-----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, TE3ZV1BQellLab6XxKNClTIWH5Yx5/wi9xDacnrfG3yiCrM8iqFSg5/zSzZL/5Ob 8QOsgVYdvbrlycirJuHW/w== 0001047469-98-041246.txt : 19981118 0001047469-98-041246.hdr.sgml : 19981118 ACCESSION NUMBER: 0001047469-98-041246 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 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 SEC ACT: SEC FILE NUMBER: 000-17139 FILM NUMBER: 98752348 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 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 November 6, 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 ----------- ------------ ------------ ------------ Net sales $ 9,804 $ 24,375 $ 27,312 $ 63,407 Costs and expenses: Cost of goods sold 5,889 16,024 22,554 39,877 Research and development 1,517 3,066 7,788 9,315 Selling, general and administrative 2,347 4,358 12,253 12,414 Special charge -- -- 13,216 -- ----------- ------------ ------------ ------------ Income (loss) from operations 51 927 (28,499) 1,801 Other, net (11) (94) (404) (191) ----------- ------------ ------------ ------------ Income (loss) before income taxes 40 833 (28,903) 1,610 Provision for income taxes -- 321 -- 621 ----------- ------------ ------------ ------------ Net income (loss) 40 512 (28,903) 989 Deemed dividends on preferred stock -- -- (1,903) -- ----------- ------------ ------------ ------------ Net income (loss) available to common shareholders $ 40 $ 512 $(30,806) $ 989 ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------ Net income (loss) available to common shareholders per common share and per common share assuming dilution -- $ 0.03 $ (1.79) $ 0.06 ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------ Comprehensive income (loss) $ (42) $ 432 $ (28,551) $ 822 ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------
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 SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------------ ------------------ ASSETS Current assets: Cash and cash equivalents $ 6,408 $ 8,700 Restricted cash 1,000 -- Accounts receivable (net of allowance for doubtful accounts of $245 in 1998 and $1,097 in 1997) 10,499 19,469 Inventories 4,685 28,986 Other current assets 308 1,029 ------------------ ------------------ Total current assets 22,900 58,184 Property and equipment, net 4,465 15,276 Other assets, net 470 3,278 ------------------ ------------------ Total assets $ 27,835 $ 76,738 ------------------ ------------------ ------------------ ------------------ LIABILITIES Current liabilities: Short term bank borrowings $ -- $ 7,200 Accounts payable 1,383 8,723 Accrued expenses 6,430 10,613 Current portion of long-term debt -- 874 ------------------ ------------------ Total current liabilities 7,813 27,410 Long-term debt, less current portion 10 971 ------------------ ------------------ Total liabilities 7,823 28,381 ------------------ ------------------ Redeemable Preferred stock, no par value: Authorized, 2,000,000 shares; Issued and outstanding 28,000 shares at September 30, 1998 and none at December 31, 1997 1,324 -- SHAREHOLDERS' EQUITY Common stock, no par value: Authorized 50,000,000 shares; Issued and outstanding 17,361,162 shares at September 30, 1998 and 17,120,628 shares at December 31, 1997 99,778 99,149 Accumulated deficit (79,513) (48,863) Cumulative translation adjustment (1,577) (1,929) ------------------ ------------------ Total shareholders' equity 18,688 48,357 ------------------ ------------------ Total liabilities, redeemable preferred stock, and shareholders' equity $ 27,835 $ 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)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1998 1997 ------------ ------------- Cash flows from operating activities: Net income (loss) $ (28,903) $ 989 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 2,315 3,651 Special Charge 13,216 -- Changes in assets and liabilities: Accounts receivable 9,027 (13,832) Inventories (1,721) 625 Other current assets 721 (946) Accounts payable (7,340) 3,379 Accrued expenses (3,966) 143 Other, net (643) 63 ------------ ------------- Net cash used in operating activities (17,294) (5,928) ------------ ------------- Cash flows from investing activities: Acquisition of property and equipment (442) (565) Sales of Ion Technology Products 23,150 -- ------------ ------------- Net cash used in investing activities 22,708 (565) ------------ ------------- Cash flows from financing activities: Proceeds from issuance of common stock 120 782 Proceeds from issuance of preferred stock and warrants, net 4,816 -- Redemption of preferred stock (4,725) -- Proceeds from short-term bank borrowings -- 15,896 Payments of short-term bank borrowings (7,200) (8,416) Payments of long-term debt (870) (1,071) ------------ ------------- Net cash provided by financing activities (7,859) 7,191 ------------ ------------- Effect of exchange rate changes on cash 153 (65) Net increase (decrease) in cash and cash equivalents (2,292) 633 Cash and cash equivalents, beginning of period 8,700 11,827 ------------ ------------- ------------ ------------- Cash and cash equivalents, end of period $ 6,408 $ 12,460 ------------ ------------- ------------ -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. 4 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Numerator-basic: Net income (loss) $ 40 $ 512 $ (28,903) $ 989 Deemed dividends on preferred stock -- -- (1,903) -- ------------ ------------ ------------ ------------ Net income (loss) available to common shareholders $ 40 $ 512 $ (30,806) $ 989 ------------ ------------ ------------ ------------ Denominator-basic: Weighted average common shares outstanding 17,361 16,954 17,216 16,824 ------------ ------------ ------------ ------------ Basic net income (loss) per share available to common shareholders $ -- $ 0.03 $ (1.79) $ 0.06 ------------ ------------ ------------ ------------ Numerator-diluted: Net income (loss) $ 40 $ 512 $ (28,903) $ 989 Deemed dividends on preferred stock -- -- (1,903) -- ------------ ------------ ------------ ------------ Net income (loss) available to common shareholders $ 40 $ 512 $ (30,806) $ 989 ------------ ------------ ------------ ------------ Denominator-diluted: Weighted average common shares outstanding 17,361 16,954 17,216 16,824 Effect of dilutive securities: stock options 52 106 -- 99 ------------ ------------ ------------ ------------ 17,413 17,060 17,216 16,923 ------------ ------------ ------------ ------------ Diluted net income (loss) per share available to common shareholders $ -- $ 0.03 $ (1.79) $ 0.06 ------------ ------------ ------------ ------------
