies with respect thereto as would accrue to Landlord for nonpayment of Base Rent. As used in this Lease, "Rent" shall mean the Base Rent plus Additional Rent. It is expressly understood and agreed that Landlord shall have no obligation for any cost or expense associated with the Premises during the Initial Term of the Lease or any extensions thereof. (e) LIMITATION ON EXPENSES. Notwithstanding anything to the contrary in this Lease or the Improvement Agreement, Landlord at its sole expense shall pay and be solely responsible for the following "Costs": (i) LOSSES CAUSED BY OTHERS. Costs occasioned by the act, omission or violation of Law by Landlord or its, agents, employees or contractors, or by the Landlord's or its contractor's violation of this Lease or any loan or construction contract relating to this Lease or the Improvements. (ii) INSURANCE, CASUALTIES AND CONDEMNATIONS. Except to the extent of any shortfall in insurance proceeds caused by Tenant's breach of its obligations under Section 11, Costs occasioned by fire, acts of God, or other casualties and Costs occasioned by the exercise of the power of eminent domain. (iii) CAPITAL IMPROVEMENTS. The Construction Costs or any other cost or expenses incurred by the Landlord to construct the Improvements in accordance with the Improvements Agreement. (iv) REIMBURSABLE EXPENSES. Costs for which Landlord has a right of reimbursement from others. (v) LEASING EXPENSES. Fees, commissions, attorneys' fees, Costs or other disbursements incurred in connection with negotiations of this Lease or any financing agreement or construction agreement relating to the Improvements. (vi) RESERVES. Depreciation, amortization or other expense reserves. (vii) MORTGAGES. Interest, charges, attorneys' fees, fees, and other charges incurred by Landlord in connection with the financing of the construction of the Improvements or on any other debt, payments on mortgages and rent under ground leases. (viii) HAZARDOUS MATERIALS. Costs incurred to investigate the presence of any Hazardous Material, Costs to respond to any claim of Hazardous Material contamination or damage, Costs to remove any Hazardous Material from the Premise, or the soil, groundwater, air, or building materials of the Improvements, and any judgments or other Costs incurred in connection with any Hazardous Material exposure or releases, but only to the extent caused that the Hazardous Material present on the Property or the soil, groundwater, surface water, air or building materials thereof on the Commencement Date. (f) LATE CHARGE. In the event any Annual Base Rent payment is not paid within fifteen (15) days of its due date, Tenant shall pay Landlord a late charge equal to two percent (2%) of such payment per month, which late charge shall be deemed to be due and collectible as Additional Rent hereunder. 4. ADDITIONAL RENT -- TAXES, UTILITIES (a) Tenant shall pay, as Additional Rent, all general and special taxes, including all real estate taxes, assessments for local improvements and other governmental charges which may be charged, assessed, or imposed upon the Premises. Said payments shall be made directly to the taxing authority with evidence of payment submitted to Landlord within thirty (30) days of such payment. Any special assessments by a governmental authority may be paid over time periods acceptable to said governmental authority, subject to Landlord's reasonable consent. Landlord shall forward all tax bills to Tenant upon its receipt of such bills. 3 4. ADDITIONAL RENT -- TAXES, UTILITIES (CONTINUED) (b) Tenant shall pay all license fees which may be imposed upon the business of Tenant conducted upon the Premises. (c) Tenant shall pay, as Additional Rent and before the same shall become delinquent, for the maintenance and repair of all grounds, building, parking and driveways or service roads within the Premises and all of its requirements for utilities, including, but not limited to, heat, electricity, telephone, water and sewer use. Tenant shall cause all such utility accounts to be issued or transferred into its name immediately upon commencement of this Lease. (d) Taxes and charges shall be equitably adjusted for and with respect to the first and last partial tax year (if any) of the Lease Term. Where the applicable tax bills and computations are not available prior to the end of the term hereof, a tentative computation shall be made on the basis of the previous year's taxes payable by Tenant, with a final adjustment to be made between Landlord and Tenant promptly after all bills and computations are available for such period. (e) Tenant will have the right to contest the amount or validity, in whole or in part, of any tax by appropriate proceedings diligently conducted in good faith. Upon the termination of those proceedings, Tenant will pay the amount of the tax or part of the tax as finally determined, the payment of which may have been deferred during the prosecution of the proceedings, together with any costs, fees, interest, penalties, or other related liabilities. Landlord will not be required to join in any contest or proceedings unless the provisions of any law or regulations then in effect require that the proceedings be brought by or in the name of Landlord. In that event, Landlord will join in the proceedings or permit them to be brought in its name; however, Landlord will not be subjected to any liability for the payment of any costs or expenses in connection with any contest or proceedings, and Tenant will indemnify Landlord against and save Landlord harmless from any of those costs and expenses. (f) Tenant will not be obligated to pay local, state or federal net income taxes assessed against Landlord; local, state or federal capital levy of Landlord; or sales, excise, franchise, gift, estate, succession, inheritance or transfer taxes of Landlord. 5. USE OF PROPERTY (a) During the term of this Lease, Tenant shall use the Premises for purposes of manufacturing of components and equipment for the semiconductor industry and any other use permitted by law as a matter of right and in compliance with all governmental regulations. (b) Tenant agrees that during the Lease Term: (i) No auction, fire or bankruptcy sales may be conducted within the Premises without the prior written consent of Landlord; (ii)Tenant shall provide at its expense for the collection of trash and refuse on a timely basis and all refuse shall be kept in cans, dumpsters and similar appropriate storage at all times; (iii) Tenant shall at all times fully and adequately heat the Premises so as to prevent damage to the Premises, the Building and any structures, fixtures or equipment located at the Premises; (iv)Tenant may place on the exterior of the Premises (including, but without limitation, windows, doors and entrance lobbies) any signs provided they shall be in compliance with all zoning, building or other regulations; (v) Tenant shall not perform any act or carry on any practice which may injure the Property or cause any offensive odors or loud noise other than those necessarily a function of Tenant's operations, or constitute a nuisance or menace to any other persons; (vi)Tenant shall not use or permit the Property to be used for any unlawful purpose and will obtain all necessary permits or licenses required for its use of the Property; 4 5. USE OF PROPERTY (CONTINUED) (vii) Tenant has, at the termination of this Lease, the option to remove its possessions and possessions of others (including, if there is then no uncured Event of Default under Section 14 hereof all of Tenant's Specialized Improvements, as identified on EXHIBIT B or otherwise designated pursuant to the Improvement Agreement), as the same may be amended by Tenant from time to time and leave the Premises in the same condition as at the Commencement Date of the Lease, excepting only reasonable wear and tear, damage by fire or casualty, eminent domain, Hazardous Materials which were not placed on the Premises by Tenant, and alterations which Landlord has previously agreed in writing may be surrendered; and (viii) Tenant shall be responsible at its expense for snow removal from the walks, drives, entrances, exits and parking areas on a timely basis. 6. HAZARDOUS SUBSTANCES (a) Tenant shall duly comply with the requirements of all applicable environmental, health, safety and sanitation laws, ordinances, codes, rules and regulations and interpretations and orders of regulatory and administrative authority with respect to its use, storage, and release of Hazardous Materials. (b) Tenant shall not use, handle or store or dispose of any Hazardous Materials in or about the Premises except as reasonably required in Tenant's business judgment for its operation of its business and then strictly in accordance with all applicable laws and regulations. If during the Lease Term the release or disposal of Hazardous Materials anywhere on the Premises by Tenant, its agent, employee, contractor, invitee, or any other person for whom Tenant is legally responsible (including, without limitation, a third party who comes onto the surface of the Premises and releases a Hazardous Material into the soil, ground water, surface water, ambient air or building materials of the Premises during the Lease Term), results in (1) contamination of the soil, ambient air, surface water or ground water with Hazardous Materials in excess of legally permitted levels ("Tenant's Contamination") or (2) loss or damage to person(s) or property, then Tenant agrees to respond in accordance with the following paragraph: Tenant shall (i) notify Landlord immediately of any contamination, claim of contamination, loss or damage, and (ii) after consultation and approval by Landlord, Tenant shall at its sole expense clean up Tenant's Contamination in full compliance with all applicable statutes, regulations and standards. No consent or approval of Landlord shall in any way be construed as imposing upon Landlord any liability for the means, methods or manner of removal, containment or other compliance with applicable law for and with respect to the foregoing. (c) In the event that Tenant does not comply with the provisions of Section 6(b), and in addition to its other rights hereunder, Landlord shall have the right (but not the obligation), upon 30 calendar days advance notice to Tenant, except in the case of an emergency (in which case reasonable notice shall be given to the extent reasonably possible), to cause the illegal release to be contained and/or removed on behalf of Tenant. The contractors selected by Landlord shall have the right to enter upon the Premises with such persons, machinery and equipment as they shall reasonably deem necessary for the purpose and undertake such remedial containment and cleanup actions as they shall reasonably deem appropriate, without thereby incurring any liability to Tenant on account thereof. Tenant shall reasonably cooperate with any such contractors and render such assistance to such contractors as may be requested to facilitate the remedial containment and cleanup actions. Tenant shall be liable to Landlord for all costs and expenses, including all reasonable attorneys' fees reasonably incurred on account of such remedial action undertaken on Tenant's behalf as a consequence of Tenant's default and shall reimburse Landlord therefor on demand. (d) Tenant shall indemnify, defend and hold harmless Landlord from and against all loss, liability, damage and expense, including costs associated with administrative and judicial proceedings and attorneys' fees, ever suffered or incurred by Landlord to the extent caused by 5 6. HAZARDOUS SUBSTANCES (CONTINUED) (i) Tenant's failure at any time during the Lease Term to comply with any environmental, health, safety or sanitation laws, ordinances, codes, rules or regulations or interpretations or orders of regulatory or administrative authorities with respect thereto as required by this Lease; (ii) any release of Hazardous Materials in violation of applicable Environmental Law on, upon or into the Property occurring during this Lease by Tenant, its agent, employee, contractor, or any other person for whom Tenant is legally responsible (including, without limitation, a third party who comes onto the surface of the Premises and releases a Hazardous Material into the soil, ground water, surface water, ambient air or building materials of the Premises during the Lease Term); (iii) any and all damage to natural resources or real property and/or harm or injury to persons resulting or alleged to have resulted from such failure to comply as described in subpart (i) and/or such release as described in subpart (ii) hereof, and (iv) any release of a Hazardous Material into the soil, groundwater, surface water, ambient air or building materials of the Property during the Lease Term, whether by Tenant, or its agent, employee, contractor, invitee, or any other person for whom Tenant is legally responsible (including, without limitation, a third party who comes onto the surface of the Premises and releases a Hazardous Material into the soil, ground water, surface water, ambient air or building materials of the Premises during the Lease Term). Notwithstanding the foregoing and any other thing to the contrary in this Lease, Tenant shall not be liable for any migration of a Hazardous Material from other property to this Property. Tenant acknowledges that its obligations and liabilities under this Section shall survive the expiration or earlier termination of this Lease. If Tenant fails to meet its obligations to Landlord under this Section, Landlord shall have the remedies provided in Section 14. (e) Neither Landlord nor any employee or agent of Landlord or entity under its control has or will generate, store or spill upon, dispose of or transfer to or from the Premises any hazardous waste materials. Landlord shall indemnify and hold Tenant (including any successor to or assignee of Tenant) harmless from and against all loss, cost, liability, damage and expense, including reasonable attorneys' fees and the costs of litigation arising from any hazardous waste materials in or on the Premises due to the presence of any Hazardous Material in the soil, groundwater, ambient air or buildings materials of the Improvements on the Commencement date, or any act, omission or negligence of Landlord, or its employee, contractor, invitee, or other person for whom Landlord is legally responsible. Landlord acknowledges that its obligations and liabilities under this Section shall survive the expiration or earlier termination of this Lease. Within the time permitted by applicable law, Landlord, at its sole cost, shall perform or cause to be performed, any investigation, remediation, removal action, detoxification of the Premises, and shall comply with any Environmental Law, relating to any Hazardous Material present at on or about the Premises or the soil, air, improvements, groundwater, surface water, or building materials thereof on the Commencement Date. (f) Except to the extent of Tenant's failure to perform its obligations under this Lease concerning Hazardous Materials, Landlord, for itself hereby waives and releases all Claims against Tenant and each Tenant Indemnitee, and all rights to join Tenant or any Tenant Indemnitee in any litigation or proceeding (including without limitation any Claim arising under CERCLA, the Resource Conservation and Recovery Act or any other state or federal Environmental Law), arising out of or in connection with any matter arising in connection with a Hazardous Material on or about the Premises except to the extent expressly provided in subsections 6(a) through 6(d) above, (g) Except as disclosed in the reports attached hereto as EXHIBIT D, true and correct copies of which have been delivered by Landlord to Tenant, to the best knowledge of Landlord: (i) no Hazardous Material is present on Premises, or the soil, surface water or groundwater thereof; (ii) no underground storage tanks or asbestos containing building materials are present on the Premise; and (iii) no action, 6 6. HAZARDOUS SUBSTANCES (CONTINUED) proceeding, or claim is pending or threatened regarding the Premise concerning any Hazardous Material or pursuant to any Environmental Law. Landlord has delivered to Tenant all reports and environmental assessments of the Premises conducted at the request of or otherwise available to Landlord and Landlord has complied with all environmental disclosure obligations imposed upon Landlord by applicable Law with respect to this transaction. (h) As used in this Lease, the term "Hazardous Material" shall mean any material or substance that is now or hereafter prohibited or regulated by any statute, law, rule, regulation or ordinance or that is now or hereafter designated by any governmental authority to be radioactive, toxic, hazardous or otherwise a danger to health, reproduction or the environment. As used herein "Environmental Laws" shall mean all local, state, or federal laws, statutes, ordinances, rules, regulations, judgments, injunctions, stipulations, decrees, orders, permits, approvals, treaties, or protocols now or hereafter enacted, issued or promulgated by any governmental authority which relate to any Hazardous Material or to the use, handling, transportation, production, disposal, discharge, release, emission, sale, or storage of, or the exposure of any person to, a Hazardous Material. 