-----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, FFOUSY1IQCELGZVv7LQE0H6fwRhiAw5CCHHL087t6HbxMAAYELIO58qH3og9QTfE wVRBvqIFsLbe1g4v1GOigA== 0001047469-98-041159.txt : 19981118 0001047469-98-041159.hdr.sgml : 19981118 ACCESSION NUMBER: 0001047469-98-041159 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19981116 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-Q/A SEC ACT: SEC FILE NUMBER: 000-17139 FILM NUMBER: 98751333 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-Q/A 1 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A2 (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___ TO ___ COMMISSION FILE NUMBER 0-17139 GENUS, INC. (Exact name of registrant as specified in its charter) California 94-279080 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1139 Karlstad Drive, Sunnyvale, California 94089 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (408) 747-7120 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common shares outstanding at August 7, 1998: 17,361,162 -------------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GENUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 (a) 1997 1998 (a) 1997 ---------- --------- --------- --------- Net sales $ 10,270 $ 19,351 $ 17,508 $ 39,032 Costs and expenses: Cost of goods sold 9,724 11,540 16,665 23,853 Research and development 2,939 3,058 6,271 6,249 Selling, general and administrative 5,683 4,189 9,906 8,056 Special charge 13,216 -- 13,216 -- ---------- --------- --------- --------- Income (loss) from operations (21,292) 564 (28,550) 874 Other, net (237) (82) (393) (97) ---------- --------- --------- --------- Income (loss) before income taxes (21,529) 482 (28,943) 777 Provision for income taxes -- 186 -- 300 ---------- --------- --------- --------- Net income (loss) (21,529) 296 (28,943) 477 Deemed dividends on preferred stock (74) -- (1,903) -- ---------- --------- --------- --------- Net income (loss) available to common shareholders $ (21,603) $ 296 $(30,846) $ 477 ---------- --------- --------- --------- ---------- --------- --------- --------- Net income (loss) available to common shareholders per common share and per common share assuming dilution $ (1.26) $ 0.02 $ (1.80) $ 0.03 ---------- --------- --------- --------- ---------- --------- --------- --------- Comprehensive income (loss) $ (21,356) $ 321 $(28,509) $ 390 ---------- --------- --------- --------- ---------- --------- --------- ---------
(a) See "Restatement Note" in the accompanying notes to the consolidated financial statements THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 2 GENUS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED AUDITED JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 3,754 $ 8,700 Accounts receivable (net of allowance for doubtful accounts of $1,103 in 1998 and $1,097 in 1997) 9,155 19,469 Inventories 5,173 28,986 Net assets held for sale 25,130 -- Other current assets 778 1,029 ------------ ------------ Total current assets 43,990 58,184 Property and equipment, net 4,628 15,276 Other assets, net 734 3,278 ------------ ------------ Total assets $ 49,352 $ 76,738 ------------ ------------ ------------ ------------ LIABILITIES Current liabilities: Short term bank borrowings $ 2,800 $ 7,200 Accounts payable 11,527 8,723 Accrued expenses 10,205 10,613 Current portion of long-term debt -- 874 ------------ ------------ Total current liabilities 24,532 27,410 Long-term debt, less current portion 36 971 ------------ ------------ Total liabilities 24,568 28,381 ------------ ------------ SHAREHOLDERS' EQUITY Preferred stock, no par value: Authorized, 2,000,000 shares; Issued and outstanding 98,000 shares at June 30, 1998 and none at December 31, 1997 6,098 -- Common stock, no par value: Authorized 50,000,000 shares; Issued and outstanding 17,314,141 shares at June 30, 1998 and 17,120,628 shares at December 31, 1997 99,779 99,149 Accumulated deficit (79,598) (48,863) Cumulative translation adjustment (1,495) (1,929) ------------ ------------ Total shareholders' equity 24,784 48,357 ------------ ------------ Total liabilities and shareholders' equity $ 49,352 $ 76,738 ------------ ------------ ------------ ------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 3 GENUS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED JUNE 30, -------------------------- 1998 1997 ------------ ----------- Cash flows from operating activities: Net income (loss) $ (28,943) $ 477 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 1,863 2,420 Special Charge 13,216 -- Changes in assets and liabilities: Accounts receivable 10,402 (9,973) Inventories (2,656) 1,629 Other current assets 251 (222) Accounts payable 2,804 1,630 Accrued expenses (620) (764) Other, net (817) 113 ------------ ----------- Net cash used in operating activities (4,500) (4,690) ------------ ----------- Cash flows from investing activities: Acquisition of property and equipment (373) (390) ------------ ----------- Net cash used in investing activities (373) (390) ------------ ----------- Cash flows from financing activities: Proceeds from issuance of common stock 121 715 Proceeds from issuance of preferred stock and warrants, net 4,815 -- Proceeds from short-term bank borrowings -- 10,346 Payments of short-term bank borrowings (4,400) (5,500) Payments of long-term debt (739) (814) ------------ ----------- Net cash provided by financing activities (203) 4,747 ------------ ----------- Effect of exchange rate changes on cash 130 (14) Net decrease in cash and cash equivalents (4,946) (347) Cash and cash equivalents, beginning of period 8,700 11,827 ------------ ----------- Cash and cash equivalents, end of period $ 3,754 $ 11,480 ------------ ----------- ------------ -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with SEC requirements for interim financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1997 Annual Report on Form 10-K/A. The information furnished reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for the fair statement of financial position, results of operations and cash flows for the interim periods. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the full year. NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing income (loss) available to common shareholders, adjusted for convertible preferred dividends and after-tax interest expense on convertible debt, if any, by the sum of the weighted average number of common shares outstanding and potential common shares (when dilutive). A reconciliation of the numerator and denominator of basic and diluted net income (loss) per share is as follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 ----------- --------- ---------- --------- Numerator-basic: Net income (loss) $ (21,529) $ 296 $ (28,943) $ 477 Deemed dividends on preferred stock (74) -- (1,903) -- ----------- --------- ---------- --------- Net income (loss) available to common shareholders $ (21,603) $ 296 $ (30,846) $ 477 ----------- --------- ---------- --------- ----------- --------- ---------- --------- Denominator-basic: Weighted average common shares outstanding 17,160 16,782 17,143 16,760 ----------- --------- ---------- --------- ----------- --------- ---------- --------- Basic net income (loss) per share available to common shareholders $ (1.26) $ 0.02 $ (1.80) $ 0.03 ----------- --------- ---------- --------- ----------- --------- ---------- --------- Numerator-diluted: Net income (loss) $ (21,529) $ 296 $ (28,943) $ 477 Deemed dividends on preferred stock (74) -- (1,903) -- ----------- --------- ---------- --------- Net income (loss) available to common shareholders $ (21,603) $ 296 $ (30,846) $ 477 ----------- --------- ---------- --------- ----------- --------- ---------- --------- Denominator-diluted: Weighted average common shares outstanding 17,160 16,782 17,143 16,760 Effect of dilutive securities: stock options -- 72 -- 95 ----------- --------- ---------- --------- 17,160 16,854 17,143 16,855 ----------- --------- ---------- --------- ----------- --------- ---------- --------- Diluted net income (loss) per share available to common shareholders $ (1.26) $ 0.02 $ (1.80) $ 0.03 ----------- --------- ---------- --------- ----------- --------- ---------- ---------
5 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) Stock options to purchase approximately 2,502,000 weighted average shares of common stock were outstanding during the six months ended June 30, 1998 but were not included in the computation of diluted loss per share because the Company has a net loss for the six months ended June 30, 1998. Stock options to purchase approximately 1,685,000 weighted average shares of common stock were outstanding during the six months ended June 30, 1997 but were not included in the computation of diluted income per share because the exercise price was greater than the average market value of the common shares. COMPREHENSIVE INCOME (LOSS) In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). Effective January 1, 1998, the Company adopted SFAS 130, which establishes standards for reporting comprehensive income and its components. Comparative financial statements for earlier periods have been reclassified to reflect the adoption of SFAS 130. The Company's other comprehensive income consists of foreign currency translation adjustments. STATEMENT OF CASH FLOW INFORMATION