5 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) Stock options to purchase approximately 1,856,043 weighted average shares of common stock were outstanding during the nine months ended September 30, 1998 but were not included in the computation of diluted loss per share because the Company has a net loss for the nine months ended September 30, 1998. Stock options to purchase approximately 1,634,918 weighted average shares of common stock were outstanding during the nine months ended September 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) NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1998 1997 ------------ ------------- Supplemental Cash Flow Information: Cash paid during the period for: Interest $ 183 $ 298 Income taxes 1 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 $ -- Conversion of Series A Convertible Preferred Stock to common stock 124 --
LINE OF CREDIT The Company secured a $5 million Accounts Receivable Purchase Agreement with a bank, and is currently negotiating an additional $5 million revolving line of credit with the same bank. At September 30, 1998, the Company had no outstanding borrowings under the Accounts Receivable Purchase Agreement. 6 GENUS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) INVENTORIES INVENTORIES COMPRISE THE FOLLOWING:
(DOLLARS IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------------ ------------------ Raw materials and parts $ 3,029 $ 15,210 Work in progress 1,277 6,879 Finished goods 379 6,897 ------------------ ------------------ $ 4,685 $ 28,986 ------------------ ------------------
ACCRUED EXPENSES INVENTORIES COMPRISE THE FOLLOWING:
(DOLLARS IN THOUSANDS) SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------------ ------------------ System installation and warranty $ 855 $ 3,741 Accrued commissions and incentives 945 2,062 Accrued payroll and related items 561 1,264 Other 4,069 3,546 ------------------ ------------------ $ 6,430 $ 10,613 ------------------ ------------------
ASSET SALE TRANSACTION In July 1998, the Company completed the ion implant product line sale to Varian Associates, Inc. ("Varian") for approximately $25 million, plus additional payments if certain revenue targets are achieved ("Asset Sale"). The net assets and liabilities transferred to Varian included inventory of $18.9 million, capital equipment and other assets of $9.7 million, and warranty and installation liabilities of $3.6 million. 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. 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. ARBITRATION WITH VARIAN ASSOCIATES, INC. The Company and Varian are in the process of resolving a dispute through arbitration as defined in the Asset Purchase Agreement. This dispute is in regard to whether Genus or Varian has rights to 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. 7 RESTRUCTURING RESERVE BALANCE In the second quarter of 1998, the Company set up a reserve account of $13.2 million for costs associated with restructuring the Company and the closing of the Varian Asset Sale. To date, $12.8 million has or is expected to be charged against this reserve, including inventory of $5.4 million, leasehold improvements of $1.1 million, reduction in workforce costs of $1.7 million, costs associated with closing of foreign offices of $1.4 million, Varian transaction costs of $1.2 million, and the disputed ion implant system contingency of $2.0 million. Any legal costs associated with the pending arbitration with Varian will be charged against the remaining balance of approximately $400,000. SUBSEQUENT EVENT REDEMPTION SERIES B CONVERTIBLE PREFERRED STOCK On July 29, 1998, the Company exchanged 28,000 shares of Series A Stock for 28,000 shares of Series B Stock, which has a fixed conversion price of $1.25 per share. On October 16, the Company redeemed 12,000 shares of its outstanding Series B Stock for $600,000, leaving 16,000 shares of Series B Stock outstanding. The Series B Stock holders may require the Company at any time to redeem all of its shares outstanding at a redemption price equal to the stated value per share. The Series B stock may be redeemed at the option of the Company on or after July 30, 2003 at a redemption price equal to the product of (i) the average of the closing bid prices for the five trading days immediately preceding (a) July 30, 2003, or (b) the date of payment by the Company of the redemption price, whichever is greater, and (ii) the conversion ratio applicable to the Series B Stock calculated on July 30, 2003. 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 On July 28, 1998, the Company completed the sale transaction of its ion implant product line to Varian, Inc. During the period of time from July 1 through July 28, all transactions related to the ion implant product line were included in the Company's third quarter operating results. As a result of not incurring two months of ion implant expenses, all expense categories below compare favorably to the prior year. Net sales for the three and nine months ended September 30, 1998 were $9.8 million and $27.3 million, respectively, compared to net sales of $24.4 million and $63.4 million for the corresponding periods in 1997. The decline is attributable to lower unit sales of systems, 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, and only partial contribution from the ion implant product line. 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 three quarters of 1998. Gross margin for the three and nine months ended September 30, 1998 was 40% and 17%, respectively, compared to 34% and 37%, respectively, for the same periods in 1997. Gross margin for the third quarter of 1998 increased due to lower fixed manufacturing and service expenses as a percentage of sales, reflecting cost containment measures implemented during the second quarter of 1998 and lower ion implant product line expenses absorbed by the Company. The gross margin for the first three quarters 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 third quarter of 1998, research and development expenses ("R&D") were $1.5 million, or 15% of sales, compared to $3.1 million, or 13% of sales, for the third quarter of 1997. R&D spending for the first three quarters of 1998 was $7.8 million, compared to $9.3 million for the first three quarters of 1997. These reductions were almost entirely attributed to lower ion implant expenses incurred during the third quarter of 1998. 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 fourth quarter 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 over the next few quarters. Selling, general and administrative expenses ("SG&A") for the three and nine month periods ending September 30, 1998 were $2.3 million and $12.3 million, compared to $4.4 million and $12.4 million, respectively, for the prior year. SG&A spending for the third quarter of 1998 was lower due to the cost containment measures implemented in the second quarter of 1998 and lower ion implant related expenses absorbed by the Company. SG&A spending for the nine months ending September 30, 1998 was relatively flat with the prior year's nine month total, due to the $1.4 million net charge for the write-off of an account receivable from Innotech Corporation in the second quarter of 1998. Net income for the quarter ended September 30, 1998 was $40,000. This compares with net income of $512,000 for the third quarter of 1997. The net loss for the nine-month period was $28.9 million, compared to net income of $989,000 for the first nine months of 1997. 