7. MAINTENANCE, REPAIR, ALTERATIONS AND REMOVALS (a) Except as otherwise provided in this Lease, Tenant shall, at its sole expense, keep neat and clean and maintain in good order, condition and repair the Premises and every part thereof, including, without limitation, the foundations, roof and drains and structural portions of the Premises, the exterior and interior portions of air conditioning, heating, sprinkler (if any) and electrical systems, all doors, windows, plate and glass surrounding the Premises, all plumbing and sewage facilities within the Premises, fixtures and interior walls, floors, ceilings and signs. (b) Subject to the express provisions of this Lease, Tenant shall keep the Property in a clean, sanitary and safe condition in accordance with the laws of the Commonwealth of Massachusetts and ordinances of the Town of Newburyport, and in accordance with all directions, rules and regulations of the Health Officer, Fire Marshall, Building Inspector and other proper officers of the governmental agencies having jurisdiction thereover. (c) Except as otherwise expressly provided in this Lease, Landlord shall not be responsible for maintaining or making any improvements or repairs of any kind upon the Property, but this paragraph is not intended to refer to damage by fire or other insured risk to the Premises, provision for which is hereafter made. Notwithstanding anything to the contrary in this Lease, Landlord shall perform and construct, and Tenant shall have no responsibility to perform or construct, any repair, maintenance or improvement (i) necessitated by the acts or omissions of Landlord, or its agents, employees, or contractors, (ii) required as a consequence of any violation of law, private servitude encumbering the Premises, or construction defect in the Improvements caused by Landlord or its agent, employee or contractor, and (iii) for which Landlord has a right of reimbursement from others. Tenant's obligation, if any, to reimburse Landlord for the costs of such repairs, maintenance and improvements shall be governed by the other provisions of this Lease. (d) Tenant shall not make any alterations or other structural or capital improvements or additions upon the Premises ("Alterations") without first obtaining, in each instance, the written consent of Landlord which shall not be unreasonably withheld. Notwithstanding the foregoing, Tenant shall have the right to make any and all Alteration to the interior space of the Premises, so long as such Alterations do not impact the structural integrity of the Premises. Notwithstanding anything to the contrary in this Lease, all Alterations, trade fixtures and personal property installed in the Premises at Tenant's expense ("Tenant's Property") shall at all times remain Tenant's property and Tenant shall be entitled to all depreciation, amortization and other tax benefits with respect thereto. Except for Alterations which cannot be removed without structural injury to the Premises, at any time Tenant may remove Tenant's Property from the Premises, provided Tenant repairs all damage caused by such removal. Landlord shall have no lien or other interest whatsoever in any item 7 7. MAINTENANCE, REPAIR, ALTERATIONS AND REMOVALS (CONTINUED) of Tenant's Property, or any portion thereof or interest therein located in the Premises or elsewhere, and Landlord hereby waives all such liens and interests. Within ten (10) days following Tenant's request, Landlord shall execute documents in form reasonably acceptable to Tenant to evidence Landlord's waiver of any right, title, lien or interest in Tenant's Property located at the Premises. (e) Except as expressly provided in this Lease, Landlord has not made and does not make any representation or warranty as to any matter affecting or relating to the Premises, including but not limited to the physical condition thereof, and Tenant acknowledges that no such representation or warranty has been made and agrees to lease the Premises in "AS IS" condition as of the date of this Lease, subject to the completion of Landlord's construction and delivery obligations and its assignment of warranties as set forth in the Improvement Agreement, and subject to all of the Landlord's other obligations hereunder. 8. [INTENTIONALLY DELETED.] 9. LANDLORD'S ACCESS TO PREMISES (a) Landlord and its designees shall have the right to enter upon the Premises at all reasonable hours and upon reasonable notice (except in an emergency) for the purpose of inspecting the same. If repairs are required to be made by Tenant pursuant to this Lease, Landlord may demand that Tenant make the same forthwith, and if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch, after such demand, Landlord may (but shall not be required to) make or cause such repairs to be made. If Landlord makes or causes such repairs to be made, Tenant shall within seven (7) days following demand of Landlord pay to Landlord the cost thereof reasonably incurred by Landlord, and if it shall default in such payment, Landlord shall have the remedies provided in Section 14. (b) For a period commencing nine (9) months prior to the termination of the Lease Term (including any extension thereof), upon written notice to Tenant, Landlord may have reasonable access to the Premises for the purpose of exhibiting the same to prospective tenants. 10. INDEMNIFICATION; PUBLIC LIABILITY INSURANCE; WORKERS' COMPENSATION INSURANCE (a) Subject to Section 10(e), below, Tenant shall indemnify and save harmless Landlord from and against all claims of whatever nature to the extent arising from (i) any act, omission or negligence occurring on the Premises during the Lease Term, or (ii) any negligent act or omission by Tenant, or Tenant's agents, employees, contractors, invitees, or other persons for whom Tenant is legally responsible wherever occurring during the Lease Term. This indemnity and hold harmless agreement shall include indemnity against all costs, expenses and liabilities reasonably incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof. (b) Tenant shall maintain in full force during the Lease Term a policy or public liability insurance insuring all Tenant's indemnities described in this Section 10. Under such policy Landlord (and such other persons as are in privity of estate with Landlord as may be set out in notice from time to time delivered to Tenant) and Tenant shall be named as insureds. Each such policy shall be non- cancellable with respect to Landlord and Landlord's said designees without thirty (30) days' prior written notice to Landlord, and a duplicate original or certificate thereof shall be delivered to Landlord at the beginning of the Lease Term and upon request thereafter. he minimum limits of liability of such insurance shall be ONE MILLION DOLLARS ($1,000,000.00) per occurrence for personal injury (or death) and [THREE MILLION DOLLARS ($3,000,000.00)] per occurrence with respect to damage to property. 8 10. INDEMNIFICATION; PUBLIC LIABILITY INSURANCE; WORKERS' COMPENSATION INSURANCE (CONTINUED) In the event Tenant fails to provide such insurance, Landlord may purchase such insurance and Tenant agrees that within seven (7) days following demand of Landlord it will pay to Landlord the cost thereof, and if it shall default in such payment, Landlord shall have the remedies provided in Section 14. (c) Tenant shall maintain all workers' compensation and other insurance in compliance with all applicable laws. (d) Tenant shall use and occupy the Premises at its own risk, and Landlord shall have no responsibility or liability for any loss of or damage to fixtures or other personal property of Tenant. (e) Notwithstanding anything to the contrary in this Lease, Tenant shall neither release Landlord from, nor indemnify Landlord with respect to: (i) the negligence or willful misconduct of Landlord, or its employees, agents, contractors, or other persons for whom Landlord is legally liable; or (ii) a breach of Landlord's obligations or representations under this Lease, or (iii) a violation of any law, rule or regulation by Landlord, its agents, contractors, employees, or other persons for whom Landlord is legally liable. Landlord shall indemnify and save harmless Tenant from and against all claims of whatever nature to the extent arising from (i) any act, omission or negligence occurring on the Premises prior to or after the Lease Term, or (ii) any negligent act or omission by Landlord, or Landlord's agents, employees, contractors, invitees, or other persons for whom Landlord is legally responsible wherever occurring during the Lease Term. This indemnity and hold harmless agreement shall include indemnity against all costs, expenses and liabilities incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof. 11. PROPERTY INSURANCE (a) Tenant shall keep, at its expense (which shall be deemed additional rent), the Premises insured against loss or damage by fire with the usual extended coverage endorsements in amounts not less than one hundred percent (100%) of the full replacement value thereof above foundation walls. (b) Tenant shall keep Tenant's own fixtures, merchandise and equipment insured against loss or damage by fire, vandalism and theft with the usual extended coverage endorsements, in such amounts and with such insurance carriers as Tenant shall determine. It is understood and agreed that Tenant assumes all risk of damage to its own property arising from any cause whatsoever, including, without limitation, loss by theft or otherwise. (c) Insofar as and to the extent that the following provision may be effective without invalidating or making it impossible to secure insurance coverage obtainable from responsible insurance companies doing business in the Commonwealth of Massachusetts (even though extra premium may result therefrom), Landlord and Tenant mutually agree that with respect to any loss which is covered by insurance then being carried by them, respectively, or which would be covered by a standard form of full replacement cost, extended coverage, all-risk casualty insurance, each releases the other and their respective officers, directors, employees, successors and assigns of and from any and all claims with respect to such loss; and they further mutually agree that their respective insurance policies shall provide that the insurer waives its right to be subrogated to the rights of the insured against the other party or its agents, servants or employees for any loss payable under the policy and that the insurance shall not be validated by reason of the insured's waiver of subrogation. In the event that an extra premium is payable by either party as a result of this provision, the other party shall reimburse the party paying such premium for the amount of such extra premium. If either party is unable to obtain a waiver of subrogation from its insurer, the said party shall name the other as an additional insured on their casualty insurance. 9 12. DAMAGE TO PROPERTY (a) In case during the Lease Term the Premises shall be damaged by fire or other casualty Landlord shall proceed forthwith to repair such damage and restore the Premises to substantially their condition at the time of such damage subject to any zoning laws then in existence, but Landlord shall not be responsible for any delay which may result from any cause beyond Landlord's reasonable control and Landlord shall not be required to commence such work until it receives any proceeds it will receive with respect to the loss. Landlord and Tenant shall use all reasonable efforts to obtain such proceeds within a reasonable time. In no event shall Landlord be obligated to pay for any such repairs or restoration in excess of available insurance proceeds. (b) If damage to the Premises is not covered by the insurance Tenant is required to carry pursuant to Section 11 and the cost to restore such damage exceeds 20% of the replacement cost of the Premises, then Landlord, within sixty (60) days after the occurrence of such event may give written notice to Tenant of its election to terminate this Lease, unless Tenant agrees in its discretion to reimburse the Landlord for the amount of such uncovered costs in excess of 20% of the replacement cost of the Premises. (c) If the Premises are damaged to such an extent that the restoration thereof is not reasonably estimated to be completed within 180 days following the destructive event or if the restoration of the Premises is for any reason not actually completed within 180 days following the destructive event, then Tenant shall have the right to terminate this Lease by delivery of written notice to Landlord. (d) In the event that the provisions of Section 12(a), (b ), or (c) shall become applicable, the Base Rent shall be abated or reduced proportionately to the interference with the Tenant's use of the Premises caused by the casualty (and Landlord shall return a pro rata portion of the semi-annual advance Base Rent payment) during any period in which, by reason of such damage or destruction, there is substantial interference with the operation of the business of Tenant in the Premises, having regard to the extent to which Tenant may be required to discontinue its business in the Premises, and such abatement or reduction shall continue for the period commencing with such destruction or damage and ending with the completion by Landlord of such repair or reconstruction as Landlord is obligated to complete. In the event of termination of this Lease pursuant to this Section 12, this Lease and the Lease Term hereof shall cease and come to an end within a reasonable time after notice of termination as is required to permit Tenant to remove its property from the Premises. 13. EMINENT DOMAIN (a) If the Premises, or such portion thereof as to render the balance (when reconstructed) unsuitable for the purposes of Tenant, shall be taken by condemnation or right of eminent domain, Tenant, upon written notice to Landlord, shall be entitled to terminate this Lease, provided that such notice is given not later than sixty (60) days after Tenant has been deprived of possession. Should any part of the Premises be so taken or condemned, and should this Lease not be terminated in accordance with the foregoing provision, Landlord covenants and agrees promptly after such taking or condemnation, and the determination of Landlord's award therein, to expend so much as may be necessary of the net amount which may be awarded to Landlord in such condemnation proceedings in restoring the Premises to an architectural unit as nearly like their condition prior to such taking as shall be practicable. Should the net amount so awarded to Landlord be insufficient to cover the cost of restoring the Premises, as estimated by Landlord's architect, Landlord may, but shall not be obligated to, supply the amount of such insufficiency and restore said Premises as above provided, with all reasonable diligence, or Landlord may terminate this Lease, if Tenant does not supply the necessary additional funds or agree to a reduction in the Landlord's restoration obligation. Where Tenant has not already exercised any right of termination accorded to it under the foregoing portion of this paragraph, Landlord shall notify Tenant of Landlord's election not later than ninety (90) days after the final determination of the amount of the award. 