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 --------- -------- Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 177 $ 188 Income taxes -- 2 Non-cash investing activities: Purchase of property and equipment under long-term debt obligations $ -- $ 753 Non-cash financing activities: Deemed dividends on preferred stock related to beneficial conversion feature $ 1,792 $ -- Net assets held for sale 25,130 -- Conversion of Series A Convertible Preferred Stock to common stock 124 --
LINE OF CREDIT The Company had a revolving line of credit agreement with a bank that provided for maximum borrowings of $10 million which expired in July 1998. At June 30, 1998, the Company had $2.8 million in borrowings outstanding under the line of credit which were paid off in July 1998 with proceeds from the Asset Sale, as defined below. See "Asset Sale". 6 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) INVENTORIES INVENTORIES COMPRISE THE FOLLOWING:
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ Raw materials and parts $ 2,702 $ 15,210 Work in progress 2,092 6,879 Finished goods 379 6,897 ------------ ------------ $ 5,173 $ 28,986 ------------ ------------ ------------ ------------
ACCRUED EXPENSES ACCRUED EXPENSES COMPRISE THE FOLLOWING:
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31, 1998 1997 ------------ ------------ System installation and warranty $ 879 $ 3,741 Accrued commissions and incentives 631 2,062 Accrued payroll and related items 435 1,264 Other 8,260 3,546 ------------ ------------ $ 10,205 $ 10,613 ------------ ------------ ------------ ------------
ASSET SALE In April 1998, the Company entered into an agreement with Varian Associates, Inc. ("Varian") to sell selected assets and transfer selected liabilities related to the millions of electron volts ("MeV") ion implantation equipment product line for approximately $25 million plus additional payments if certain revenue targets are achieved ("Asset Sale"). The completion of the Asset Sale which was subject to approval by the Company's shareholders as well as to expiration of the applicable waiting periods under federal Hart-Scott-Rodino premerger notification requirements occurred in July 1998. As a result of the Asset Sale, the Company will no longer engage in the ion implant business and will refocus its efforts on thin film deposition. The Company used a portion of the net proceeds of the Asset Sale for repayment of certain outstanding indebtedness and the redemption of 70,000 shares of Series A Convertible Preferred Stock ("Series A Stock"), with the remaining proceeds to be used for working capital and general corporate purposes, including investment in R&D of thin film products. In connection with the Asset Sale and the refocusing of the Company's business on thin film products, the Company significantly reduced the workforce at several of its locations during the second quarter, resulting in the special charge. REDEMPTION AND EXCHANGE OF SERIES A CONVERTIBLE PREFERRED STOCK In February 1998, the Company issued equity securities through a private placement of Series A Stock for gross proceeds of $5 million. On July 29, 1998 the Company redeemed 70,000 shares of the outstanding Series A Stock for $4.7 million. In addition, the remaining 28,000 shares of Series A Stock were exchanged for 28,000 shares of Series B Stock which has a fixed conversion price of $1.25 per share. SPECIAL CHARGE During the second quarter of 1998, the Company incurred a special charge of $13.2 million. Included in this charge are personnel charges of $1.9 million associated with the Company's reduction in workforce as well as $5.4 million in inventory write-downs, and $1.2 million in property and equipment write-downs. In addition, the Company has provided $1.5 million for expenses associated with the closing of several sales offices and transaction losses as a result of the sale of the ion implant group to Varian. Also included in the special charge are $1.2 million in legal, accounting and banking fees 7 associated with the Varian transaction. Finally, the special charge includes a $2.0 million write-off of ion implant inventory that is currently a matter of dispute with Varian in connection with the Asset Sale to Varian. The Company and Varian are in the process of resolving the dispute through arbitration to determine whether Genus or Varian has rights to the one ion implant sale and inventory. In accordance with generally accepted accounting principles, if and when the Company prevails in the arbitration, any adjustments to the Company's financial statements as a result of this gain contingency will be made in the quarter in which the decision is rendered and the collection of the amount in question is probable. The Company is not conceding any rights to the disputed sale and believes that it will prevail in the arbitration. RESTATEMENT The Company recognized a sale of $2.7 million in the second quarter which was determined to be not in accordance with GAAP, and subsequently reversed. The appropriate adjustments for the reversal of this sale were made to revenue, profit, and accounts receivable in the second quarter, and are reflected in the Company's current financial statements. The amounts for net loss, net loss available to common shareholders, and net loss available to common shareholders per common share and per common share assuming dilution for the three and six month periods ended June 30, 1998 have been restated from amounts previously reported to reflect the reversal of a recorded sale and the resulting increase in the special charge. These retroactive adjustments increased net loss available to common shareholders by $2.7 million ($0.16 per common share) for the three and six month periods ended June 30, 1998 as follows:
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, 1998 JUNE 30, 1998 ------------- ---------------- Previously reported $ (18,903) $ (28,146) Adjustments (2,700) (2,700) As adjusted $ (21,603) $ (30,846)
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENTS IN THIS REPORT WHICH EXPRESS "BELIEF", "ANTICIPATION" OR "EXPECTATION" AS WELL AS OTHER STATEMENTS WHICH ARE NOT HISTORICAL FACT ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS REPORT. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THIS REPORT. RESULTS OF OPERATIONS Net sales for the three and six months ended June 30, 1998 were $10.3 million and $17.5 million, respectively, compared to net sales of $19.4 million and $39.0 million for the corresponding periods in 1997. The decline is attributable to lower unit sales of systems as well as lower revenue from spares and service largely as a result of the Asian financial crisis which began for the Company during the fourth quarter of 1997. After modest sales growth for the first nine months of 1997 compared to 1996, during the fourth quarter of 1997, the Company's sales fell from the immediate-prior quarter, and weakness among the Company's Asian customers continued during the first half of 1998. Gross margin for the three and six month periods ended June 30, 1998 was 5% and 5%, compared to 40% and 39%, respectively, for the same periods in 1997. The gross margin for the first half of 1998 was negatively impacted by the depressed level of sales resulting in underabsorption of fixed manufacturing and service costs and lower average selling prices. Even at relatively constant higher levels of sales, the Company's gross margins have historically been affected by variations in average selling prices, changes in the mix of product sales, unit shipment levels, the level of foreign sales, and competitive pricing pressures. For the second quarter of 1998, research and development expenses ("R&D") were $2.9 million, or 22% of sales, compared to $3.1 million, or 16% of sales, for the second quarter of 1997. R&D spending for the first half of 1998 of $6.3 million remained essentially flat relative to the comparable period in 1997. Despite the general industry slowdown and the near term outlook for sales, the Company continues to invest in R&D to position itself for the latter half of 1998 and beyond. The Company continually evaluates its R&D investment in view of evolving competition and market conditions and expects that R&D spending may increase during the second half of 1998. Selling, general and