9 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 $30.8 million or $1.79 per share for the first nine months 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"). LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents, including restricted cash held in escrow, decreased to $7.4 million at September 30, 1998 from $8.7 million at year-end. In July, the Company received $23.2 million from the asset sale to Varian, with an additional $1 million held in escrow pending resolution of a Massachusetts tax audit lien and expiration of change of control agreements with former ion implant employees currently working for Varian. The Company used the funds to pay off existing accounts payable obligations of $16.0 million, the outstanding line of credit obligation of $2.8 million, and to redeem 70,000 shares of Series A Stock at $4.7 million. Accounts receivable declined from $19.5 million at year-end to $10.5 million at September 30, 1998. The decline in accounts receivable is due to lower sales levels. The Company's primary source of funds at September 30, 1998 consisted of $6.4 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. In September, the Company secured a $5 million Accounts Receivable Purchase Agreement with a bank, and is currently negotiating an additional $5 million revolving line of credit with the same bank. 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. However, with the completion of the Asset Sale, the Company believes that its existing cash resources, collection of its accounts receivable, and borrowing capabilities will be sufficient to fund the Company's expected working capital requirements for at least the next 12 months. 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. REDEMPTION SERIES B CONVERTIBLE PREFERRED STOCK On July 29, 1998, the Company exchanged 28,000 shares of Series A Stock for 28,000 shares of Series B Stock, which has a fixed conversion price of $1.25 per share. On October 16, the Company redeemed 12,000 shares of its outstanding Series B Stock for $600,000, leaving 16,000 shares of Series B Stock outstanding. The Series B Stock holders may require the Company at any time to redeem all of its shares outstanding at a redemption price equal to the stated value per share. The Series B stock may be redeemed at the option of the Company on or after July 30, 2003 at a redemption price equal to the product of (i) the average of the closing bid prices for the five trading days immediately preceding (a) July 30, 2003, or (b) the date of payment by the Company of the redemption price, whichever is greater, and (ii) the conversion ratio applicable to the Series B Stock calculated on July 30, 2003. 10 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. The Company experienced losses of $19.3 million and $9.2 million for the years ended December 31, 1997 and 1996, respectively. In addition, the Company experienced an operating loss of $28.9 million in the first three quarters 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 three quarters of 1998, the Company sold six systems, three of which were sold to domestic customers, thereby decreasing export sales to approximately 49% 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 no 11 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' 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 12 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. and South Korea, and through eight exclusive, independent sales representatives and distributors in the U.S., Europe, South Korea, Japan, Taiwan, Hong Kong, Mainland China, Malaysia, 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. 13 NASDAQ NATIONAL MARKET LISTING REQUIREMENTS. On October 20, the Company was notified by the National Association of Securities Dealers that it does not meet the Nasdaq National Market listing requirements because the stock failed to maintain a closing bid price of greater than or equal to $1.00 for the prior thirty consecutive trading days, in accordance with Marketplace Rule 4450(a)(5). The Company has ninety calendar days in which to regain compliance, which is defined as the Company's stock price having a closing bid price of equal to or greater than $1.00 for ten consecutive trading days. If the Company is unable to achieve compliance during this time, a request for a hearing before the Nasdaq review panel and a stay of delisting will be initiated prior to the deadline of January 18, 1999. The Company will present to Nasdaq a plan to remedy the situation at that time. If the Company's stock is delisted from the Nasdaq National Market, it will trade on the Nasdaq Small Cap Market. If this occurs, the Company's stock may be subject to reduced liquidity and reduced analyst coverage, which may have an adverse effect on the market price of the Company's common stock. Additionally, this may inhibit the Company's ability to raise capital in the future. Such developments could have a material adverse affect on the Company's business, financial condition and results of operations 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. 14 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Shareholders was held on July 24 in Palo Alto, California. Proxies for the meeting were solicited pursuant to Regulation 14A. At the Company's Annual Meeting, the shareholders approved the following resolutions: (1) Election of the following persons as directors.
Director In Favor Withheld -------- -------- -------- William W.R. Elder 14,071,772 632,995 Todd S. Myhre 14,094,216 610,551 G. Frederick Forsyth 14,068,042 638,725 Mario M. Rosati 14,096,242 608,525
(2) Approval of the Asset Purchase Agreement to sell the ion implant product line to Varian. For: 9,338,689 Against: 458,170 Abstain: 120,610 Broker Non-Vote: 4,787,298
(3) Approval of the conversion of securities exceeding 20% of the outstanding common stock. For: 8,774,549 Against: 833,751 Abstain: 309,169 Broker Non-Vote: 4,787,298
(4) Amendment of the 1989 Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder by 300,000 shares. For: 13,226,215 Against: 1,210,025 Abstain: 268,527
(5) Ratification and appointment of PricewaterhouseCoopers LLP as independent accountants. For: 14,346,629 Against: 196,127 Abstain: 162,011