10 13. EMINENT DOMAIN (CONTINUED) (b) Out of any award for any taking of the Premises, in condemnation proceedings or by right of eminent domain, Landlord shall be entitled to receive and retain the amounts awarded for such Premises and for Landlord's loss of Landlord's estate in this Lease. Tenant shall (i) execute any instruments of assignment as may be reasonably required by Landlord, (ii) join in any petition for recovery of damages as Landlord may reasonably request, and (iii) turn over to Landlord any damages that may be recovered in any proceeding which are the property of Landlord under this Section. Tenant shall be entitled to receive and retain any amounts which may be specifically awarded to it in any such condemnation proceedings, because of the taking of its trade fixtures or furniture and its leasehold improvements loss of goodwill, severance damages, and moving costs to the extent Tenant was not reimbursed for the same by Landlord. (c) In the event of any such taking of the Premises, the minimum rent or a fair and just proportion thereof, according to the nature and extent of the damage sustained, shall be suspended or abated, and Landlord shall return a pro rata portion of the semiannual advance Base Rent payment to Tenant. 14. DEFAULT AND LANDLORD'S REMEDIES (a) Any one of the following shall be deemed to be a "Default" or an "Event of Default": (i) Failure on the part of Tenant to make payment of rent or any other monetary amount due under this Lease within thirty (30) days after written notice that such payment is past due. (ii)With respect to a non-monetary default under this Lease, failure of Tenant to cure the same within thirty (30) days from the time of receipt of written notice of default from Landlord or such additional period reasonably required to cure the default. With respect to defaults requiring more than thirty (30) days to cure, Tenant shall be obligated to commence forthwith and to complete as soon as reasonably possible the curing of such default; and if Tenant fails so to do, the same shall be deemed to be an Event of Default. (iii) The occurrence of any of the following events: (1) the estate hereby created being taken on execution or by other process of law; (2) Tenant being judicially declared bankrupt or insolvent according to law; (3) a general assignment being made of the property of Tenant for the benefit of creditors; (4) a receiver, guardian, conservator, trustee in involuntary bankruptcy or other similar officer being appointed to take charge of all or any substantial part of Tenant's property by a court of competent jurisdiction; or (5) Tenant executing a trust mortgage, or a petition being filed by or against Tenant in bankruptcy, or for reorganization or for arrangements under any provisions of the Bankruptcy Act now or hereafter enacted, providing a plan for a debtor to settle, satisfy or extend the time for the payment of debts, and such petition shall not have been dismissed within thirty (30) days. (b) Should any Event of Default occur then, notwithstanding any license of any former breach of covenant or waiver of the benefit hereof or consent in a former instance, Landlord lawfully may, in addition to any remedies otherwise available to Landlord, immediately or at any time thereafter, upon ten (10) days prior written notice, enter into and upon the Premises or any part thereof in the name of the whole and repossess the same as of Landlord's former estate, and expel Tenant and those claiming through or under it and remove its or their effects (forcibly as permitted by applicable law if necessary) without being deemed guilty of any manner of trespass, and without prejudice to any remedies which might otherwise be used for arrears of rent or preceding breach of covenant and/or Landlord may send written notice to Tenant terminating the Lease Term; and upon the first to occur of: (i) entry as aforesaid; or (ii) the thirtieth (30th) day following mailing of such notice of termination, this Lease shall terminate. (c) Tenant shall, notwithstanding any termination of this Lease as aforesaid or any entry or re-entry by Landlord, whether by summary proceedings, termination or otherwise, pay and be liable for 11 14. DEFAULT AND LANDLORD'S REMEDIES (CONTINUED) on the days originally fixed herein for the payment thereof, amounts equal to the several installments of rent and other charges reserved as they would, under the terms of this Lease, become due if this Lease had not been terminated or if Landlord had not entered or re-entered, as aforesaid, and whether the Premises be relet or remain vacant, in whole or in part, or for a period less than the remainder of the Lease Term, and for the whole thereof; but Landlord agrees to use reasonable efforts to relet the Premises and in the event the Premises be relet by Landlord, Tenant shall be entitled to a credit in the net amount of rent received by Landlord in reletting, after deduction of all expenses reasonably incurred in reletting the Premises (including, without limitation, remodeling costs, brokerage fees, attorneys' fees, repairing, cleaning, moving and storage costs, and the like), and in collecting the rent in connection therewith. Nevertheless, in case of such termination Landlord at its election which may be made or changed at any time without notice shall be entitled to collect and receive from Tenant such sum or sums to which it may be entitled as rent hereunder for the balance of the Lease Term, or demand and receive from Tenant indemnity against loss of the aforesaid rent hereunder for the balance of the Lease Term, or collect and receive from Tenant as damages a sum which at the time of such termination represents the difference between the fair rental value of the Premises and the rent herein stated for the balance of the Lease Term, which difference shall be discounted to its present value, or to enforce such other remedies as are available to it by law. In any event, in the event of default Tenant shall be liable to Landlord for all expenses reasonably incurred in connection with such default, including those described in the first paragraph of this Section and including reasonable attorneys' fees. (d) Landlord shall in no event be in default in the performance of any of Landlord's obligations hereunder unless and until Landlord shall have failed to perform such obligations within thirty (30) days or such additional time as is reasonably required to correct any such default after notice by Tenant to Landlord properly specifying wherein Landlord has failed to perform any such obligation. If Landlord is in default under this Lease, Landlord shall (i) be responsible for its reasonable costs and expenses which relate to its default (including court costs and Tenant's attorneys' fees), and (ii) return a pro rata portion of the semi-annual advance Base Rent payment to Tenant, if Tenant is permitted to terminate the Lease. (e) If Tenant abandons or vacates the Premises, any property left by Tenant shall be deemed abandoned and Landlord shall have the right to dispose thereof without accountability to Tenant as permitted by law. (f) Landlord shall use its best efforts to mitigate any damages resulting from any default by Tenant, and Tenant shall not in any event be liable for any damages reasonably mitigable by Landlord. 15. REPRESENTATIONS OF TENANT Tenant represents and warrants to Landlord that it is a corporation which is duly organized, validly existing and in good standing under the laws of the State of California, with all required power and authority to execute this Lease and perform its obligations hereunder and such performance will not violate or result in a default under any contract, mortgage, lien, judgment or order to which Tenant is a party or by which Tenant is bound. 16. RIGHT OF FIRST REFUSAL In the event Landlord shall receive an offer to purchase, ground lease, or otherwise acquire the legal and/or beneficial ownership interest in the Premises, or any interest therein, in whole or in part ("Offer of Purchase") during the Lease Term, or any extension thereof, and the offer of purchase shall be satisfactory to Landlord, Landlord shall give Tenant the privilege of purchasing the Premises or the interest or portion thereof to be acquired at the price and on the terms of the offer so made. This 12 16. RIGHT OF FIRST REFUSAL (CONTINUED) privilege shall be given by a notice sent to Tenant at the Premises by registered mail, requiring Tenant to accept the offer in writing and to sign a suitable contract to purchase the Premises within the period of fifteen (15) days after the mailing of the notice. The failure of Tenant to accept the offer to purchase or sign a contract within the period provided shall waive Tenant's rights under this Section on that occasion, but shall not waive Tenant's right to first refusal on other occasions, and Landlord shall be at liberty to sell the Premises to any other person, firm or corporation. Any subsequent sale, except to Tenant, shall be subject to this Lease and any renewals or extensions hereof and to this Section 18. The successor in interest to Landlord shall not disturb Tenant's possession under this Lease if Tenant is not in default hereunder and shall perform all Landlord's unperformed obligations. This right of first refusal shall not apply to any transfer by Landlord of the property to any person who controls, is under common control with, or is controlled by Landlord or to Landlord's spouse or lineal descendants (or to a trust or other legal entity exclusively for their benefit) for estate planning purposes, provided such transferees shall thereafter be subject to this Section 18 with respect to subsequent transfers. 17. MISCELLANEOUS PROVISIONS (a) SUBLEASE AND ASSIGNMENT. Tenant shall not sublease any more than thirty percent (30%) of the square footage of the Leased Premises or assign this Lease or any of its rights hereunder without the express prior written approval of Landlord, which consent may not be unreasonably withheld and shall be deemed given if not reasonably withheld in writing within 10 days following delivery to Landlord of a written request for consent. In the event Landlord consents to an assignment or a sublease, Tenant shall remain fully liable for the obligations of Tenant hereunder, including, without limitation, the obligation to pay the rent and other amounts provided under this Lease. Consent by Landlord to any such sublease shall not be deemed to be a consent to a subsequent sublease nor shall any sublessee have any further right to sublease. Notwithstanding anything to the contrary in the Lease Form, Tenant may, without Landlord's prior written consent and without any participation by Landlord in assignment and subletting proceeds, sublet the Premises or assign the Lease to: (i) a subsidiary, affiliate, division or corporation controlling, controlled by or under common control with Tenant; or (ii) a successor corporation related to Tenant by merger, consolidation, nonbankruptcy reorganization, or government action. For the purpose of this Lease, sale of Tenant's capital stock through any public exchange shall not be deemed an assignment, subletting, or any other transfer of the Lease or the Premises. (b) WAIVER. Failure on the part of either party to complain of any action or non-action on the part of Tenant, no matter how long the same may continue, shall never be deemed to be a waiver by Landlord of any of its rights hereunder. No waiver at any time of any of the provisions hereof by either party shall be construed as a waiver of any of the other provisions hereof, and no waiver at any time of any of the provisions hereof shall be construed as a waiver at any subsequent time of the same provisions. The consent or approval of a party to or of any action by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary consent or approval to or of any subsequent similar act. No payment, or acceptance, of a lesser amount than shall be due shall be treated otherwise than as a payment on account. The acceptance of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check, that such lesser amount is payment in full, shall be given no effect, and a party may accept such check without prejudice to any other rights or remedies which the party may have. (c) COVENANT OF QUIET ENVIRONMENT. Tenant, subject to the terms and provisions of this Lease on payment of the rent and observing, keeping and performing all of the terms and provisions of this Lease on its part to be observed, kept and performed, shall lawfully, peaceably and quietly have, hold, 13 17. MISCELLANEOUS PROVISIONS (CONTINUED) occupy and enjoy the Premises during the Lease Term without hindrance or ejection by any persons lawfully claiming under Landlord; but it is understood and agreed that this covenant and any and all other covenants of Landlord contained in this Lease shall be binding upon Landlord and Landlord's successors only with respect to breaches occurring during Landlord's and Landlord's successors' respective ownership of Landlord's interest hereunder. Subject to Landlord's duty to complete the Improvements, it is further understood and agreed that with respect to any services to be furnished, neither Landlord or Tenant shall in no event be liable for failure to furnish the same when prevented from so doing by strike, lockout, breakdown, accident, order or regulation of or by any governmental authority, or failure of supply, or inability by the exercise of reasonable diligence to obtain supplies, parts or employees necessary to furnish such services, or because of war or other emergency, or for any cause beyond their reasonable control, or for any cause due to any act or neglect of the other party or its servants, agents, employees, licensees, contractors or any person claiming by, through or under the other party. (d) STATUS REPORT. Recognizing that both parties may find it necessary to establish to third parties, such as accountants, banks, mortgagees, or the like, the then current status of performance hereunder, either party, on the written request of the other made from time to time, will promptly furnish a written statement of the status of any matter pertaining to this Lease, which the other party reasonably requests. (e) NOTICE TO MORTGAGEE. After receiving written notice from any person, firm or other entity, that it holds a mortgage (which term shall include a deed of trust) which includes as part of the mortgaged premises the Premises, Tenant shall, so long as such mortgage is outstanding, be required to give to such holder the same notice as is required to be given to Landlord under the terms of this Lease, but such notice may be given by Tenant to Landlord and such holder concurrently. It is further agreed that such holder shall have the same opportunity to cure any default, and the same time within which to affect such curing, as is available to Landlord; and if necessary to cure such a default, such holder shall have access to the Premises. (f) ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage or deed of trust on the Premises, Tenant agrees: (i) that the execution thereof by Landlord, and the acceptance thereof by such holder, shall never be deemed an assumption by such holder of any of the obligations of Landlord hereunder, unless such holder shall, by written notice sent to Tenant, specifically otherwise elect; (ii)that, except as aforesaid, such holder shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such holder's mortgage or deed of trust and the taking of possession of the Premises by such holder; and (iii) Tenant shall, at the request of Landlord, execute a consent to any such assignment of the Lease and an agreement to attorn to such mortgagee in the event of its exercise of its right under the assignment. (g) LEASE SUBORDINATE TO MORTGAGE. The rights and interest of Tenant under this Lease shall be subject and subordinate to any mortgages or deeds of trust that may hereafter be placed upon the Premises and to any and all advances to be made thereunder, and to the interest thereon, and all renewals, modifications, replacements and extensions thereof, if the mortgagee or trustee named in said mortgages or deeds of trust shall elect by written notice delivered to Tenant at the time the encumbrance is created to subject and subordinate the rights and interest of Tenant under this Lease to the lien of its mortgage or deed of trust; provided, however, that said