administrative expenses ("SG&A") were $5.7 million for the second quarter of 1998. Included in this amount is a $1.4 net million charge for the write-off of an account receivable from Innotech Corporation, the Company's Japanese distributor. Absent this write-off, SG&A increased slightly relative to the second quarter of 1997. During the second quarter of 1998, the Company incurred a special charge of $13.2 million. Included in this charge are personnel charges of $1.9 million associated with the Company's reduction in workforce as well as $5.4 million in inventory write-downs, and $1.2 million in property and equipment write-downs. In addition, the Company has provided $1.5 million for expenses associated with the closing of several sales offices and transaction losses as a result of the sale of the ion implant equipment product line to Varian Associates, Inc. ("Varian"). Also included in the special charge are $1.2 million in legal, accounting and banking fees associated with the Varian transaction. Finally, the special charge includes a $2.0 million write-off of ion implant inventory that is currently a matter of dispute with Varian in connection with the Asset Sale to Varian. The Company and Varian are in the process of resolving the dispute through arbitration to determine whether Genus or Varian has rights to the one ion implant sale and inventory. In accordance with generally accepted accounting principles, if and when the Company prevails in the arbitration, any adjustments to the Company's financial statements as a result of this gain contingency will be made in the quarter in which the decision is rendered and the collection of the amount in question is probable. The Company is not conceding any rights to the disputed sale and believes that it will prevail in the arbitration. 9 The net loss for the quarter ended June 30, 1998 was $21.5 million. This compares with net income of $296,000 for the second quarter of 1997. The net loss for the six month period was $28.9 million, compared to net income of $477,000 for the first six months of 1997. In February 1998, the Company issued $5 million of Series A Convertible Preferred Stock ("Series A Stock") in a private placement. Warrants were also issued as part of the transaction. During the first quarter, the Company recorded deemed dividends on preferred stock of $1.8 million to reflect the difference between the proceeds allocated to the Series A Stock and the fair value of the Series A Stock (assuming immediate conversion) upon issuance. For the second quarter, the Company recorded dividends of $74,000. These charges resulted in a net loss available to common shareholders of $21.6 million, or $1.26 per share for the second quarter of 1998 and a net loss available to common shareholders of $30.8 million or $1.80 per share for the first half of 1998. In July 1998, the Company redeemed 70,000 shares of the Series A Stock and exchanged the remaining 28,000 shares of Series A Stock for 28,000 shares of Series B Convertible Preferred Stock ("Series B Stock"). See "Subsequent Events - - Redemption and Exchange of Series A Convertible Preferred Stock". LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents decreased to $3.8 million at June 30, 1998 from $8.7 million at year-end. Accounts receivable declined from $19.5 million at year-end to $9.2 million at June 30, 1998. The decline in accounts receivable is due to the lower sales level as well as collections during the quarter, and the $3.0 million write-off of an account receivable from Innotech Corporation. The Company's primary source of funds at June 30, 1998 consisted of $3.8 million in cash. The Company had a $10.0 million revolving line of credit, secured by substantially all of the assets of the Company which expired in July 1998. At June 30, 1998, the Company had $2.8 million of borrowings outstanding under the line of credit, which were paid off with proceeds from the Asset Sale, as defined below. See "Subsequent Events - Asset Sale to Varian". The Company incurred operating losses during each of the two years in the period ended December 31, 1997 and incurred additional operating losses in the first and second quarters of 1998. Additionally, the Company's bank line of credit expired in July 1998. However, with the completion of the Asset Sale, the Company believes that its existing cash resources will be sufficient to fund the Company's expected working capital requirements for at least the next 12 months. In addition, the Company is in discussions with financial institutions to secure a line of credit. While the Company feels that its existing cash resources will be sufficient to implement the Company's operating strategy and meet the Company's other working capital requirements, if the industry downturn persists, the Company may be required to seek additional equity or debt financing. There can be no assurance that the Company would be able to obtain additional debt or equity financing, if and when needed, on terms that the Company finds acceptable. Any additional equity or debt financing may involve substantial dilution to the Company's shareholders, restrictive covenants or high interest costs. SUBSEQUENT EVENTS ASSET SALE TO VARIAN In April 1998, the Company entered into an agreement with Varian to sell selected assets and transfer selected liabilities related to the millions of electron volts ("MeV") ion implantation equipment product line for approximately $25 million plus additional payments if certain revenue targets are achieved ("Asset Sale"). The completion of the Asset Sale which was subject to approval by the Company's shareholders as well as to expiration of the applicable waiting periods under federal Hart-Scott-Rodino premerger notification requirements occurred in July 1998. As a result of the Asset Sale, the Company will no longer engage in the ion implant business and will refocus its efforts on thin film deposition. The Company used a portion of the net proceeds of the Asset Sale for repayment of certain outstanding indebtedness and the redemption of 70,000 shares of Series A Stock, with the remaining proceeds to be used for working capital and general corporate purposes, including investment in R&D of thin film products. In connection with the Asset Sale and the refocusing of the Company's business on thin film products, the Company significantly reduced the workforce at several of its locations during the second quarter, resulting in the special charge. 10 REDEMPTION AND EXCHANGE OF SERIES A CONVERTIBLE PREFERRED STOCK In February 1998, the Company issued equity securities through a private placement of Series A Stock for gross proceeds of $5 million. On July 29, 1998 the Company redeemed 70,000 shares of the outstanding Series A Stock for $4.7 million. In addition, the remaining 28,000 shares of Series A Stock were exchanged for 28,000 shares of Series B Stock which has a fixed conversion price of $1.25 per share. 11 RISK FACTORS CERTAIN SECTIONS OF MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE FACTORS SET FORTH ABOVE IN MANAGEMENT'S DISCUSSION AND ANALYSIS AND THIS RISK FACTORS SECTION. THE DISCUSSION OF THESE FACTORS IS INCORPORATED BY THIS REFERENCE AS IF SAID DISCUSSION WAS FULLY SET FORTH IN MANAGEMENT'S DISCUSSION AND ANALYSIS. HISTORICAL PERFORMANCE. Although the Company had net income of $19.3 million and $4.2 million in the years ended December 31, 1995 and 1994, the Company experienced losses of $19.3 million, $9.2 million, and $6.9 million for the years ended December 31, 1997, 1996 and 1993, respectively. In addition, the Company experienced an additional operating loss of $28.9 million in the first half of 1998. As a result of the Company's inconsistent sales and operating results in recent years, there can be no assurance that the Company will be able to attain or sustain consistent future revenue growth on a quarterly or annual basis, or that the Company will be able to attain or maintain consistent profitability on a quarterly or annual basis. RELIANCE ON A SMALL NUMBER OF CUSTOMERS AND CONCENTRATION OF CREDIT RISK. The Company continued its efforts to expand its customer base in 1997 and was successful, with new customers in Taiwan and North America. Historically, the Company has relied on a limited number of customers for a substantial portion of its net sales. In 1997, two customers, Samsung Electronics Company, Ltd. and Innotech Corporation accounted for 47% and 17%, respectively, of the Company's net sales. In 1996, these same two customers accounted for 53% and 18%, respectively, of the Company's net sales. With the sale of its ion implantation business in July 1998, the Company's main customer for its current generation product is Samsung Electronics Company, Ltd., which accounted for over 90% of the Company's net sales of thin