15 ITEM 5. OTHER INFORMATION In the fourth quarter of 1998, the Board of Directors of the Company amended the Company's Bylaws to (i) adopt a provision providing for an advance notice requirement of shareholder business to be brought before a meeting of the shareholders, (ii) amend a provision to provide that a special meeting of the shareholders may be called by the Board of Directors, the Chairman of the Board and the President only and (iii) make other necessary conforming changes. With respect to shareholder proposals not included in the Company's proxy statement for the 1999 Annual Meeting of Shareholders, the persons named in management's proxy for the 1999 Annual Meeting of Shareholders will be entitled to exercise the discretionary voting power conferred by such proxy under the circumstances specified in Rule 14a-4(c) of the Securities Exchange Act of 1934, as amended, and under Section 2.5 of the Company's Bylaws, including with respect to proposals received by the Company not later than one hundred and twenty (120) days prior to the first anniversary of the date of mailing of the proxy statement for the prior year's Annual Meeting of Shareholders. Proposals of shareholders of the Company that are intended to be presented by such shareholders at the Company's 1999 Annual Meeting must be received by the Company no later than March 1, 1999. If such shareholder fails to comply with the foregoing notice provision, the proxy holders will be allowed to use their discretionary voting authority when the proposal is raised at the 1999 Annual Meeting. 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 July 29, 1998 to describe the closing of the sale to Varian Associates, Inc. of the ion implant equipment product line. 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 - ----------- ------------------------------------------------------------------ 3.2 By-laws of Registrant, as amended 4.5 Certificate of Determination of Rights, Preferences and Privileges of Series B Convertible Preferred Stock (1) 4.6 Redemption and Exchange Agreement, dated July 16, 1998, among the Registrant and the Investors (1) 27.1 Financial Data Schedule
- ------------------------------------------------------- (1) Incorporated by reference to the exhibit filed with the Registrant's Current Report on Form 8-K dated July 29, 1998. 18 EX-3.2 2 EX-3.2 RESTATED BYLAWS OF GENUS, INC. TABLE OF CONTENTS
Page ---- ARTICLE I CORPORATE OFFICES................................................................................ 1 1.1 PRINCIPAL OFFICE................................................................................. 1 1.2 OTHER OFFICES.................................................................................... 1 ARTICLE II MEETINGS OF SHAREHOLDERS......................................................................... 1 2.1 PLACE OF MEETINGS................................................................................ 1 2.2 ANNUAL MEETING................................................................................... 1 2.3 SPECIAL MEETING.................................................................................. 2 2.4 NOTICE OF SHAREHOLDERS' MEETINGS................................................................. 2 2.5 ADVANCE NOTICE OF SHAREHOLDER NOMINEES AND SHAREHOLDER BUSINESS.................................. 3 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................................................... 4 2.7 QUORUM........................................................................................... 4 2.8 ADJOURNED MEETING; NOTICE........................................................................ 4 2.9 VOTING........................................................................................... 5 2.10 VALIDATION OF MEETINGS: WAIVER OF NOTICE; CONSENT................................................ 6 2.11 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......................................... 6 2.12 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS................................... 7 2.13 PROXIES.......................................................................................... 7 2.14 INSPECTORS OF ELECTION........................................................................... 8 ARTICLE III DIRECTORS........................................................................................ 9 3.1 POWERS........................................................................................... 9 3.2 NUMBER AND QUALIFICATION OF DIRECTORS............................................................ 9 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS......................................................... 9 3.4 VACANCIES........................................................................................ 10 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......................................................... 10 3.6 REGULAR MEETINGS................................................................................. 10 3.7 SPECIAL MEETINGS................................................................................. 11 3.8 QUORUM........................................................................................... 11 3.9 WAIVER OF NOTICE................................................................................. 11 3.10 ADJOURNMENT...................................................................................... 12 3.11 NOTICE OF ADJOURNMENT............................................................................ 12 3.12 ACTION WITHOUT MEETING........................................................................... 12 3.13 FEES AND COMPENSATION OF DIRECTORS............................................................... 12 ARTICLE IV COMMITTEES....................................................................................... 12 4.1 COMMITTEES OF DIRECTORS.......................................................................... 12 4.2 MEETINGS AND ACTION OF COMMITTEES................................................................ 13 ARTICLE V OFFICERS......................................................................................... 13 5.1 OFFICERS......................................................................................... 13 5.2 ELECTION......................................................................................... 14 5.3 SUBORDINATE OFFICERS............................................................................. 14 5.4 REMOVAL AND RESIGNATION OF OFFICERS.............................................................. 14 5.5 VACANCIES........................................................................................ 14 5.6 CHAIRMAN OF THE BOARD............................................................................ 15 5.7 PRESIDENT........................................................................................ 15 5.8 VICE PRESIDENT................................................................................... 15 5.9 SECRETARY........................................................................................ 15 5.10 CHIEF FINANCIAL OFFICER.......................................................................... 16 5.11 ASSISTANT SECRETARY.............................................................................. 