mortgagee agrees to execute an agreement providing, in substance, that in consideration of Tenant's written agreement to continue occupancy under the same terms and conditions of this Lease and to attorn to mortgagee, the right of 14 17. MISCELLANEOUS PROVISIONS (CONTINUED) possession of Tenant to the Premises and Tenant's rights arising out of this Lease, shall not be disturbed by the mortgagee in the exercise of its rights under the mortgage or deed provided that Tenant shall not be in default hereunder. In the event of such election, and upon notification by such mortgagee or trustee to Tenant to that effect and delivery of a recognition and non-disturbance agreement in a form reasonably acceptable to Tenant, the rights and interest of Tenant under this Lease shall be deemed to be subordinate to the lien of said mortgage or deed of trust, whether this Lease is dated prior to or subsequent to the date of said mortgage or deed of trust, and no further instrument of subordination shall be necessary; provided, however, that Tenant shall execute and deliver whatever instruments said mortgagee or trustee may reasonably require for such purposes, and in the event Tenant fails so to do within twenty (20) days after demand in writing, Tenant does hereby make, constitute and irrevocably appoint Landlord as its attorney-in-fact and in its name, place and stead so to do. (h) MECHANICS' LIENS. Tenant shall immediately discharge (either by payment or by filing of the necessary bond, or otherwise) any mechanic's, materialmen's or other lien against the Property and/or Landlord's interest therein, which liens may arise out of any payment due for, or purported to be due for, any labor, services, materials, supplies or equipment alleged to have been furnished to or for Tenant after completion of the Improvements in, upon or about the Property. Landlord shall immediately discharge (either by payment or by filing of the necessary bond, or otherwise) any mechanic's, materialmen's or other lien against the Premises and/or Tenant's interest therein, which liens may arise out of any payment due for, or purported to be due for, any labor, services, materials, supplies or equipment alleged to have been furnished to or for Landlord in, upon or about the Premises. (i) NO BROKERS. Tenant and Landlord warrant and represent that neither has dealt with any broker in connection with the consummation of this Lease other than Mr. Clifford Hurley of the Leggat Company, Inc., 1 Liberty Square, Boston, Massachusetts. Landlord shall pay any commission due to said broker. (j) INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. (k) PROVISIONS BINDING. Except as herein otherwise expressly provided, the terms hereof shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, successors and assigns, respectively, of Landlord and Tenant. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to assignment by Tenant not permitted by this Lease, but as reference only to those instances permitted by this Lease. (l) RECORDING. Tenant shall not record the Lease, but the parties shall execute and record a Notice of Lease (and the rights of first refusal and the options hereunder) in recordable form and complying with applicable Massachusetts laws, and reasonably satisfactory to Tenant's and Landlord's attorneys. In no event shall such document set forth the rental or other charges payable by Tenant under this Lease; and such document shall expressly state that it is executed pursuant to the provisions contained in this Lease, and is not intended to vary the terms and conditions of this Lease. 15 17. MISCELLANEOUS PROVISIONS (CONTINUED) (m) NOTICES. All notices shall be in writing and delivered by certified mail or personal delivery, to the parties at the addresses set forth below, or to such other address or addresses as the parties may from time to time hereafter designate: Landlord: G. Christopher Peznola Berkshire Acquisition Corporation 1500 Main Street, Suite 2012 Springfield, MA 01115 With copy to: Robinson Donovan Madden & Barry, P.C. 1500 Main Street, Suite 1600 Springfield, MA 01115 Attn: Robert P. Cunningham, Esq. Tenant: Division Controller Genus, Inc. Ion Technology Division 4 Mulliken Way Newburyport, MA 01950 With copies to: Genus, Inc. 1139 Karlstad Dr. Sunnyvale, CA 94089 Attn: Chief Financial Officer and Wilson, Sonsini, Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304-1050 Attn: Real Estate Dept. (n) HEADINGS. The headings throughout this instrument are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease. (o) ENTIRE AGREEMENT. All negotiations, consideration, representations and understandings between Landlord and Tenant are incorporated in this Lease, the Improvement Agreement, and in the schedules and exhibits attached hereto and thereto, all of which are hereby incorporated herein by this reference and all of which may be modified or altered only by agreement in writing between Landlord and Tenant. No act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof. (p) GOVERNING LAW. This Lease shall be governed exclusively by the provisions hereof and by the laws of the Commonwealth of Massachusetts, as the same may from time to time exist. 18. ACQUISITION OF PROPERTY Concurrently herewith Landlord shall forthwith enter into a Purchase and Sale Agreement with the Newburyport Area Industrial Development Corporation, in form and substance reasonably satisfactory to Tenant (the "Purchase Agreement"), for the 10.62 acres of land in the Lord Dexter Industrial Park, known as Lot 62, Stanley Tucker Drive, Newburyport, Massachusetts, as more particularly described in EXHIBIT A to this Lease (the "Property"). Landlord shall perform its obligations under the Purchase Agreement so that the purchase may close on or before September 30, 16 18. ACQUISITION OF PROPERTY (CONTINUED) 1995. Landlord hereby acknowledges that there are no conditions precedent to the Landlord's obligation to purchase the Property under the Purchase Agreement, other than that Landlord obtains record and marketable title to the Property from the seller thereof, with only those exceptions to title permitted by the Purchase Agreement. 19. PREPAID RENT & SECURITY DEPOSIT Concurrently with the Landlord's acquisition of the Premises pursuant to the Purchase and Sale Agreement, the Tenant shall deposit into escrow, for delivery to Landlord on the Commencement Date, (1) good funds in the amount of Five Hundred Thousand Dollars ($500,000.00) as prepayment of the last Base Rent payable during the Initial Term (the "Prepaid Rent") and (2) a letter of credit "Security Deposit" or evidence of a cash "Security Deposit" with a custodian complying with the requirements of this paragraph. Within three (3) days following delivery of written notice to the escrow holder that the Commencement Date has occurred, the escrow holder shall deliver the Prepaid Rent and the letter of credit Security Deposit or evidence of the cash custodial Security Deposit, as the case may be, to the Landlord. Tenant shall promptly execute such documents as the Landlord shall reasonably request to accomplish such delivery of the Prepaid Rent and such Security Deposit items to the Landlord. The Prepaid Rent shall be retained by Landlord as a prepayment of the last Base Rent payable during the Initial Term of this Lease. The Security Deposit shall be held by the Landlord or the custodian, as security for Tenant's performance of its obligations hereunder, and not as prepayment of rent. Tenant shall provide the Security Deposit in one of the following forms, or combination thereof from time to time, at its option: (1)Tenant shall deliver to the Landlord, at Tenant's sole cost, an irrevocable letter of credit in the form attached hereto as EXHIBIT E (an "ILC") which (i) is drawn upon a financial institution reasonably acceptable to Landlord, (ii) is irrevocable, unconditional and transferrable, (iii) is for a term of at least twelve (12) months, and (iv) may be drawn upon by Landlord at sight upon submission of a declaration by an officer of Landlord, under penalty of perjury, declaring that the Landlord is entitled to draw upon the ILC. If Tenant provides Landlord with an ILC meeting the foregoing requirements, then any cash being held as a Security Deposit in excess of the total Security Deposit requirements stated below shall be returned to Tenant upon demand. (2)Tenant shall deposit with a financial institution selected by Tenant and reasonably acceptable to Landlord, cash or federally insured bonds and/or notes to be held by such institution in accordance with a pledge and custodial agreement in the form of attached EXHIBIT C. All interest accruing on any such deposit shall be paid to Tenant as earned. The Security Deposit shall be in the following amounts during the following time periods of the Lease Term: Commencement Date until the Fifth Anniversary of the Commencement Date $ 2,800,000 Fifth Anniversary of the Commencement Date until the Tenth Anniversary of the Commencement Date $ 1,850,000 Tenth Anniversary of the Commencement Date until the Thirteenth Anniversary of the Commencement Date $ 900,000 Thirteenth Anniversary of the Commencement Date until the Fourteenth Anniversary of the Commencement Date $ 500,000 After the Fourteenth Anniversary of the Commencement Date $ 0
17 19. PREPAID RENT & SECURITY DEPOSIT (CONTINUED) Landlord may from time to time draw upon the Security Deposit, if, but only if, one of the following "Drawing Conditions" is satisfied: (1) FIRST DRAWING CONDITION. The Tenant fails to pay any Base Rent payable under this Lease within thirty (30) days following notice to Tenant that the amount is past due, and as of the date of the notice of such past due rent the most recent public financial statement filing in Tenant's 10K or 10Q filed with the Securities Exchange Commission ("SEC") reflects an amount of shareholder equity of less than Twenty-Five Million Dollars ($25,000,000.00). In the event Tenant becomes a private company and no longer files with the SEC, such shareholder equity shall be measured based on audited annual financial statements prepared in accordance with generally accepted accounting principles. (2) SECOND DRAWING CONDITION. The Tenant fails to pay any Base Rent payable under this Lease within thirty (30) days following notice to Tenant that the amount is past due. (3) THIRD DRAWING CONDITION. Landlord has not received a renewed ILC nor an ILC commitment issued for a minimum of an additional one (1) year period as of the date which is fourteen (14) days prior to the then stated expiration date of the ILC. In the event of the First Drawing Condition set forth above occurs, the Landlord shall have the right to draw upon the ILC and retain the proceeds of said ILC or other form of Security Deposit held hereunder as payment for Tenant's violation of the security provision set forth herein. In no event, however, shall any payments rendered hereunder be construed as liquidated damages and Landlord shall have all rights at law and in equity reserved; provided, however, that the amount of the Security Deposit paid to Landlord shall reduce, but not below zero, the amount of damages which may be owing by Tenant to Landlord on account of the Event of Default. In the event the Second Drawing Condition occurs, the Landlord shall have the right to draw upon the ILC and retain the amount of proceeds of said ILC or other form of Security Deposit held hereunder equal to the amount of past due Base Rent payable under the terms of the Lease plus reasonable costs of collection thereof with the balance of the ILC proceeds to be remitted to Landlord's lender, Shawmut Bank, N.A. (the "Custodian"), as custodian. Such proceeds shall be held by Custodian in escrow under the Pledge and Custodial Agreement as required for any non-ILC Security Deposit hereunder unless and until the ILC is replaced with another ILC complying with this section. If the amount of said past due Base Rent plus costs is not reimbursed by Tenant in the form of a replacement ILC or additional Security Deposit to the Custodian for a period of sixty (60) days following notice to Tenant that the amount of Base Rent is past due, then, upon written notice from Landlord, the remaining proceeds of the ILC or other form of Security Deposit held by Custodian shall be immediately remitted to Landlord as payment for Tenant's violation of the security provision set forth herein and treated in the manner described above as if the First Drawing Condition occurred. If the Third Drawing Condition is satisfied, all of the proceeds of the ILC may be drawn for immediate remittance to Custodian and such proceeds shall be held by Custodian in escrow under the Pledge and Custodial Agreement as required for any non-ILC Security Deposit hereunder, unless and until the ILC is replaced with another ILC complying with this Section. In the event the Security Deposit or any portion thereof is applied by Landlord to cure any failure of the Tenant to pay Base Rent owing by the Tenant hereunder, Tenant agrees to restore the deposit to the full amount thereof upon demand. The Security Deposit (or so much of it that has not been applied to cure Tenant's default in accordance with this paragraph) shall be returned to Tenant within fourteen (14) days following the expiration of the Lease Term. If Landlord transfers the Premises during the Lease Term, Landlord shall deliver the Security Deposit to the transferee of Landlord's interest, in which event the transferring Landlord will be released from all liability for the return of the Security Deposit. 18 19. PREPAID RENT & SECURITY DEPOSIT (CONTINUED) In the event Tenant fails to pay any Base Rent payable under this Lease within thirty (30) days following notice to Tenant that the amount is past due, but Tenant's shareholder equity is determined in the First Drawing Condition stated above to be greater than Twenty-Five Million Dollars ($25,000,000.00), then the parties agree that the Security Deposit (including any ILC constituting the Security Deposit) shall continue to be maintained and survive any Default by Tenant under this Lease. In addition, if any such Default in a Base Rent payment occurs, then the amortization of the amount of the Security Deposit as the Lease Term elapses, as specified above, shall be suspended for the time period of any such Default. Upon cure of the Default, the Security Deposit may be reduced in accordance with the foregoing schedule. The obligations of this Section 19 shall survive any expiration of termination of this Lease. 20. [INTENTIONALLY DELETED.] 21. [INTENTIONALLY DELETED.] 22. ATTORNEYS' FEES Notwithstanding anything to the contrary in the Lease Form, if either Landlord or Tenant shall bring any action or legal proceeding for an alleged breach of any provision of this Lease, to recover rent, to terminate this Lease or otherwise to enforce, protect or establish any term or covenant of this Lease, the prevailing party shall be entitled to recover as a part of such action or proceeding, or in a separate action brought for that purpose, reasonable attorneys' fees, court costs, and expert fees as may be fixed by the court. "Prevailing party" as used in this Paragraph includes a party who dismisses an action for recovery hereunder in exchange for sums allegedly due, performance of covenants allegedly breached or considerations substantially equal to the relief sought in the action. 23. TENANT'S RIGHTS ON TERMINATION Landlord acknowledges that the Property was designated by Tenant for acquisition by Landlord. Accordingly, if this Lease terminates prior to the Commencement Date because Landlord is unwilling or unable to complete the Improvements in accordance with this Lease and the Improvement Agreement for causes other than the Default of Tenant, then Tenant shall have the option to purchase the Premises (including the Property and the Improvements then existing) from Landlord. This option may be exercised at anytime prior to the twentieth (20th) day following delivery of Landlord's notice to Tenant that the Lease has terminated and that if Tenant does not exercise the option herein granted within twenty (20) days following delivery of said notice then such option shall be deemed waived. Upon exercise by Tenant of its option to purchase the Landlord shall sell the Premises to the Tenant and the Tenant shall purchase the Premises from the Landlord. To facilitate such purchase the parties shall execute a purchase agreement memorializing their obligations and containing any other provisions required to complete the conveyance in accordance with local custom; provided, however that if the parties cannot agree upon such customary terms within ten (10) days following either party's request for an agreement, then the customary terms shall be determined by the presiding judge of the Essex County court having jurisdiction over the Premises in the State of Massachusetts. The purchase shall close on the forty-fifth (45th) day following delivery to Landlord of Tenant's exercise notice. The purchase price of the property shall be equal to that portion of the Construction Cost (as defined in the Improvement Agreement) actually paid or incurred by the Landlord prior to the date of the closing of the sale of the Premises to the Tenant, less any damages legally recoverable by Tenant on account of Landlord's default. Title to the Premises shall be delivered to Tenant in the condition received by Landlord from the Seller, as evidenced by a title insurance policy in the form obtained by Landlord when it purchased the Property from said seller. [SIGNATURE BLOCKS ON NEXT PAGE] 19 WITNESS the execution hereof, under seal, in any number of counterpart copies, each of which counterpart copies shall be deemed to be an original for all purposes as of the day and year first above written. BERKSHIRE-NEWBURYPORT LIMITED PARTNERSHIP, Landlord By - -------------------------------------------- ------------------------------------------- Witness OSCAR N. PLOTKIN, President of Newburyport General Corp., its general partner