film products in 1997 and 1996. Because the semiconductor manufacturing industry is concentrated in a limited number of generally larger companies, the Company expects that a significant portion of its future product sales will be concentrated within a limited number of customers. None of these customers has entered into a long-term agreement requiring it to purchase the Company's products. Furthermore, sales to certain of these customers may decrease in the future when those customers complete their current semiconductor equipment purchasing requirements for new or expanded fabrication facilities. The loss of a significant customer or any reduction in orders from a significant customer, including reductions due to customer departures from recent buying patterns, market, economic or competitive conditions in the semiconductor industry or in the industries that manufacture products utilizing ICs, could have a material adverse affect on the Company's business, financial condition and results of operations. The Company is dependent on a small number of customers. Accordingly, the Company is subject to concentration of credit risk. If a major customer were to encounter financial difficulties and become unable to meet its obligations, the Company would be adversely impacted. RELIANCE ON INTERNATIONAL SALES. Export sales accounted for approximately 74%, 84% and 88% of total net sales in the years ended 1997, 1996 and 1995, respectively. In addition, net sales to South Korean customers accounted for approximately 50%, 59% and 63%, respectively, of total net sales during the same periods. During the first half of 1998, the Company sold three systems, two of which were sold to domestic customers, thereby decreasing export sales to 40% of total net sales. Nonetheless, the Company anticipates that international sales, including sales to South Korea, will continue to account for a significant portion of net sales. As a result, a significant portion of the Company's sales will be subject to certain risks, including unexpected changes in regulatory requirements, tariffs and other barriers, political and economic instability, difficulties in accounts receivable collection, difficulties in managing distributors or representatives, difficulties in staffing and managing foreign subsidiary operations and potentially adverse tax consequences. Although the Company's foreign system sales are primarily denominated in U.S. dollars and the Company does not engage in hedging transactions, the Company's foreign sales are subject to the risks associated with unexpected changes in exchange rates, which could have the effect of making the Company's products more or less expensive. There can be no assurance that any of these factors will not have a material adverse affect on the Company's business, financial condition and results of operations. Further, the Company has a wholly owned South Korean subsidiary providing service and support to the installed base of customers and whose functional currency is the won. As a result of the devaluation of the won in the fourth quarter of 1997, the Company incurred a foreign exchange loss of $1.1 million. There can be 23 no assurance that the Company will not incur currency losses or gains in future quarters as the currency fluctuates. A substantial portion of the Company's sales is in Asia. Recent turmoil in the Asian financial markets has resulted in dramatic currency devaluations, stock market declines, restriction of available credit and general financial weakness. In addition, Dynamic Random Access Memory ("DRAM") prices have fallen dramatically and may continue to do so as some Asian integrated circuit ("IC") manufacturers may be selling DRAMs at less than cost in order to raise cash. These developments may affect the Company in several ways. Currency devaluation may make dollar-denominated goods, such as the Company's, more expensive for Asian clients. Asian manufacturers may limit capital spending. Furthermore, the uncertainty of the DRAM market may cause manufacturers everywhere to delay capital spending plans. These circumstances may also affect the ability of Company customers to meet their payment obligations, resulting in the cancellations or deferrals of existing orders and the limitation of additional orders. Some of the Company's South Korean customers have rescheduled their required delivery dates for orders previously placed and have announced delays in the facilitization of their new manufacturing areas. In addition, some portion of IC fabrication plant construction has been subsidized by Asian governments. Financial turmoil may weaken these governments' willingness to continue such subsidies. Such developments could have a material adverse affect on the Company's business, financial condition and results of operations. CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY. The Company's business depends upon the capital expenditures of semiconductor manufacturers, which in turn depend on the current and anticipated market demand for ICs and products utilizing ICs. The semiconductor industry is cyclical and experiences periodic downturns, which have an adverse affect on the semiconductor industry's demand for semiconductor manufacturing capital equipment. Semiconductor industry downturns have adversely affected the Company's revenues, operating margins and results of operations. There can be no assurance that the Company's revenues and operating results will not continue to be materially and adversely affected by future downturns in the semiconductor industry. In addition, the need for continued investment in R&D, substantial capital equipment requirements and extensive ongoing worldwide customer service and support capability limits the Company's ability to reduce expenses. Accordingly, there is no assurance that the Company will be able to attain profitability in the future. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's revenue and operating results may fluctuate significantly from quarter to quarter. The Company derives its revenue primarily from the sale of a relatively small number of high-priced systems, many of which may be ordered and shipped during the same quarter. The Company's results of operations for a particular quarter could be adversely affected if anticipated orders, for even a small number of systems, were not received in time to enable shipment during the quarter, anticipated shipments were delayed or canceled by one or more customers or shipments were delayed due to manufacturing difficulties. The Company's revenue and operating results may also fluctuate due to the mix of products sold and the channel of distribution. COMPETITION. The semiconductor manufacturing capital equipment industry is highly competitive. Genus faces substantial competition throughout the world. The Company believes that to remain competitive, it will require significant financial resources in order to offer a broader range of products, to maintain customer service and support centers worldwide and to invest in product and process R&D. Many of the Company's existing and potential competitors have substantially greater financial resources, more extensive engineering, manufacturing, marketing and customer service and support capabilities, as well as greater name recognition than the Company. The Company expects its competitors to continue to improve the design and performance of their current products and processes and to introduce new products and processes with improved price and performance characteristics. If the Company's competitors enter into strategic relationships with leading semiconductor manufacturers covering chemical vapor deposition ("CVD") products similar to those sold by the Company, it would materially adversely affect the Company's ability to sell its products to these manufacturers. There can be no assurance that the Company will continue to compete successfully in the United States or worldwide. The Company faces direct competition in CVD tungsten silicide ("WSiX") from Applied Materials, Inc. and Tokyo Electron, Ltd. There can be no assurance that these or other competitors will not succeed in developing new technologies, offering products at lower prices than those of the Company or obtaining market acceptance for products more rapidly than the Company. DEPENDENCE ON NEW PRODUCTS AND PROCESSES. The Company believes that its future performance will depend in part upon its ability to continue to enhance its existing products and their process capabilities and to 13 develop and manufacture new products with improved process capabilities. As a result, the Company expects to continue to invest in R&D. The Company also must manage product transitions successfully, as introductions of new products could adversely affect sales of existing products. There