16 5.12 ADMINISTRATIVE OFFICERS.......................................................................... 16 5.13 AUTHORITY AND DUTIES OF OFFICERS................................................................. 17 ARTICLE VI INDEMNIFICATION OF DIRECTORS, AND OFFICERS, EMPLOYEES AND OTHER AGENTS................................................................................. 17 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................................ 17 6.2 INDEMNIFICATION OF OTHERS........................................................................ 17 6.3 PAYMENT OF EXPENSES IN ADVANCE................................................................... 18 6.4 INDEMNITY NOT EXCLUSIVE.......................................................................... 18 6.5 INSURANCE INDEMNIFICATION........................................................................ 18 6.6 CONFLICTS........................................................................................ 18 ARTICLE VII RECORDS AND REPORTS.............................................................................. 19 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER..................................................... 19 7.2 MAINTENANCE AND INSPECTION OF BYLAWS............................................................. 19 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS............................................ 20 7.4 INSPECTION BY DIRECTORS.......................................................................... 20 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER............................................................ 20 7.6 FINANCIAL STATEMENTS............................................................................. 20 ARTICLE VIII GENERAL MATTERS.................................................................................. 21 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............................................ 21 8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS........................................................ 22 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED................................................ 22 8.4 CERTIFICATES FOR SHARES.......................................................................... 22 8.5 LOST CERTIFICATES................................................................................ 22 8.6 CONSTRUCTION AND DEFINITIONS..................................................................... 23 ARTICLE IX AMENDMENTS....................................................................................... 23 9.1 AMENDMENT BY SHAREHOLDERS........................................................................ 23 -ii- 9.2 AMENDMENT BY DIRECTORS........................................................................... 23
-iii- BYLAWS OF GENUS, INC. ARTICLE I CORPORATE OFFICES 1.1 PRINCIPAL OFFICE. The board of directors shall fix the location of the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state, and the corporation has one or more business offices in such state, the board of directors shall fix and designate a principal business office in the State of California. 1.2 OTHER OFFICES. The board of directors may at any time establish branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1 PLACE OF MEETINGS. Meetings of shareholders shall be held at any place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 2.2 ANNUAL MEETING. The annual meeting of shareholders shall be held each year on a date and at a time designated by the board of directors. In the absence of such designation, the annual meeting of shareholders shall be held on the first Friday of February in each year at 3:00 p.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3 SPECIAL MEETING. A special meeting of the shareholders may be called at any time by the board of directors, or by the chairman of the board, or by the president. If a special meeting is called by any person or persons other than the board of directors, the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the receipt of the request. If the notice is not given within twenty (20) days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 2.4 NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of shareholders shall be sent or otherwise given in accordance with Section 2.6 of these bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Corporations Code of California (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall also state the general nature of that proposal. -2- 2.5 ADVANCE NOTICE OF SHAREHOLDER NOMINEES AND SHAREHOLDER BUSINESS. Subject to the rights of holders of any class or series of share having a preference over the Common Share as to dividends or upon liquidation, (a) nominations for the election of directors, and (b) business proposed to be brought before any shareholder meeting may be made by the board of directors or proxy committee appointed by the board of directors or by any shareholder entitled to vote in the election of directors generally if such nomination or business proposed is otherwise proper business before such meeting. However, any such shareholder may nominate one or more persons for election as directors at a meeting or propose business to be brought before a meeting, or both, only if such shareholder has given timely notice in proper written form of their intent to make such nomination or nominations or to propose such business. To be timely, such shareholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the first anniversary date of mailing of the corporation's proxy statement released to shareholders in connection with the previous year's annual meeting of shareholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the shareholder to be timely must be so received a reasonable time before the solicitation is made. To be in proper form, a shareholder's notice to the secretary shall set forth: (i) the name and address of the shareholder who intends to make the nominations or propose the business and, as the case may be, of the person or persons to be nominated or of the business to be proposed; (ii) a representation that the shareholder is a holder of record of share of the corporation entitled to vote at such meeting and, if applicable, intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) if applicable, a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (iv) such other information regarding each nominee or each matter of business to be proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, or the matter been proposed, or intended to be proposed by the board of directors; and -3- (v) if applicable, the consent of each nominee to serve as director of the corporation if so elected. The chairman of the meeting shall refuse to acknowledge the nomination of any person or the proposal of any business not made in compliance with the foregoing procedure. 