GENUS, INC., Tenant By - -------------------------------------------- ------------------------------------------- Witness Its --------------------------------------------
[ATTACH NOTARY ACKNOWLEDGMENTS AND SEAL AS REQUIRED BY LAW] 20 EXHIBIT A LEASED PREMISES 21 EXHIBIT B TENANT'S "SPECIALIZED IMPROVEMENTS" [NEED TO ATTACH INITIAL LIST -- LIST WILL BE AUGMENTED AT TENANT'S REQUEST, IF CONSTRUCTION COST EXCEEDS [COST ESTIMATE]] 22 EXHIBIT C [ATTACH FORM OF PLEDGE & CUSTODIAL AGREEMENT] 23 EXHIBIT D [ATTACH ENVIRONMENTAL REPORTS] 24 EXHIBIT E [ATTACH FORM OF IRREVOCABLE LETTER OF CREDIT] 25 EX-11.1 3 EXHIBIT 11.1 EXHIBIT 11.1 GENUS, INC. COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE (A) (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Average common shares outstanding.............................................. 15,334 12,545 12,170 Computation of incremental outstanding shares Net effect of dilutive stock options based on treasury stock method.......... 729 561 -- --------- --------- --------- 16,063 13,106 12,170 --------- --------- --------- --------- --------- --------- Net income (loss).............................................................. $ 19,282 $ 4,177 $ (6,883) --------- --------- --------- --------- --------- --------- Earnings (loss) per share (b).................................................. $ 1.20 $ 0.32 $ (0.57) --------- --------- --------- --------- --------- ---------
(a) See Note 1 of Notes to Consolidated Financial Statements. (b) Primary and fully diluted earnings per share are materially the same for all years presented. S-1 SCHEDULE II GENUS, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
COLUMN B COLUMN C COLUMN E ----------- ----------- ----------- COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE - ----------------------------------------------------------------- BEGINNING COSTS AND ---------- AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD - ----------------------------------------------------------------- ----------- ----------- ---------- ----------- 1995 Allowance for doubtful accounts.................................. $ 250 $ -- $ -- $ 250 Inventory reserves............................................... 2,665 995 389 3,271 Product warranty and installation accruals....................... 2,394 3,640 1,716 4,318 1994 Allowance for doubtful accounts.................................. 250 0 0 250 Inventory reserves............................................... 3,250 947 (1,533) 2,665 Product warranty and installation accruals....................... 2,042 2,094 (1,742) 2,394 1993 Allowance for doubtful accounts.................................. 270 475 (495) 250 Inventory reserves............................................... 4,766 1,419 (2,935) 3,250 Product warranty and installation accruals....................... 1,737 1,381 (1,076) 2,042
S-2 EX-13. 4 EXHIBIT 13.1 EXHIBIT 13.1 FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 ----------- --------- --------- Net sales..................................................................... $ 100,350 $ 63,616 $ 44,236 Net income (loss)............................................................. 19,282 4,177 (6,883) Net income (loss) per share................................................... 1.20 0.32 (0.57) Working capital............................................................... 50,061 23,201 22,162 Shareholders' equity.......................................................... 75,361 36,986 31,751
To Our Shareholders Genus achieved considerable success during 1995 due to a substantial increase in the shipments of our high energy (MeV) ion implantation and chemical vapor deposition (CVD) systems. Our sales grew 58% over 1994 to $100.4 million. In addition, our entire product line has been strengthened with the first production shipments of our CVD cluster tool platform and the introduction of our third-generation MeV ion implanter. Throughout 1995, the semiconductor industry continued to expand at a substantial pace. A sizable portion of this gain is a result of increased integrated circuit (IC) sales that were fueled primarily by strong personal computer and telecommunications demand. As a supplier of capital equipment specifically designed to provide low-cost production solutions for both thin films and ion implantation, Genus is well positioned to take advantage of this market expansion. From late 1994 through 1995, we enhanced our product line and now offer stronger and more competitive systems than ever before. These new products -- the Genus 7000 and the Tandetron-TM- 1520 -- build upon our technology leadership and provide highly competitive process results, high throughput and low cost-of-ownership. The initial shipments of our Genus 7000, a single-wafer CVD cluster tool, were installed directly into production at one of the world's leading DRAM manufacturers. The rapid migration of these systems into production, rare in the semiconductor industry, attests to the cost savings and reliability demonstrated by the 7000 system. High energy ion implantation continues to be an area of great growth potential for Genus. MeV ion implantation demand is driven by the technology's ability to reduce manufacturing costs for memory and logic devices. Using Genus' buried implanted layer for lateral isolation (BILLI)* structure and our Tandetron 1520 implanter, manufacturers can save up to 20% on total wafer fabrication costs. In January of 1996, we strengthened our technology organization with the addition of Thomas Seidel, formerly SEMATECH's director of strategic technology. Dr. Seidel joins us as chief technical officer. During the last year, we further broadened our management team with the addition of James Burns as executive vice president and general manager of our Thin Film Division and Kent Robertson as executive vice president and chief financial officer, and with the promotion of John Ogawa Borland to the post of vice president of strategic technology. In 1995, the strengthening of our customer support program resulted in an award for exemplary service from Samsung. We are building on this solid foundation by establishing locally based service centers such as our wholly owned Korean subsidiary, which opened in January of 1996. In addition, we are supporting our existing customer base with ongoing product enhancements that add value to their installed systems. I would like to thank all Genus employees for their continuing dedication. Their hard work has made it possible for us to make the important changes necessary to position the Company for future growth. We are confident that the significant additions to our product line and the expansion of our customer support capabilities will enable us to maintain a competitive edge. We are continuing to leverage our technology leadership to adapt to the ever-changing landscape of our dynamic market. William W. R. Elder Chairman and Chief Executive Officer 2 A CHANGING MARKET The explosive growth of the semiconductor industry is nothing short of phenomenal. Even conservative industry forecasts have been revised upward with many analysts now anticipating a market of $350 billion by the year 2000. Leading this tremendous growth is the proliferation of computer technology and the expanding range of other electronic products now incorporating integrated circuits. The continued decrease in IC cost-per-function is the engine driving the growth of the semiconductor industry. With higher cost-effectiveness and more capability on each chip, the electronics industry has created enormous and very challenging market opportunities. For semiconductor manufacturers, this shift has made cost reduction a vital objective. REDUCED PRODUCTION COSTS As a leader in innovative technologies that significantly reduce the cost of fabricating semiconductors, Genus continues to capitalize on this heightened emphasis on cost reduction. Genus MeV ion implantation and CVD products break new ground by enabling chip makers to simplify their IC production processes and lower their cost-of-ownership. TECHNOLOGY LEADERSHIP In 1995, Genus demonstrated ongoing technical leadership in its served markets and strengthened its product offering with the introduction of two new systems. The Company shipped its first integrated cluster tool for tungsten silicide thin-film deposition, the Genus 7000, directly into production. Later in 1995, Genus took an important evolutionary step in MeV ion implantation with the introduction of the Tandetron 1520 MeV ion implantation system. HIGH ENERGY ION IMPLANTATION MeV ion implantation, used in the fabrication of both memory and logic devices, implants electrically charged dopant ions into a silicon substrate. Driven by the technology's ability to simplify processing and reduce manufacturing costs by up to 20%, the MeV ion implantation market tripled in 1995 and is projected to grow another 50% in 1996. Analysts predict that MeV ion implantation will continue to be one of the fastest-growing segments of the front-end capital equipment market. Genus' Tandetron 1520 MeV ion implantation system was introduced in the fourth quarter of 1995. Designed to be a "production workhorse," it provides significant cost savings for both memory and logic IC production. In logic devices using Genus' BILLI structure, the Tandetron 1520 replaces the need for expensive silicon epitaxy. Eliminating this step can save manufacturers as much as $229 per 8-inch wafer according to VLSI Research, Inc. In addition, the process reduces cycle time and boosts capacity by up to 16%. A "super fab" manufacturer producing 40,000 wafer starts per month can gain savings of more than $100 million per year.* The wide energy range of the Tandetron also enables it to perform medium current implants that further reduce manufacturing costs by increasing product utilization. THIN-FILM DEPOSITION Tungsten silicide CVD technology is commonly used to produce faster memory devices. For more than 12 years, Genus has been a leading supplier in this market, a position the Company strengthened with the first production shipments of the Genus 7000. This modular, single-wafer system provides significantly higher throughput, improved reliability and lower cost-of-ownership. The benefits of the 7000 were validated when Samsung, the world's leading DRAM manufacturer, moved its first system shipments directly into 16-Mb DRAM production at 0.35 micron m. The system's dichlorosilane (DCS) chemistry provides the higher throughput, step coverage, lower fluorine content and predictable device speed essential for advanced ICs. To support both its MeV ion implantation and CVD advanced technologies, Genus established a local service presence and greatly expanded its support organizations in Korea and Japan. These efforts, and other strategies currently under development, are designed to strengthen the Company's customer satisfaction programs and capabilities throughout the world. 3 Genus' current product offerings represent the leading edge of industry technology. Both MeV ion implantation and CVD products provide the capabilities essential for the most advanced devices as well as the cost-saving potential vital to success in today's rapidly growing semiconductor market. LOOKING TOWARD THE FUTURE Genus' current product line provides a solid foundation for future growth. Through continued innovation and improvement combined with strategic partnerships, Genus will be able to provide more robust solutions for a wider range of semiconductor processing steps as technology advances into the future. NEW FILMS With the multimodule cluster tool design of the Genus 7000, the Company will offer a wider range of thin films in 1996. New innovative CVD films are currently under development in joint programs with leading semiconductor manufacturers. In addition, Genus' DCS chemistry is also expected to gain wider industry acceptance as its improved productivity and film properties make it more attractive for submicron manufacturing. PIONEERING FUNDAMENTAL CHANGE During 1995, Genus introduced new advanced MeV ion implantation techniques that promise to change the way many CMOS semiconductors will be built. One of these techniques, Genus' BILLI structure, is expected to gain in usage as more manufacturers realize significant cost savings as a result of the process' ability to eliminate 20 - 40 steps in CMOS memory and logic device production. To create added momentum for wider acceptance in the logic market, Genus initiated joint development programs to use the BILLI structure for epi replacement with several key customers in 1995. A key milestone was achieved in January of 1996 when a major U.S. logic device manufacturer announced the fabrication of the world's first logic IC using the BILLI structure and a Genus MeV ion implanter to replace the epi layer. As the industry moves toward larger wafer sizes with 300-mm wafer production as early as 1997, the process step reduction made possible by the BILLI structure's epi replacement capabilities will gain in importance. Genus' Tandetron 1520 MeV ion implanter is ideally suited to take advantage of the economic opportunities created with this new technology. Through continuously pursuing technical leadership and anticipating industry technology changes, Genus is positioned for growth in tomorrow's dynamic semiconductor market. 4 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- --------- ---------- --------- Net sales........................................... $ 100,350 $ 63,616 $ 44,236 $ 40,079 $ 51,528 Gross profit........................................ 39,239 24,967 13,900 9,661 18,646 Gross profit as a percentage of sales............... 39% 39% 31% 24% 36% Income (loss) from operations....................... $ 7,976 $ 3,729 $ (6,974) $ (17,382) $ (5,130) Net income (loss)................................... 19,282 4,177 (6,883) (17,095) (3,980) Net income (loss) per share......................... $ 1.20 $ 0.32 $ (0.57) $ (1.45) $ (0.35) Cash and cash equivalents........................... $ 12,630 $ 10,188 $ 10,423 $ 9,684 $ 22,169 Total assets........................................ 95,247 54,997 45,205 49,258 60,957 Long-term obligations, less current portion......... 1,034 523 1,042 2,342 168 Working capital..................................... 50,061 23,201 22,162 29,455 42,817 Shareholders' equity................................ 75,361 36,986 31,751 37,771 54,390 Backlog............................................. 44,996 44,011 18,945 7,783 15,656 Number of employees................................. 319 264 212 246 259