can be no assurance that the market will accept the Company's new products or that the Company will be able to develop and introduce new products or enhancements to its existing products and processes in a timely manner to satisfy customer needs or achieve market acceptance. The failure to do so could have a material adverse affect on the Company's business, financial condition and results of operations. Furthermore, if the Company is not successful in the development of advanced processes or equipment for manufacturers with whom it has formed strategic alliances, its ability to sell its products to those manufacturers would be adversely affected. PRODUCT CONCENTRATION; RAPID TECHNOLOGICAL CHANGE. Semiconductor manufacturing equipment and processes are subject to rapid technological change. The Company derives its revenue primarily from the sale of its WSiX CVD systems. The Company estimates that the life cycle for these systems is generally three to five years. The Company believes that its future prospects will depend in part upon its ability to continue to enhance its existing products and their process capabilities and to develop and manufacture new products with improved process capabilities. As a result, the Company expects to continue to make significant investments in R&D. The Company also must manage product transitions successfully, as introductions of new products could adversely affect sales of existing products. There can be no assurance that future technologies, processes or product developments will not render the Company's product offerings obsolete or that the Company will be able to develop and introduce new products or enhancements to its existing and future processes in a timely manner to satisfy customer needs or achieve market acceptance. The failure to do so could adversely affect the Company's business, financial condition and results of operations. Furthermore, if the Company is not successful in the development of advanced processes or equipment for manufacturers with whom it currently does business, its ability to sell its products to those manufacturers would be adversely affected. DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's success depends in part on its proprietary technology. While the Company attempts to protect its proprietary technology through patents, copyrights and trade secret protection, it believes that the success of the Company will depend on more technological expertise, continuing the development of new systems, market penetration and growth of its installed base and the ability to provide comprehensive support and service to customers. There can be no assurance that the Company will be able to protect its technology or that competitors will not be able to develop similar technology independently. The Company currently has a number of United States and foreign patents and patent applications. There can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented or that the rights granted thereunder will provide competitive advantages to the Company. From time-to-time, the Company has received notices from third parties alleging infringement of such parties' patent rights by the Company's products. In such cases, it is the policy of the Company to defend against the claims or negotiate licenses on commercially reasonable terms where considered appropriate. However, no assurance can be given that the Company will be able to negotiate necessary licenses on commercially reasonable terms, or at all, or that any litigation resulting from such claims would not have a material adverse affect on the Company's business and financial results. DEPENDENCE ON KEY SUPPLIERS. Certain of the components and sub-assemblies included in the Company's products are obtained from a single supplier or a limited group of suppliers. Disruption or termination of these sources could have a temporary adverse affect on the Company's operations. The Company believes that alternative sources could be obtained and qualified to supply these products, if necessary. Nevertheless, a prolonged inability to obtain certain components could have a material adverse affect on the Company's business, financial condition and results of operations. DEPENDENCE ON INDEPENDENT DISTRIBUTORS. The Company currently sells and supports its CVD products through direct sales and customer support organizations in the U.S., South Korea and through seven exclusive, independent sales representatives and distributors in the U.S., Europe, South Korea, Taiwan, Hong Kong and Singapore. The Company does not have any long-term contracts with its sales representatives and distributors. Although the Company believes that alternative sources of distribution are available, the disruption or termination of its existing distributor relationships could have a temporary adverse affect on the Company's business, financial condition and results of operations. 14 VOLATILITY OF STOCK PRICE. The Company's Common Stock has experienced substantial price volatility, particularly as a result of quarter-to-quarter variations in the actual or anticipated financial results of, or announcements by, the Company, its competitors or its customers, announcements of technological innovations or new products by the Company or its competitors, changes in earnings estimates by securities analysts and other events or factors. Also, the stock market has experienced extreme price and volume fluctuations which have affected the market price of many technology companies, in particular, and which have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions in the United States and the countries in which the Company does business, may adversely affect the market price of the Company's Common Stock. In addition, the occurrence of any of the events described in these "Risk Factors" could have a material adverse affect on such market price. READINESS FOR YEAR 2000. Many existing computer systems and applications, and other control devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. These computer systems and applications could fail or create erroneous results unless corrected so that they can process data related to the year 2000. The Company relies on its systems, applications and devices in operating and monitoring all major aspects of its business, including financial systems (such as general ledger, accounts payable and payroll modules), customer service, infrastructure, embedded computer chips, networks and telecommunications equipment and end products. The Company also relies on external systems of business enterprises such as customers, suppliers, creditors, financial organizations, and of governments both domestically and globally, directly for accurate exchange of data and indirectly. During 1997, the Company started the implementation of a new business system. One criteria for the selection of the enterprise software was compliance with Year 2000 issues. Accordingly, the Company's current estimate is that the costs associated with the Year 2000 issue, and the consequences of incomplete or untimely resolution of the Year 2000 issue, will not have a material adverse affect on the result of operations or financial position of the Company in any given year. However, despite the Company's efforts to address the Year 2000 impact on its internal systems, there can be no assurance that the Company has fully identified such impact or that it can resolve it without disruption of its business and without incurring significant expense. In addition, even if the internal systems of the Company are not materially affected by the Year 2000 issue, the Company could be affected through disruption in the operation of the enterprises with which the Company interacts. The Company has not contacted the entities with which it interacts to determine whether such entities are addressing the Year 2000 issue. 15 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS See Subsequent Events discussion regarding redemption and exchange of Series A Convertible Preferred Stock. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The Exhibits listed on the accompanying "Index to Exhibits" are filed as part hereof, or incorporated by reference into, the report. (b) Report on Form 8-K The Company filed a Current Report on Form 8-K dated April 24, 1998 to describe the sale to Varian Associates, Inc. of the ion implant equipment product line. The Company filed a Current Report on Form 8-K/A dated May 7, 1998. 16 GENUS, INC. SIGNATURES Pursuant to the requirements 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. Date: November 16, 1998 GENUS, INC. /s/ William W.R. Elder ------------------------------------ William W.R. Elder Chairman and Chief Executive Officer /s/ Kenneth Schwanda ------------------------------------- Kenneth Schwanda Vice President, Finance (Principal Accounting Officer) 17 GENUS, INC. INDEX TO EXHIBITS