2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any meeting of shareholders shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.7 QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.8 ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in Section 2.7 of these bylaws. -4- When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than forty-five (45) days from the date set for the original meeting, in which case notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.6 of these bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. 2.9 VOTING. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 2.12 of these bylaws, subject to the provisions of Sections 702 to 704, inclusive, of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). The shareholders' vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than the election of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholders approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly-held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number, or voting by classes, is required by the Code or by the articles of incorporation. At a shareholders' meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes (i.e. cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) unless the candidates' names have been placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates placed in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected. -5- 2.10 VALIDATION OF MEETINGS: WAIVER OF NOTICE; CONSENT. The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent shall state the general nature of the proposal. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of a matter not included in the notice of the meeting, if that objection is expressly made at the meeting. 2.11 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholders proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given in the manner specified in Section 2.6 of these bylaws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, -6- pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent", pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval. 2.12 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND GIVING CONSENTS. For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. If the board of directors does not so fix a record date: (a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given or (ii) when prior action by the board has been taken, shall be the day on which the board adopts the resolution relating to that action, or the sixtieth (60th) day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these bylaws. 2.13 PROXIES. Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholders name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholders attorney-in- fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the corporation stating that the proxy is revoked, or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting by attendance at such meeting and voting in person by the person executing the proxy or (ii) written notice of the death or incapacity of -7- the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. 2.14 INSPECTORS OF ELECTION. Before any meeting of shareholders, the board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) Determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) Receive votes, ballots or consents; (c) Hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) Count and tabulate all votes or consents; (e) Determine when the polls shall close; (f) Determine the result; and (g) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. -8- ARTICLE III DIRECTORS 3.1 POWERS. Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Any director may resign effective on giving written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.2 NUMBER AND QUALIFICATION OF DIRECTORS. The number of directors of the corporation shall be not less than four (4) nor more than seven (7). The exact number of directors shall be six (6) until changed, within the limits specified above, by a bylaw amending this Section 3.2, duly adopted by the board of directors or by the shareholders. The indefinite number of directors may be changed, or a definite number fixed without provision for an indefinite number, by a duly adopted amendment to the Articles of Incorporation or by an amendment to this bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the number or the minimum number of directors to a number less than (5) cannot be adopted if the votes cast against its adoption at a meeting of the shareholders, or the shares not consenting in the case of action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No amendment may change the stated maximum number of authorized directors to a number greater than two (2) times the stated number of directors minus one (1). 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected at each annual meeting of shareholders to hold office until the next such annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. -9- 3.4 VACANCIES. Vacancies in the board of directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the outstanding shares entitled to vote thereon represented at a duly held meeting at which a quorum is present, or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the board of directors shall be deemed to exist in the event of the death, resignation or removal of any director, or if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. Regular meetings of the board of directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. 3.6 REGULAR MEETINGS. Regular meetings of the board of directors may be held without notice if the times of such meetings are fixed by the board of directors. If any regular meeting day shall fall on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. -10- 3.7 SPECIAL MEETINGS. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally, or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8 QUORUM. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these bylaws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees) and Section 317(e) of the Code (as to indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE. The transactions of any meeting of the board of directors, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes thereof. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of a meeting shall also be deemed given to any director who attends the meeting without protesting, before or at its commencement, the lack of notice to that director. -11- 3.10 ADJOURNMENT. A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.11 NOTICE OF ADJOURNMENT. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than twenty-four (24) hours, in which case notice of the time and place shall be given before the time of the adjourned meeting, in the manner specified in Section 3.7 of these bylaws, to the directors who were not present at the time of the adjournment. 