5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1995 COMPARED TO 1994 Genus' net sales in 1995 increased 58 percent over net sales in 1994 to $100.4 million. The increase in net sales was primarily due to the introduction of the Genus 7000 tungsten chemical vapor deposition (CVD) system with higher average selling prices (ASP) and, secondarily, to greater unit sales of the Company's high energy (MeV) ion implantation system. In addition, the increase was driven by continued strong demand for capital equipment by semiconductor manufacturers, particularly in Korea. The increase in net sales was made despite the continued competitiveness in the markets the Company serves. Foreign sales accounted for 88 percent of the Company's net sales in 1995, compared to 89 percent in 1994. Net sales from the Company's customer support group increased five percent when compared to the same period in 1994. Gross profit for the years ended 1995 and 1994 was 39 percent of net sales. While there was no change in the Company's consolidated gross profit percentage between 1995 and 1994, gross margins on products sold by the Company's Thin Film Division (TFD) and Ion Technology Division (ITD) in 1995 were significantly different. During 1995, gross margins at TFD improved three percentage points and eroded five percentage points at ITD. The improvement in gross margin at TFD was as a result of higher ASP on Genus 7000 system sales, improved production cycle times and manufacturing efficiencies due to increased volumes. The erosion in gross margins at ITD was due principally to increased service and warranty costs, higher product transition costs associated with the introduction of the division's new Tandetron 1520 MeV ion implantation system, manufacturing inefficiencies related to volume and product transition and lower ASP due to competitive pressures. In 1995, research and development (R&D) expenses were $12.3 million compared to $9.0 million in 1994, a 36 percent increase. The $3.3 million increase in R&D was due to continued investments made by the Company in additional headcount, higher new product development material costs and greater depreciation expenses associated with equipment purchased for new product development. As a percentage of net sales, R&D expenses in 1995 and 1994 were 12 percent and 14 percent, respectively. The decrease in R&D expenses as a percentage of sales was due principally to the increased net sales volume. The Company's R&D expenses in 1995 and 1994 are net of the capitalization of software costs of $0.9 million and $0.8 million, respectively. The Company serves markets that are highly competitive and rapidly changing. For these reasons, the Company believes that it must continue to maintain its investment in R&D to develop competitive, market driven products. In addition, the Company continually evaluates its R&D investment in view of evolving competitive and market conditions. Selling, general and administrative (S,G&A) expenses as a percentage of sales were 19 percent for both years ended December 31, 1995 and 1994. On an absolute dollar basis, S,G&A expenses for the year ended December 31, 1995 increased $6.8 million when compared to the same period in 1994. The absolute dollar increase was primarily due to headcount additions and related payroll costs to support the Company's growth rate, higher sales commissions and incentives and increased depreciation expense. During the year ended December 31, 1995, the Company had $0.3 million in other income, compared to $0.7 million in other income for the same period in 1994. The decrease in other income was due to the write-off of leasehold improvements in connection with the relocation of the Company's ITD facility scheduled for mid-1996 and the gain on the sale of property and equipment in 1994, but not in 1995; offset by higher interest income earned on higher cash balances outstanding during 1995 when compared to the same period in 1994. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The effective tax rate for the year ended December 31, 1995 was (132) percent compared to an effective tax rate of 5 percent for the same period in 1994. The significant change in the effective tax rate was due primarily to the one-time recognition of deferred tax assets in accordance with Financial Accounting Standard No. 109, "Accounting for Income Taxes." As a result of this one-time recognition in 1995, the Company anticipates that the effective tax rate in 1996 will approximate the statutory rate. The Company has continued to experience positive order and financial performance in recent quarters. These results have been primarily due to strong market conditions for the Company's products in Korea, and one Korean customer in particular, as a result of increased investments in semiconductor manufacturing facilities in this region. However, due to the inconsistency in the Company's order rate during the second half of 1995, the Company's reliance on one customer for a significant portion of its orders, the continued competitive market environment for the Company's products and the historically cyclical nature of the semiconductor equipment market, the Company remains cautious about the short-term prospects for its business. The Company continues to make strategic investments in new product development and manufacturing improvements with a view to improving future performance by enhancing product offerings; however, such investment may adversely affect short-term operating performance. The Company is also continuing its efforts to implement productivity improvements for future operating performance. The Company believes that the future economic environment could continue to lengthen the order and sales cycles for its products, causing it to continue to simultaneously book and ship some orders during the same quarter. 1994 COMPARED TO 1993 Genus' net sales in 1994 were $63.6 million, an increase of 44 percent over net sales in 1993 of $44.2 million. This increase in net sales was primarily due to increased system sales of the Company's MeV ion implantation system as a result of increased market acceptance of MeV ion implantation in the semiconductor manufacturing process and, secondarily, to changes in the Company's CVD product mix with higher ASP. In addition, the increase was driven by continued strong demand for capital equipment from semiconductor manufacturers, particularly in Korea where significant investments were made in dynamic random-access memory (DRAM) manufacturing facilities. Foreign sales accounted for 89 percent of the Company's net sales in 1994 compared to 84 percent in 1993. Net sales from the Company's customer support group were $15.6 million in 1994 compared to $13.5 million in 1993, a 16 percent increase. Gross margin in 1994 was 39 percent compared to 31 percent in 1993. The improvement in gross margin was due to increased unit sales volumes with higher ASP, improved manufacturing efficiencies due to increased sales volumes and other gross margin improvement programs implemented by the Company. In 1994, the Company included all service expenses in cost of goods sold. Prior to 1994, the Company included a portion of service costs in S,G&A expenses. As a result of this reclassification, the financial statements for prior periods have been reclassified to conform with the presentation in 1994. Previously reported results were not affected by this reclassification. In 1994, R&D expenses were $9.0 million compared to $7.8 million in 1993, a 16 percent increase. The $1.2 million increase in R&D expenses was due to increased investments made by the Company in new product development in both of its divisions. As a percentage of net sales, R&D expenses in 1994 and 1993 were 14 percent and 18 percent, respectively. The decrease in R&D expenses as a percentage of sales was primarily due to the increased net sales volume. The Company's R&D expenses in 1994 are net of software capitalization costs of $0.8 million. As a percentage of net sales, S,G&A expenses in 1994 and 1993 were 19 percent and 28 percent, respectively. This significant change was primarily due to increased net sales volumes. On an absolute dollar basis, S,G&A expenses in 1994 were marginally lower than 1993 levels. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During 1994, the Company earned $0.7 million in other income compared to $0.1 million in other income in 1993. This increase was primarily a result of the gain on the sale of property and equipment of approximately $0.5 million during the second quarter of 1994. During 1993, the Company incurred a special charge of $0.6 million related to the severance packages and other payroll-related costs associated with a reduction in work force during 1993. Effective January 1, 1993, the Company changed its method of accounting for income taxes by adopting Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." The effective tax rate of 1994 was 5 percent and related primarily to alternative minimum tax. The low effective tax rate was due to the Company's utilization of net operating loss carryforwards to offset regular taxable income. LIQUIDITY AND CAPITAL RESOURCES During the 12 months ended December 31, 1995, the Company's cash and cash equivalents increased $2.4 million due principally to issuance of common stock of $18.3 million, offset by cash used by operations of $4.1 million, the repayment of short-term bank borrowings of $3.8 million, repayments of long-term debt of $1.4 million, the purchase of property and equipment of $5.6 million and the capitalization of software development cost of $0.9 million. The $4.1 million decrease in cash from operating activities resulted primarily from an increase of $11.6 million in accounts receivable due to the inability to collect the receivables from shipments made late in the fourth quarter, an increase in inventories of $9.8 million as a result of inventory purchases received late in the fourth quarter to support shipments in the first quarter of 1996, an increase in other assets of $0.7 million related to higher long-term deposits and an increase in deferred tax assets of $11.6 million. The decrease in cash from operations was primarily offset by an increase in accounts payable of $1.3 million as a result of inventory purchases made late in the quarter for fourth-quarter shipments and the cash management practices of the Company, and an increase of $4.4 million in accrued expenses due to increased retrofit costs, increased warranty and commission accruals as a result of higher sales volumes, and increased accruals for profit sharing and incentives. In addition, the decrease in cash from operating activities was offset by depreciation and amortization of $4.2 million and net income of $19.3 million. At December 31, 1995, the Company's primary source of funds consisted of $12.6 million in cash and cash equivalents and funds available under a $10.0 million revolving line of credit. The line of credit is secured by substantially all of the assets of the Company and expires in May 1996. At December 31, 1995, the Company had no borrowings outstanding under the line of credit. Capital expenditures during 1995 were $5.6 million and related primarily to acquisition of machinery and equipment for the Company's R&D and Applications Laboratories. In September 1995, the Company entered into an agreement to lease a new facility in Newburyport, Massachusetts for its Ion Technology Division. The Company estimates that it will expend approximately $3.0 million for leasehold improvements and equipment associated with the new facility. The Company intends to finance these expenditures through new or existing lease lines. Furthermore, the Company anticipates that it will continue to make additional capital expenditures during 1996 that will be funded through existing working capital or lease financing. On February 17, 1995, the Company sold 2,539,018 shares of common stock through a private placement offering, which generated net proceeds of approximately $16.2 million. The Company believes that existing cash and cash equivalents, cash generated from operations, if any, and existing credit facilities will be sufficient to satisfy its cash needs in the near term and for the foreseeable future. 8 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
AS OF DECEMBER 31, ---------------------- 1995 1994 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents.............................................................. $ 12,630 $ 10,188 Accounts receivable (net of allowance for doubtful accounts of $250 in 1995 and 1994)................................................................................. 26,796 15,169 Inventories............................................................................ 24,437 14,677 Other current assets................................................................... 623 655 Current deferred taxes................................................................. 4,427 ---------- ---------- Total current assets................................................................. 68,913 40,689 Property and equipment, net.............................................................. 14,627 11,492 Other assets, net...................................................................... 3,824 2,816 Noncurrent deferred taxes................................................................ 7,883 ---------- ---------- $ 95,247 $ 54,997 ---------- ---------- LIABILITIES Current Liabilities: Short-term bank borrowings............................................................. 3,800 Accounts payable....................................................................... 7,129 5,858 Accrued expenses....................................................................... 11,042 6,625 Current portion of long-term debt and capital lease obligations........................ 681 1,205 ---------- ---------- Total current liabilities............................................................ 18,852 17,488 ---------- ---------- Long-term debt and capital lease obligations, less current portion....................... 1,034 523 ---------- ---------- Commitments (Note 8) SHAREHOLDERS' EQUITY Preferred stock, no par value: Authorized, 2,000,000 shares; Issued and outstanding, none Common stock, no par value: Authorized, 20,000,000 shares; Issued and outstanding, 16,163,539 shares (1995) and 12,813,028 shares (1994)........ 95,683 76,590 Accumulated deficit.................................................................... (20,322) (39,604) ---------- ---------- Total shareholders' equity............................................................. 75,361 36,986 ---------- ---------- $ 95,247 $ 54,997 ---------- ----------
The accompanying notes are an integral part of the financial statements. 9 CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 ----------- --------- --------- Net sales..................................................................... $ 100,350 $ 63,616 $ 44,236 Costs and expenses: Cost of goods sold.......................................................... 61,111 38,649 30,336 Research and development.................................................... 12,259 8,999 7,788 Selling, general and administrative......................................... 19,004 12,239 12,466 Special charge................................................................ 620 ----------- --------- --------- Income (loss) from operations............................................. 7,976 3,729 (6,974) Other income, net............................................................. 327 661 91 ----------- --------- --------- Income (loss) before provision for (benefit from) income taxes............ 8,303 4,390 (6,883) Provision for (benefit from) income taxes..................................... (10,979) 213 ----------- --------- --------- Net income (loss)......................................................... $ 19,282 $ 4,177 $ (6,883) ----------- --------- --------- Net income (loss) per share................................................... $ 1.20 $ 0.32 $ (0.57) ----------- --------- --------- Shares used in per share calculations......................................... 16,063 13,106 12,170 ----------- --------- ---------