EXHIBIT DESCRIPTION - ------- --------------------------------------------------------------------- 2.1 Asset Purchase Agreement, dated April 15, 1998, by and between Varian Associates, Inc. and Registrant and exhibits thereto (2) 4.2 Convertible Preferred Stock Purchase Agreement, dated February 2, 1998, among the Registrant and the Investors (1) 4.3 Registration Rights Agreement, dated February 2, 1998, among the Registrant and the Investors (1) 4.4 Certificate of Determination of Rights, Preferences and Privileges of Series A Convertible Preferred Stock (1) 4.5 Certificate of Determination of Rights, Preferences and Privileges of Series B Convertible Preferred Stock (4) 4.6 Redemption and Exchange Agreement, dated July 16, 1998, among the Registrant and the Investors (4) 10.17 Settlement Agreement and Mutual Release, dated April 20, 1998, between Registrant and James T. Healy (3) 10.18 Form of Change of Control Severance Agreement (3) 10.19 Settlement Agreement and Mutual Release, dated June 30, 1998, between Registrant and John Aldeborgh 10.20 Settlement Agreement and Mutual Release, dated July 15, 1998, between Registrant and Mary Bobel 27.1 Financial Data Schedule - -----------------------------------
(1) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated February 12, 1998. (2) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated April 15, 1998. (3) Incorporated by reference to the exhibit filed with the Registrant's Annual Report on Form 10-K/A for the year ended December 31, 1997. (4) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated July 29, 1998. 18 EX-10.19 2 EXHIBIT 10.19 EXHIBIT 10.19 SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual Release ("Agreement") is made by and between GENUS, INC. (the "Company"), and JOHN ALDEBORGH ("Employee"). WHEREAS, Employee was employed by the Company; WHEREAS, Employee and the Company entered into a Letter Agreement dated January 9, 1998. WHEREAS, the Company and Employee have entered into a Change of Control Severance Agreement (the "Change of Control Agreement") . WHEREAS, the Company and Employee have mutually agreed to terminate the employment relationship and to release each other from any claims arising from or related to the employment relationship; NOW THEREFORE, in consideration of the mutual promises made herein, the Company and Employee (collectively referred to as "the Parties") hereby agree as follows: 1. RESIGNATION. Employee resigns his employment with the Company effective June 30, 1998. 2. CONSIDERATION. The Company agrees to pay Employee at his normal rate of pay of four thousand two hundred sixty nine Dollars and twenty three cents ($4,269.23) per week, less applicable withholding, for nine (9) months from the effective date of his resignation (the "payment period"), in accordance with the Company's payroll practices, up to and including the closing date of the sale of certain assets of the Ion Implantation systems business to Varian Associates, Inc. (the "Closing Date"). As of the Closing Date, however, all remaining pay due under this agreement shall accelerate and become due and owing. During the payment period, Employee will not be entitled to the accrual or continuation of any employee benefits, including, but not limited to, vacation benefits or bonuses. 3. VESTING OF STOCK. The Parties agree that for purposes of determining the number of shares of the Company's common stock which Employee is entitled to purchase from the Company, Employee's vesting shall cease as of the date of this Agreement. The exercise of any stock options shall continue to be subject to the terms and conditions of the Company's Stock Option Plan and the applicable Stock Option Agreement between Employee and the Company. 4. BENEFITS. Employee shall have the right to convert his health insurance benefits to individual coverage pursuant to COBRA. 5. CONFIDENTIAL INFORMATION. Employee shall continue to maintain the confidentiality of all confidential and proprietary information of the Company and shall continue to comply with the terms and conditions of any Confidentiality Agreement between Employee and the Company. Employee shall return all the Company property and confidential and proprietary information in his possession to the Company on the Effective Date of this Agreement. 6. PAYMENT OF SALARY. Employee acknowledges and represents that the Company has paid all salary, wages, bonuses, accrued vacation, commissions and any and all other benefits due to Employee. 7. RELEASE OF CLAIMS. Employee agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to Employee by the Company. Employee and the Company, on behalf of themselves, and their respective heirs, family members, executors, officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, hereby fully and forever release each other and their respective heirs, family members, executors, officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, from, and agree not to sue concerning, any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that any of them may possess arising from any omissions, acts or facts that have occurred up until and including the Effective Date of this Agreement including, without limitation, (a) any and all claims relating to or arising from Employee's employment relationship with the Company and the termination of that relationship; (b) any and all claims relating to, or arising from, Employee's right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law; (c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion; (d) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, Older Workers Benefit Protection Act; the California Fair Employment and Housing Act, and Labor Code section 201, ET SEQ. and section 970, ET SEQ.; -2- (e) any and all claims for violation of the federal, or any state, constitution; (f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (g) any and all claims for attorneys' fees and costs. The Company and Employee agree that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred under this Agreement. 8. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Employee acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Employee and the Company agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the Effective Date of this Agreement. Employee acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Employee was already entitled. Employee further acknowledges that he has been advised by this writing that (a) he should consult with an attorney PRIOR to executing this Agreement; (b) he has at least twenty-one (21) days within which to consider this Agreement; (c) he has at least seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (d) this Agreement shall not be effective until the revocation period has expired. 9. CIVIL CODE SECTION 1542. The Parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement. Employee and the Company acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Employee and the Company, being aware of said code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 10. NO PENDING OR FUTURE LAWSUITS. Employee represents that he has no lawsuits, claims, or actions pending in his name, or on behalf of any other person or entity, against the Company or any other person or entity referred to herein. Employee also represents that he does not intend to bring any claims on his own behalf or on behalf of any other person or entity against the Company or any other person or entity referred to herein. -3- 11. APPLICATION FOR EMPLOYMENT. Employee understands and agrees that, as a condition of this Agreement, he shall not be entitled to any employment with the Company, its subsidiaries, or any successor, and he hereby waives any right, or alleged right, of employment or re-employment with the Company. Employee further agrees that he will not apply for employment with the Company, its subsidiaries or related companies, or any successor. 12. CONFIDENTIALITY. The Parties hereto each agree to use their best efforts to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as "Settlement Information"). Each Party hereto agrees to take every reasonable precaution to prevent disclosure of any Settlement Information to third parties, and each agrees that there will be no publicity, directly or indirectly, concerning any Settlement Information. The Parties hereto agree to take every precaution to disclose Settlement Information only to those employees, officers, directors, attorneys, accountants, governmental entities, and family members who have a reasonable need to know of such Settlement Information. 