3.12 ACTION WITHOUT MEETING. Any action required or permitted to be taken by the board of directors may be taken without a meeting, if all members of the board shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.13 FEES AND COMPENSATION OF DIRECTORS. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement of expenses, as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation for those services. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS. The board of directors may, by resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: -12- (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies in the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these bylaws or the adoption of new bylaws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation, except at a rate or in a periodic amount or within a price range determined by the board of directors; or (g) the appointment of any other committees of the board of directors or the members of such committees. 4.2 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these bylaws, Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment) and Section 3.12 (action without meeting), with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee; special meetings of committees may also be called by resolution of the board of directors; and notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws. ARTICLE V OFFICERS 5.1 OFFICERS. The Corporate Officers of the corporation shall be a Chairman of the Board or a President or both, a Secretary and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, one or more Vice Presidents, one or more Assistant Secretaries and such other Corporate Officers as may be appointed in accordance with the provisions of Section 3 of this Article. One person may hold two or more offices. -13- In addition to the Corporate Officers of the Company described above, there may also be such Administrative Officers of the corporation as may be designated and appointed from time to time by the President of the corporation in accordance with the provisions of Section 11 of this Article. 5.2 ELECTION. The Corporate Officers of the corporation, except such Corporate Officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article, shall be chosen by the Board of Directors and shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of a Corporate Officer under any contract of employment. 5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint or empower the President to appoint such other Corporate Officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as provided in these bylaws or as the Board of Directors may from time to time determine. The President may from time to time designate and appoint Administrative Officers of the corporation in accordance with the provisions of Section 11 of this Article. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Any Corporate Officer may be removed, either with or without cause, by a majority of the Directors at the time in office, at any regular or special meeting of the Board or, except in the case of a Corporate Officer chosen by the Board of Directors, by any Corporate Officer upon whom such power of removal may be conferred by the Board of Directors. Any Corporate Officer may resign at any time by giving written notice to the Board of Directors, or to the President, or to the Secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Any Administrative Officer designated and appointed by the President may be removed, either with or without cause, at any time by the President. Any Administrative Officer may resign at any time by giving written notice to the President or to the Secretary of the corporation. 5.5 VACANCIES. A vacancy in any Corporate office because of death, resignation, removal, disqualification or any other cause shall be filled by the Board of Directors. -14- 5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be such a Corporate Officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors. 5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such a Corporate Officer, the President shall be the Chief Executive Officer and general manager of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and Officers of the corporation. He shall preside at all meetings of the Shareholders and in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall have the general powers and duties of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors. 5.8 VICE PRESIDENT. In the absence or disability of the President, and if there is no Chairman of the Board, the Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these bylaws, the President or the Chairman of the Board. 5.9 SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes at the principal office or such other place as the Board of Directors may order, of all meetings of Directors and Shareholders, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Directors' meetings, the number of shares present or represented at Shareholders' meetings and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the names of the Shareholders and their addresses; the number and classes of shares held by each; the number and date of certificates issued for the same; and the number and date of cancellation of every certificate surrendered for cancellation. -15- The Secretary shall give, or cause to be given, notice of all the meetings of the Shareholders and of the Board of Directors required by these bylaws or by law to be given, and he shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors. 5.10 CHIEF FINANCIAL OFFICER. This Corporate Officer shall keep and maintain, or cause to be kept and maintained in accordance with generally accepted accounting principles, adequate and correct accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, earnings (or surplus) and shares. The books of account shall at all reasonable times be open to inspection by any Director for a purpose reasonably related to his position as a Director. This Corporate Officer shall deposit all monies and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and Directors, whenever they request it, an account of all of his transactions and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these bylaws. 