The accompanying notes are an integral part of the financial statements. 10 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE THREE YEARS ENDED DECEMBER 31, 1995 ---------------------------------- COMMON ACCUMULATED STOCK DEFICIT TOTAL --------- ------------ --------- Balances, January 1, 1993.................................................... $ 74,669 $ (36,898) $ 37,771 Issuance of 213,922 shares of common stock under stock option plan......... 344 344 Issuance of 254,998 shares of common stock under employee stock purchase plan...................................................................... 519 519 Net loss................................................................... (6,883) (6,883) --------- ------------ --------- Balances, December 31, 1993.................................................. 75,532 (43,781) 31,751 Issuance of 214,024 shares of common stock under stock option plan......... 573 573 Issuance of 195,274 shares of common stock under employee stock purchase plan...................................................................... 485 485 Net income................................................................. 4,177 4,177 --------- ------------ --------- Balances, December 31, 1994.................................................. 76,590 (39,604) 36,986 Issuance of 2,539,018 shares of common stock under private placement offering.................................................................. 16,222 16,222 Issuance of 542,450 shares of common stock under stock option plan......... 1,161 1,161 Tax benefit on exercise of stock options................................... 750 750 Issuance of 269,043 shares of common stock under employee stock purchase plan...................................................................... 960 960 Net income................................................................. 19,282 19,282 --------- ------------ --------- Balances, December 31, 1995.................................................. $ 95,683 $ (20,322) $ 75,361 --------- ------------ ---------
The accompanying notes are an integral part of the financial statements. 11 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 --------- ------------ --------- Cash flows from operating activities: Net income (loss).......................................................... $ 19,282 $ 4,177 $ (6,883) Adjustments to reconcile to net cash from operating activities: Special charge........................................................... 84 (Gain) loss on disposal of property and equipment............................ 261 (461) Depreciation and amortization............................................ 4,244 2,622 3,261 Deferred taxes........................................................... (11,560) Changes in assets and liabilities: Accounts receivable.................................................... (11,627) (2,442) 2,027 Inventories............................................................ (9,760) (3,945) 2,447 Other current assets................................................... 32 37 291 Accounts payable....................................................... 1,271 3,632 (1,260) Accrued expenses....................................................... 4,417 (558) 2,466 Other, net............................................................. (701) (68) 131 --------- ------------ --------- Net cash provided by (used in) operating activities.................. (4,141) 2,994 2,564 --------- ------------ --------- Cash flows from investing activities: Acquisition of property and equipment...................................... (5,594) (4,671) (3,543) Proceeds from disposition of property and equipment........................ 595 Sales of marketable securities............................................. 2,844 Capitalization of software development costs............................... (937) (831) --------- ------------ --------- Net cash used in investing activities................................ (6,531) (4,907) (699) --------- ------------ --------- Cash flows from financing activities: Proceeds from issuance of common stock..................................... 18,343 1,058 863 Proceeds from short-term bank borrowings................................... 6,600 11,500 Payments of short-term bank borrowings..................................... (3,800) (4,900) (9,400) Payments of long-term debt................................................. (1,429) (1,080) (1,245) --------- ------------ --------- Net cash provided by financing activities............................ 13,114 1,678 1,718 --------- ------------ --------- Increase (decrease) in cash.................................................. 2,442 (235) 3,583 Decrease in marketable securities............................................ (2,844) Cash and cash equivalents, beginning of year................................. 10,188 10,423 9,684 --------- ------------ --------- Cash and cash equivalents, end of year....................................... $ 12,630 $ 10,188 $ 10,423 --------- ------------ --------- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: Interest................................................................... $ 172 $ 180 $ 283 Income taxes............................................................... 209 154 69 Noncash investing and financing activities: Purchase of property and equipment under long-term debt obligations........ 1,416 842 Tax benefit on exercise of stock options................................... 750
The accompanying notes are an integral part of the financial statements. 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 1. -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Genus develops, manufactures, markets and services advanced thin-film deposition and high energy (MeV) ion implantation equipment used in the fabrication of advanced semiconductor integrated circuits. The Company's products are marketed worldwide either directly to end users or through exclusive sales representative arrangements. The Company's customers include semiconductor manufacturers located throughout the United States, Europe and in the Pacific Rim including Japan, Korea and Taiwan. Genus conducts its business within one industry segment. The following is a summary of Genus' significant accounting policies. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Genus, Inc. and its wholly owned subsidiaries after elimination of intercompany accounts and transactions. 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 and classifies such amounts as cash. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash and cash equivalents approximates estimated fair value because of the short maturity of those financial instruments. Based on rates currently available to the Company for debt with similar terms and remaining maturities, the carrying value of long-term debt approximates estimated fair value. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables. The Company places its cash investments with three high credit quality financial institutions located in the United States. The Company performs ongoing credit evaluations of its customers. The Company does not require collateral from its customers and maintains an allowance for credit losses, which historically have not been material. 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. DEPRECIATION AND AMORTIZATION Property and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives, which range from 3 to 10 years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining lease term, whichever is less. OTHER ASSETS Other assets include goodwill and software development costs and are stated at cost. Goodwill represents the cost in excess of an acquired business and is amortized on a straight-line basis over 15 years. Software development costs represent costs incurred subsequent to establishing the technological feasibility of software products and are amortized over the expected life of the products, estimated to be three years. 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 1. -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Revenue related to systems is recognized upon shipment or, prior to shipment, upon completion of customer source inspection and factory acceptance of the system where risk of loss and title to the system passes to the customer. A provision for the estimated future cost of system installation, warranty and commissions is recorded when revenue is recognized. USE OF ESTIMATES 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. 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 expected 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. NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of common and common equivalent (when dilutive) shares of common stock outstanding during each year. RECENT ACCOUNTING PRONOUNCEMENTS During March 1995, the Financial Accounting Standards Board issued Statement No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires the Company to review for impairment long-lived assets, certain identifiable intangibles and goodwill related to those assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company does not expect SFAS No. 121 to have a material impact on the Company's financial condition or results of operations. During October 1995, the Financial Accounting Standards Board issued Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," which establishes a fair value-based method of accounting for stock-based compensation plans. The Company is currently following the requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company plans to adopt SFAS No. 123 during 1996, utilizing the disclosure alternative. RECLASSIFICATION Certain amounts in prior years' financial statements have been reclassified to conform to the current year's presentation. These reclassifications did not change previously reported results. 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 2. -- INVENTORIES Inventories comprise the following:
DECEMBER 31, -------------------- 1995 1994 --------- --------- Raw materials and parts.................................................................... $ 12,922 $ 8,156 Work in process............................................................................ 10,048 6,118 Finished goods............................................................................. 1,467 403 --------- --------- $ 24,437 $ 14,677 --------- --------- --------- ---------
NOTE 3. -- PROPERTY AND EQUIPMENT Property and equipment are stated at cost and comprise the following:
DECEMBER 31, -------------------- 1995 1994 --------- --------- Equipment.................................................................................. $ 12,512 $ 8,460 Demonstration equipment.................................................................... 12,877 11,909 Furniture and fixtures................................................................... 1,960 1,952 Leasehold improvements..................................................................... 6,366 5,901 --------- --------- 33,715 28,222 Less accumulated depreciation and amortization............................................. (19,944) (18,262) --------- --------- 13,771 9,960 Construction in process.................................................................... 856 1,532 --------- --------- $ 14,627 $ 11,492
Equipment includes $2,258 and $842 of assets under capital leases at December 31, 1995 and 1994, respectively. Accumulated amortization on these assets is $713 and $144 at December 31, 1995 and 1994, respectively. NOTE 4. -- OTHER ASSETS Other assets comprise the following:
DECEMBER 31, -------------------- 1995 1994 --------- --------- Goodwill..................................................................................... $ 3,802 $ 3,802 Software development costs................................................................... 1,768 831 --------- --------- 5,570 4,633 Accumulated amortization--goodwill........................................................... (2,167) (1,913) Accumulated amortization--software development costs......................................... (458) (82) --------- --------- 2,945 2,638 Other........................................................................................ 879 178 --------- --------- $ 3,824 $ 2,816 --------- ---------
Amortization expense for software development costs was $376 and $82 in 1995 and 1994, respectively. There was no amortization expense for software development costs in 1993. NOTE 5. -- SHORT-TERM BORROWINGS The Company has a working capital line of credit agreement with a bank that provides for maximum borrowings of $10.0 million, which expires in May 1996. Borrowings under the line of credit 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 5. -- SHORT-TERM BORROWINGS (CONTINUED) are collateralized by substantially all the assets of the Company and bear interest at the bank's prime rate (8 1/2 percent at December 31, 1995). At December 31, 1995, the Company had no borrowings outstanding under the line of credit. In addition, the Company has a Term Loan Agreement with the same bank that provides $3.0 million to fund leasehold improvements for one of its facilities (see Note 7). At December 31, 1995, $11 thousand was outstanding under the Term Loan Agreement. Both agreements require the Company to comply with certain financial covenants and restrict the payment of dividends. NOTE 6. -- ACCRUED EXPENSES Accrued expenses comprise the following:
DECEMBER 31, -------------------- 1995 1994 --------- --------- System installation and warranty........................................................... $ 4,318 $ 2,394 Accrued commissions and incentives......................................................... 3,227 1,527 Accrued payroll and related items.......................................................... 1,104 966 Other...................................................................................... 2,393 1,738 --------- --------- $ 11,042 $ 6,625 --------- ---------
NOTE 7. -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt comprises the following:
DECEMBER 31, -------------------- 1995 1994 --------- --------- Term loan payable in monthly installments through January 1996 at 10 percent interest per annum and collateralized by substantially all assets of the Company.............................................................................. $ 11 $ 910 Capitalized lease obligations with interest rates of 4.2-11.2 percent........................ 1,581 678 Mortgage loan payable in monthly installments through October 2000 at 9 1/4 percent interest per annum and collateralized by a building.................................................. 123 140 --------- --------- 1,715 1,728 --------- --------- Less amounts due within one year............................................................. (681) (1,205) --------- --------- $ 1,034 $ 523 --------- ---------
The future aggregate principal payments of long-term debt and capital lease obligations are as follows: 1996............................................................................... $ 797 1997............................................................................... 612...... 1998............................................................................... 276 1999............................................................................... 91 2000............................................................................... 151 --------- $ 1,927 Less amounts representing interest on long-term debt and capital lease obligations....................................................................... (212) --------- Principal payments and present value of minimum capital lease obligations.......... $ 1,715 ---------
16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 7. -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED) Certain of the capital lease agreements require the Company to comply with specific financial covenants and to pay stipulated amounts upon default or termination prior to the expiration of the basic lease terms. NOTE 8. -- LEASE COMMITMENTS The Company leases certain of its facilities and various office equipment under operating leases expiring through the year 2017. The Company is responsible for property taxes, insurance and maintenance under the facility leases. Certain of these leases contain renewal options. At December 31, 1995, minimum lease payments required under these operating leases are as follows: 1996........... $ 1,652 1997........... 1,748 1998........... 1,482 1999........... 1,517 2000........... 1,517 Thereafter..... 12,942 --------- $ 20,858 ---------