13. NO COOPERATION. Employee agrees he will not act in any manner that might damage the business of the Company. Employee agrees that he will not counsel or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints by any third party against the Company and/or any officer, director, employee, agent, representative, shareholder or attorney of the Company, unless under a subpoena or other court order to do so. 14. NON-DISPARAGEMENT. Each party agrees to refrain from any defamation, libel or slander of the other, or tortious interference with the contracts and relationships of the other. All inquiries by potential future employers of Employee will be directed to the Company 's Human Resources department. Upon inquiry, the Company shall only state the following: Employee 's last position and dates of employment. 15. TAX CONSEQUENCES. The Company makes no representations or warranties with respect to the tax consequences of the payment of any sums to Employee under the terms of this Agreement. Employee agrees and understands that he is responsible for payment, if any, of local, state and/or federal taxes on the sums paid hereunder by the Company and any penalties or assessments thereon. Employee further agrees to indemnify and hold the Company harmless from any claims, demands, deficiencies, penalties, assessments, executions, judgments, or recoveries by any government agency against the Company for any amounts claimed due on account of Employee's failure to pay federal or state taxes or damages sustained by the Company by reason of any such claims, including reasonable attorneys' fees. 16. COSTS. The Parties shall each bear their own costs, expert fees, attorneys' fees and other fees incurred in connection with this Agreement. 17. ARBITRATION. The Parties agree that any and all disputes arising out of the terms of this Agreement, their interpretation, and any of the matters herein released, shall be subject to -4- binding arbitration in Santa Clara county (if Employee is a California resident) or Employee's home county before the American Arbitration Association under its California Employment Dispute Resolution Rules or by a judge to be mutually agreed upon. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties agree that the prevailing party in any arbitration shall be awarded its reasonable attorney's fees and costs. 18. AUTHORITY. The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Employee represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement. Each Party warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein. 19. NO REPRESENTATIONS. Each party represents that it has had the opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement. Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement. 20. SEVERABILITY. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 21. ENTIRE AGREEMENT. This Agreement represents the entire agreement and understanding between the Company and Employee concerning Employee's separation from the Company, and supersedes and replaces any and all prior agreements and understandings concerning Employee's relationship with the Company and his compensation by the Company. 22. NO ORAL MODIFICATION. This Agreement may only be amended in writing signed by Employee and the President of the Company. 23. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California. 24. EFFECTIVE DATE. This Agreement is effective seven days after it has been signed by both Parties. 25. COUNTERPARTS. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. 26. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that: -5- (a) They have read this Agreement; (b) They have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c) They understand the terms and consequences of this Agreement and of the releases it contains; and (d) They are fully aware of the legal and binding effect of this Agreement. -6- IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below. GENUS, Inc. Dated: May 5, 1998 By /s/ WILLIAM W.R. ELDER -------------------------------------- William W. R. Elder Chairman of the Board John Aldeborgh, an individual Dated: May 5, 1998 /s/ JOHN ALDEBORGH -------------------------------------------- John Aldeborgh -7- EX-10.20 3 EXHIBIT 10.20 EXHIBIT 10.20 SETTLEMENT AGREEMENT AND MUTUAL RELEASE This Settlement Agreement and Mutual Release ("Agreement") is made by and between GENUS, INC. (the "Company"), and MARY BOBEL ("Employee"). WHEREAS, Employee was employed by the Company; WHEREAS, Employee and the Company entered into a Letter Agreement dated February 19, 1997. WHEREAS, the Company and Employee have entered into a Change of Control Severance Agreement (the "Change of Control Agreement") . WHEREAS, the Company and Employee have mutually agreed to terminate the employment relationship and to release each other from any claims arising from or related to the employment relationship; NOW THEREFORE, in consideration of the mutual promises made herein, the Company and Employee (collectively referred to as "the Parties") hereby agree as follows: 1. RESIGNATION. Employee resigns her employment with the Company and from her position as the Company's Chief Financial Officer effective July 15, 1998. 2. CONSIDERATION. The Company agrees to pay Employee at her normal rate of pay of thirteen thousand seven hundred fifty Dollars ($13,750.00) per month, less applicable withholding, for nine (9) months from the effective date of her resignation (the "payment period") in accordance with the Company's payroll practices (provided that Employee does not revoke this Agreement under paragraph 8) up to and including the closing date of the sale of certain assets of the Ion Implantation systems business to Varian Associates, Inc. (the "Closing Date"). As of the Closing Date, however, all remaining pay due under this Agreement shall accelerate and become due and owing. During the payment period, Employee will not be entitled to the accrual or continuation of any employee benefits, including, but not limited to, vacation benefits or bonuses. The Company further agrees to pay up to $5000 in outplacement costs that Employee incurs by directly paying the outplacement vendor in an amount not to exceed $5,000 upon the receipt of such invoice(s) from the outplacement vendor. 3. VESTING OF STOCK. The Parties agree that for purposes of determining the number of shares of the Company's common stock which Employee is entitled to purchase from the Company, Employee's vesting shall cease as of the date of this Agreement. The exercise of any stock options shall continue to be subject to the terms and conditions of the Company's Stock Option Plan and the applicable Stock Option Agreement between Employee and the Company. 4. BENEFITS. Employee shall have the right to convert his health insurance benefits to individual coverage pursuant to COBRA. 5. CONFIDENTIAL INFORMATION. Employee shall continue to maintain the confidentiality of all confidential and proprietary information of the Company and shall continue to comply with the terms and conditions of any Confidentiality Agreement between Employee and the Company. Employee shall return all the Company property and confidential and proprietary information in his possession to the Company on the Effective Date of this Agreement. 6. PAYMENT OF SALARY. Employee acknowledges and represents that the Company has paid all salary, wages, bonuses, accrued vacation, commissions and any and all other benefits due to Employee. 7. RELEASE OF CLAIMS. Employee agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed to Employee by the Company. Employee and the Company, on behalf of themselves, and their respective heirs, family members, executors, officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, hereby fully and forever release each other and their respective heirs, family members, executors, officers, directors, employees, investors, shareholders, administrators, affiliates, divisions, subsidiaries, predecessor and successor corporations, and assigns, from, and agree not to sue concerning, any claim, duty, obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected, that any of them may possess arising from any omissions, acts or facts that have occurred up until and including the Effective Date of this Agreement including, without limitation, (a) any and all claims relating to or arising from Employee's employment relationship with the Company and the termination of that relationship; (b) any and all claims relating to, or arising from, Employee's right to purchase, or actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraud under any state or federal law; (c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; breach of contract, both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion; (d) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, Older Workers Benefit Protection Act; the California -2- Fair Employment and Housing Act, and Labor Code section 201, ET SEQ. and section 970, ET SEQ.; (e) any and all claims for violation of the federal, or any state, constitution; (f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and (g) any and all claims for attorneys' fees and costs. The Company and Employee agree that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release does not extend to any obligations incurred under this Agreement. 8. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Employee acknowledges that he is waiving and releasing any rights he may have under the Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and release is knowing and voluntary. Employee and the Company agree that this waiver and release does not apply to any rights or claims that may arise under ADEA after the Effective Date of this Agreement. Employee acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Employee was already entitled. Employee further acknowledges that he has been advised by this writing that (a) he should consult with an attorney PRIOR to executing this Agreement; (b) he has at least twenty-one (21) days within which to consider this Agreement; (c) he has at least seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (d) this Agreement shall not be effective until the revocation period has expired. 9. CIVIL CODE SECTION 1542. The Parties represent that they are not aware of any claim by either of them other than the claims that are released by this Agreement. Employee and the Company acknowledge that they have been advised by legal counsel and are familiar with the provisions of California Civil Code Section 1542, which provides as follows: A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR. Employee and the Company, being aware of said code section, agree to expressly waive any rights they may have thereunder, as well as under any other statute or common law principles of similar effect. 10. NO PENDING OR FUTURE LAWSUITS. Employee represents that he has no lawsuits, claims, or actions pending in his name, or on behalf of any other person or entity, against the Company or any other person or entity referred to herein. Employee also represents that he does not -3- intend to bring any claims on his own behalf or on behalf of any other person or entity against the Company or any other person or entity referred to herein. 11. APPLICATION FOR EMPLOYMENT. Employee understands and agrees that, as a condition of this Agreement, he shall not be entitled to any employment with the Company, its subsidiaries, or any successor, and he hereby waives any right, or alleged right, of employment or re-employment with the Company. Employee further agrees that he will not apply for employment with the Company, its subsidiaries or related companies, or any successor. 12. CONFIDENTIALITY. The Parties hereto each agree to use their best efforts to maintain in confidence the existence of this Agreement, the contents and terms of this Agreement, and the consideration for this Agreement (hereinafter collectively referred to as "Settlement Information"). Each Party hereto agrees to take every reasonable precaution to prevent disclosure of any Settlement Information to third parties, and each agrees that there will be no publicity, directly or indirectly, concerning any Settlement Information. The Parties hereto agree to take every precaution to disclose Settlement Information only to those employees, officers, directors, attorneys, accountants, governmental entities, and family members who have a reasonable need to know of such Settlement Information. 13. NO COOPERATION. Employee agrees he will not act in any manner that might damage the business of the Company. Employee agrees that he will not counsel or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints by any third party against the Company and/or any officer, director, employee, agent, representative, shareholder or attorney of the Company, unless under a subpoena or other court order to do so. 14. NON-DISPARAGEMENT. Each party agrees to refrain from any defamation, libel or slander of the other, or tortious interference with the contracts and relationships of the other. All inquiries by potential future employers of Employee will be directed to the Company 's Human Resources department. Upon inquiry, the Company shall only state the following: Employee 's last position and dates of employment. A press release announcing Employee's resignation shall be made. 15. TAX CONSEQUENCES. The Company makes no representations or warranties with respect to the tax consequences of the payment of any sums to Employee under the terms of this Agreement. Employee agrees and understands that he is responsible for payment, if any, of local, state and/or federal taxes on the sums paid hereunder by the Company and any penalties or assessments thereon. Employee further agrees to indemnify and hold the Company harmless from any claims, demands, deficiencies, penalties, assessments, executions, judgments, or recoveries by any government agency against the Company for any amounts claimed due on account of Employee's failure to pay federal or state taxes or damages sustained by the Company by reason of any such claims, including reasonable attorneys' fees. 16. COSTS. The Parties shall each bear their own costs, expert fees, attorneys' fees and -4- other fees incurred in connection with this Agreement. 17. ARBITRATION. The Parties agree that any and all disputes arising out of the terms of this Agreement, their interpretation, and any of the matters herein released, shall be subject to binding arbitration in Santa Clara County before the American Arbitration Association under its California Employment Dispute Resolution Rules, or by a judge to be mutually agreed upon. The Parties agree that the prevailing party in any arbitration shall be entitled to injunctive relief in any court of competent jurisdiction to enforce the arbitration award. The Parties agree that the prevailing party in any arbitration shall be awarded its reasonable attorney's fees and costs. 18. AUTHORITY. The Company represents and warrants that the undersigned has the authority to act on behalf of the Company and to bind the Company and all who may claim through it to the terms and conditions of this Agreement. Employee represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through him to bind them to the terms and conditions of this Agreement. Each Party warrants and represents that there are no liens or claims of lien or assignments in law or equity or otherwise of or against any of the claims or causes of action released herein. 19. NO REPRESENTATIONS. Each party represents that it has had the opportunity to consult with an attorney, and has carefully read and understands the scope and effect of the provisions of this Agreement. Neither party has relied upon any representations or statements made by the other party hereto which are not specifically set forth in this Agreement. 20. SEVERABILITY. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision. 21. ENTIRE AGREEMENT. This Agreement represents the entire agreement and understanding between the Company and Employee concerning Employee's separation from the Company, and supersedes and replaces any and all prior agreements and understandings concerning Employee's relationship with the Company and his compensation by the Company. 22. NO ORAL MODIFICATION. This Agreement may only be amended in writing signed by Employee and the President of the Company. 23. GOVERNING LAW. This Agreement shall be governed by the laws of the State of California. 24. EFFECTIVE DATE. This Agreement is effective seven days after it has been signed by both Parties. 25. COUNTERPARTS. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall constitute an effective, binding agreement on the part of each of the undersigned. -5- 26. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that: (a) They have read this Agreement; (b) They have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or that they have voluntarily declined to seek such counsel; (c) They understand the terms and consequences of this Agreement and of the releases it contains; (d) They are fully aware of the legal and binding effect of this Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below. GENUS, Inc. Dated: May 4, 1998 By /s/ WILLIAM W.R. ELDER ----------------------------------- William W. R. Elder Chairman of the Board Mary Bobel, an individual Dated: May 4, 1998 /s/ MARY BOBEL ----------------------------------- Mary Bobel -6- EX-27.1 4 EXHIBIT 27.1
5 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 3754 0 10258 (1103) 5173 43990 24979 (20351) 49352 24532 0 0 6098 99779 (81093) 49352 17508 17508 16665 46058 (393) 0 0 (28943) 0 (28943) 0 0 0 (30846) (1.80) (1.80) net assets held for sale 25,130 deemed dividends on preferred stock (1903)
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