5.11 ASSISTANT SECRETARY. The assistant secretary, if any, or, if there is more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 5.12 ADMINISTRATIVE OFFICERS. In addition to the Corporate Officers of the corporation as provided in Section 1 of this Article and such subordinate Corporate Officers as may be appointed in accordance with Section 3 of this Article, there may also be such Administrative Officers of the corporation as may be designated and appointed from time to time by the President of the corporation. Administrative Officers shall perform such duties as from time to time may be determined by the President or the Board of Directors in order to assist the Corporate Officers in the furtherance of their duties. In the performance of such duties, however, such Administrative Officers shall have limited authority to act on behalf of the corporation as the Board of Directors shall establish, including but not limited to limitations on the dollar amount and on the scope of agreements or commitments that may be made by such Administrative Officers on behalf of the corporation, which limitations may not be exceeded by such individuals or altered by the President without further approval by the Board of Directors. -16- 5.13 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing powers, authority and duties, all officers of the corporation shall respectively have such authority and powers and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors. ARTICLE VI INDEMNIFICATION OF DIRECTORS, AND OFFICERS, EMPLOYEES AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, attorneys fees and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. -17- 6.3 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation. 6.5 INSURANCE INDEMNIFICATION. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. 6.6 CONFLICTS. No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (1) That it would be inconsistent with a provision of the Articles of Incorporation, these bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (2) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. -18- ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER. The corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed and as determined by resolution of the board of directors, a copy of these bylaws as amended to date, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each shareholder, and other records of its business and accounting. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation or who holds at least one percent (1%) of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names and addresses and shareholdings during usual business hours on five (5) days' prior written demand on the corporation, (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five (5) days after the demand is received or five (5) days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2 MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep at its principal executive office, or if its principal executive office is not in the State of California, at its principal business office in such state, the original or a copy of these bylaws as amended to date, which bylaws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these bylaws as amended to date. -19- 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting books and records, and the minutes of proceedings of the shareholders and the board of directors and any committee or committees of the board of directors, shall be kept at such place or places designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4 INSPECTION BY DIRECTORS. Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney, and the right of inspection includes the right to copy and make extracts of documents. 7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER. The board of directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least fifteen (15) days before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.6 of these bylaws for giving notice to shareholders of the corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by less than one hundred (100) holders of record. 7.6 FINANCIAL STATEMENTS. A copy of any annual financial statement and any income statement of the corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of the corporation as of the end of each such period, that has been prepared by the corporation shall be kept on file in the -20- principal executive office of the corporation for twelve (12) months; and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder. If a shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than thirty (30) days before the date of the request, and for a balance sheet of the corporation as of the end of that period, the chief financial officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within thirty (30) days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, such report shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The corporation shall also, on the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual or quarterly income statement which it has prepared, and a balance sheet as of the end of that period. The quarterly income statements and balance sheets referred to in this Section shall be accompanied by the report, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action, and in that case only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. -21- 8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the board of directors. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED. The board of directors, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances; and, unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 CERTIFICATES FOR SHARES. A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid, and the board of directors may authorize the issuance of certificates or shares as partly paid provided that these certificates shall state the amount of the consideration to be paid for them and the amount paid. All certificates shall be signed in the name of the corporation by the chairman of the board or vice chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require, including provision for indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. -22- 8.6 CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction and definitions in the Code shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS 9.1 AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment as required by applicable law. 9.2 AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders as provided in Section 9.1 of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended, or repealed by the board of directors. Whenever an amendment or new bylaw is adopted, it shall be copied in the book of bylaws with the original bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal with the date of the meeting at which the repeal was enacted or the filing of the operative written consent(s) shall be stated in said book. -23- CERTIFICATE BY SECRETARY The undersigned hereby certifies that he is the duly elected, qualified and acting Secretary of GENUS, INC. and that the foregoing amended and restated bylaws, comprising twenty-three (23) pages, are the bylaws of said corporation in effect as of the date hereof. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 13th day of November, 1998. /s/ MARIO M. ROSATI ------------------- EX-27.1 3 EXHIBIT 27.1
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 6408 0 10254 (245) 4685 22900 25324 (20859) 27835 7813 0 0 1324 99778 (81090) 27835 27312 27312 22554 55811 (404) 0 0 (28903) 0 (28903) 0 0 0 (30806) (1.79) (1.79) Deemed dividends on preferred stock (1903)
-----END PRIVACY-ENHANCED MESSAGE-----