Rent expense for 1995, 1994 and 1993 was $1,251, $1,304 and $1,260, respectively. NOTE 9. -- CAPITAL STOCK PRIVATE PLACEMENT OFFERING On February 17, 1995, the Company sold 2,539,018 shares of common stock for $16.2 million through a private placement offering. STOCK OPTION PLAN The Company has a 1991 Stock Option Plan (the "Plan") under which the Board of Directors may issue incentive and nonstatutory stock options. The Plan expires ten years after adoption and the Board of Directors has the authority to determine to whom options will be granted, the number of shares, the term and the exercise price. The options are exercisable at times and in increments as specified by the Board of Directors, and expire five to ten years from the date of grant. These options generally vest over a three-year period. At December 31, 1995, the Company had reserved 2,053,006 shares of common stock for issuance under the Plan; 35,161 shares of common stock remain available for future grants; and options to purchase 351,866 shares of common stock were exercisable. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 9. -- CAPITAL STOCK (CONTINUED) Activity under the Plan is set forth in the table below: (in thousands, except per share data)
OUTSTANDING OPTIONS ---------------------------------------- SHARES PRICE PER SHARE TOTAL --------- ------------------ --------- Balance, January 1, 1993................................................. 1,219 $ 1.25 to $ 5.13 $ 2,754 Granted.................................................................. 320 1.88 to 4.00 811 Exercised................................................................ (214) 1.25 to 2.88 (344) Terminated............................................................... (113) 1.25 to 5.13 (294) --------- ------------------ --------- Balance, December 31, 1993............................................... 1,212 1.25 to 4.38 2,927 Granted.................................................................. 383 3.63 to 6.88 1,631 Exercised................................................................ (214) 1.25 to 4.38 (573) Terminated............................................................... (102) 1.25 to 4.38 (303) --------- ------------------ --------- Balance, December 31, 1994............................................... 1,279 1.25 to 6.88 3,682 Granted.................................................................. 938 7.75 to 15.63 9,161 Exercised................................................................ (542) 1.25 to 6.88 (1,161) Terminated............................................................... (89) 1.25 to 13.13 (395) --------- ------------------ --------- Balance, December 31, 1995............................................... 1,586 $ 1.75 to $15.63 $ 11,287 --------- ------------------ ---------
EMPLOYEE STOCK PURCHASE PLAN The Company has reserved a total of 1,300,000 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. Under the plan, the Company's employees, subject to certain restrictions, may purchase shares of common stock at the lesser of 85 percent 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, 1995, 1,102,667 shares have been issued under the plan. COMMON STOCK PURCHASE RIGHTS In July 1990, the Company distributed a dividend to shareholders comprised of a right to purchase one share of common stock ("Right") for each outstanding share of common stock of the Company they hold. These rights do not become exercisable or transferrable apart from the common stock until the Distribution Date, which is either the tenth day after a person or group (a) acquires beneficial ownership of 20 percent or more of the Company's common stock or (b) announces a tender or exchange offer, the consummation of which would result in ownership by a person or group of 30 percent or more of the Company's common stock. After the Distribution Date, each Right will entitle the holder to purchase from the Company one share of common stock at a price of $28.00 per share. If the Company is acquired in a merger or other business combination transaction, or if 50 percent or more of its consolidated assets or earnings power is sold, each Right will entitle the holder to purchase at the exercise price that number of shares of the acquiring company having a then-current market value of two times the exercise price of the Right. In the event that the Company is the surviving corporation in a merger and the Company's common stock remains outstanding, or in the event that an acquiring party engages in certain self-dealing transactions, each Right not owned by the acquiring party will entitle the holder to purchase at the exercise price that number of shares of the Company's common stock having a then-current market value of two times the exercise price of the Right. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 9. -- CAPITAL STOCK (CONTINUED) The Rights are redeemable at the Company's option for $.01 per Right prior to becoming exercisable, may be amended at the Company's option on or prior to the Distribution Date and expire on July 3, 2000. NOTE 10. -- EMPLOYEE BENEFIT PLAN During 1988, the Company adopted the Genus, Inc. 401(k) Plan (the "401(k) Plan") to provide retirement and incidental benefits for eligible employees. The 401(k) Plan provides for Company contributions as determined by the Board of Directors that may not exceed 6 percent of the annual aggregate salaries of those employees eligible for participation. In 1995 and 1994, the Company contributed $61 thousand and $34 thousand, respectively, to the 401(k) Plan. No Company contributions were made in 1993. NOTE 11. -- SPECIAL CHARGE During 1993, the Company incurred special charges of $0.6 million relating primarily to the severance packages and other payroll-related costs associated with a reduction in workforce at its Thin Film Division. NOTE 12. -- OTHER INCOME, NET Other income, net, comprises the following:
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Interest income....................................................................... $ 790 $ 221 $ 163 Interest expense...................................................................... (172) (180) (283) Disposal of leasehold improvements.................................................... (261) Gain on sale of property and equipment................................................ 461 Other, net............................................................................ (30) 159 211 --------- --------- --------- $ 327 $ 661 $ 91 --------- --------- ---------
NOTE 13. -- INCOME TAXES For the year ended December 31, 1993, there was no provision for income taxes. Income tax expense (benefit) for the years ended December 31, 1995 and 1994 consists of the following:
1995 1994 ---------- --------- Federal: Current.................................................................................. $ 431 $ 165 Deferred................................................................................. (11,036) ---------- --------- (10,605) 165 ---------- --------- State: Current.................................................................................. 150 48 Deferred................................................................................. (524) ---------- --------- (374) 48 ---------- --------- $ (10,979) $ 213 ---------- ---------
Actual deferred taxes are greater than reflected above for 1995 by $750 thousand for the stock option deduction benefit recorded as an increase to shareholders' equity. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 13. -- INCOME TAXES (CONTINUED) The Company's effective tax rate for the years ended December 31, 1995 and 1994 differs from the U.S. federal statutory income tax rate as follows:
1995 1994 --------- --------- Federal income tax at statutory rate............................................................... 34% 34% Benefit of net operating loss...................................................................... (34%) (34%) Change in valuation allowance...................................................................... (134%) Other.............................................................................................. 2% 5% --- --- (132%) 5% --- ---
The components of the net deferred tax asset comprise the following:
1995 1994 --------- --------- Deferred tax assets: Net operating loss carryforwards....................................................... $ 7,027 $ 10,600 Tax credit carryforward................................................................ 1,288 1,200 Accounts receivable reserves........................................................... 97 100 Inventory reserves..................................................................... 1,274 1,100 Nondeductible accrued expenses......................................................... 2,395 2,800 Other reserves......................................................................... 483 --------- --------- 12,564 15,800 Deferred tax liabilities: Depreciation and amortization.......................................................... (254) (630) 12,310 15,170 Valuation reserve.......................................................................... (15,170) --------- --------- $ 12,310 $ 0 --------- ---------
Temporary differences represent the cumulative taxable or deductible amounts recorded in the financial statements in different years than recognized in the tax returns. At December 31, 1995, the Company had the following income tax carryforwards available:
TAX EXPIRATION REPORTING DATES --------- ------------ U.S. regular tax operating losses....................................................... $ 25,000 2002-2008 U.S. business tax credits............................................................... 1,285 2002-2008 State net operating losses.............................................................. 8,030 1997-1998
NOTE 14. -- SEGMENT INFORMATION The Company is engaged in the design, manufacture, marketing and servicing of advanced thin-film deposition systems and high energy ion implantation systems used primarily in the semiconductor manufacturing industry. The Company's sales are primarily generated from two products, CVD tungsten silicide and MeV ion implantation systems. The Company's CVD system is designed for the deposition of tungsten silicide to create multiple interconnect layers on integrated circuits. The MeV ion implantation system drives electrically charged ions into the surface of a silicon wafer to convert the electrical characteristics of the wafer. Both products are primarily used in the manufacturing of DRAMs. Its business serves the semiconductor manufacturing industry only. Net sales, identifiable assets and the results of operations of subsidiaries in foreign countries are not material. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, UNLESS OTHERWISE NOTED) NOTE 14. -- SEGMENT INFORMATION (CONTINUED) INTERNATIONAL SALES International sales (principally from sales to customers in Asia and Europe) for 1995, 1994 and 1993 represented 88 percent, 89 percent and 84 percent of net sales, respectively. MAJOR CUSTOMERS One customer accounted for 63 percent of net sales in 1995. Three customers accounted for 33 percent, 19 percent and 14 percent of net sales in 1994. In 1993, three customers accounted for 26 percent, 23 percent and 14 percent of net sales. NOTE 15. -- INTERIM FINANCIAL INFORMATION (UNAUDITED)
1995 QUARTER ENDED ------------------------------------------------ (in thousands, except per share data) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 --------- --------- ------------ ------------ Net sales..................................................... $ 22,526 $ 25,057 $ 27,241 $ 25,526 Gross profit.................................................. 9,220 10,168 10,498 9,353 Net income.................................................... 1,938 2,340 2,361 12,643 Net income per share.......................................... 0.13 0.14 0.14 0.77 1995 QUARTER ENDED ------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 --------- --------- ------------ ------------ Net sales..................................................... $ 13,773 $ 14,966 $ 18,246 $ 16,631 Gross profit.................................................. 5,317 6,017 6,970 6,663 Net income.................................................... 652 1,051 1,132 1,342 Net income per share.......................................... 0.05 0.08 0.09 0.10
21 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS GENUS, INC. We have audited the accompanying consolidated balance sheets of Genus, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Genus, Inc. and subsidiaries as of December 31, 1995 and 1994 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand LLP San Jose, California January 26, 1996 22 COMMON STOCK INFORMATION The common stock of Genus, Inc., is traded on the Nasdaq National Market under the symbol GGNS. The high and low last sales prices for 1995 and 1994, set forth below are as reported by the Nasdaq National Market. At March 12, 1996, the Company has 503 shareholders.
HIGH LOW HIGH LOW --------- --------- --------- --------- First Quarter.............................................................. $ 11 1/4 $ 7 1/2 $ 5 3/4 $ 2 7/8 Second Quarter............................................................. 14 1/8 9 1/2 4 7/8 3 1/4 Third Quarter.............................................................. 16 3/4 11 15/16 5 5/8 3 5/16 Fourth Quarter............................................................. 15 1/2 6 49/64 8 3/8 5 1/2
The Company has not paid cash dividends on its common stock since inception, and its Board of Directors presently intends to reinvest the Company's earnings, if any, in its business. Accordingly, it is anticipated that no cash dividends will be paid to holders of common stock in the foreseeable future. ANNUAL SHAREHOLDERS' MEETING The 1996 annual meeting of shareholders will be held on April 30, 1996 at 2:00 p.m. at The Westin Hotel, 5101 Great America Parkway, Santa Clara, California 95054. FORM 10-K A copy of the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission may be obtained from the Company without charge by writing to Investor Relations, Genus, Inc., 1139 Karlstad Drive, Sunnyvale, CA 94089. 23 GENUS CORPORATE OFFICERS WORLDWIDE LOCATIONS William W. R. Elder Corporate Headquarters Chairman, Chief Executive Officer Genus, Inc. Kent L. Robertson 1139 Karlstad Drive Executive Vice President, Sunnyvale, CA 94089 Chief Financial Officer, (408) 747-7120 Secretary Ion Technology Division James M. Burns Genus, Inc. Executive Vice President 4 Mulliken Way Thin Film Division Newburyport, MA 01950 John E. Aldeborgh (508) 463-1500 Vice President Genus Europa SARL Ion Technology Division Zac du Clos aux Pois William D. Cole CE 4817, Lisses Vice President, Sales 91048 Evry Cedex Kevin C. Conlon France Vice President, Marketing 011-331-69-89-79-20 Thomas E. Seidel, Ph. D. Genus Korea, Ltd. Vice President, 3F, KEC Building Chief Technical Officer #275-7, Yangjae-Dong Ernest P. Quinones Seocho-Ku, Seoul, South Korea Corporate Controller, 011-822-589-4800 Chief Accounting Officer, Genus KK Treasurer Shin Yokohama West Building Mario M. Rosati, Assistant Secretary 2-3-3 Shin Yokohama, Kouhoku-ku Partner Yokohama, Japan 222 Wilson, Sonsini, Goodrich & Rosati 011-81-45-476-0581 BOARD OF DIRECTORS SALES AND William W. R. Elder SERVICE OFFICES Chairman, Chief Executive Officer United States Genus, Inc. Sunnyvale, California Todd S. Myhre Newburyport, Massachusetts Former Chief Operating Officer Rockville Center, New York Genus, Inc. Europe Mario M. Rosati * + Melbourn, England Partner Evry, France Wilson, Sonsini, Goodrich & Rosati Asia/Pacific Stephen F. Fisher * + Hsin-chu City, Taiwan, R.O.C. Managing Director Hong Kong Bachow & Associates, Inc. Seoul, South Korea G. Frederick Forsyth Yokohama, Japan Senior Vice President Worldwide Operations Apple Computer, Inc.
* Member of Audit Committee + Member of Compensation Committee EX-27 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the year ended Dec 31 1995, and is qualified in its entirety by reference to such financial statements. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 12,630 0 27,046 250 24,437 68,913 34,571 19,944 95,247 18,852 1,034 0 0 95,683 20,322 75,361 100,350 100,350 61,111 92,374 0 0 0 8,303 10,979 19,282 0 0 0 19,282 1.20 1.20
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