<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1995, or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NO. 0-17139
GENUS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 94-2790804
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
1139 KARLSTAD DRIVE
SUNNYVALE, CA 94089
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 747-7120
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
COMMON SHARE PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sale price of the Common Stock on March 28,
1996, in the over-the-counter market as reported by the Nasdaq National Market,
was approximately $78,512,616. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding voting stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of March 28, 1996, Registrant had 16,249,323 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Parts II, III
and IV of this
Form 10-K Report:
(1) Registrant's 1995 Annual Report to Shareholders -- Items 5, 6, 7, 8 and 14;
and
(2) Proxy Statement for Registrant's 1995 Annual Meeting of Shareholders --
Items 10, 11, 12 and 13.
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PART I
ITEM 1. BUSINESS
GENERAL
Genus, Inc. ("Genus" or "the Company") designs, manufactures and markets
capital equipment and processes for advanced semiconductor manufacturing. The
Company's products -- high energy MeV (millions of electron volts) ion
implantation systems and chemical vapor deposition ("CVD") equipment are used
worldwide to produce integrated circuits ("ICS") for the data processing,
communications, medical, military, transportation and consumer electronics
industries. Genus was the first to market high energy MeV ion implantation and
the chemical vapor deposition of tungsten silicide, which perform two critical
steps in the manufacture of semiconductors.
The Company's global customer base consists of semiconductor manufacturers
in the United States, Europe and Asia/Pacific including Japan, Korea and Taiwan.
PRODUCTS
The primary products manufactured by Genus include two MeV ion implantation
models and three CVD models. Each of these products is available with a variety
of options and/or upgrades.
MEV ION IMPLANTATION
Ion implanters accelerate and drive electrically charged atoms (ions) into
the surface of a silicon wafer to convert silicon into semiconductor material as
part of the process of manufacturing integrated circuits. The market for ion
implanters consists of three primary segments: high current, medium current and
high energy (MeV). Currently, high and medium current ion implanters make up
approximately 85 percent of the total ion implantation market. However, the
Company believes that high energy ion implantation is the fastest growing
segment due to its use in emerging advanced technology applications and low cost
of ownership.
CURRENT MEV ION IMPLANT PRODUCTS.
TANDETRON-TM- 1520. In November 1995, Genus introduced the Tandetron-TM-
1520, a third-generation MeV ion implanter which evolved from the Genus 1500
system, introduced in 1988, and the Genus 1510 system, introduced in 1992.
Although specifically designed for high energy applications, the Tandetron
implants with a wide range of energies from 10keV (thousands of electron volts)
to 3 MeV. This broad range allows the system to effectively meet both medium
current and high energy application requirements. Key differentiating features
of the Tandetron are its small footprint, enhanced performance and low
cost-of-ownership. The system also offers significant production throughput
advantages for MeV applications including up to 50% higher throughput for single
implants and up to 66% increased throughput for chained implants. Genus has a
patent application pending on the Buried Implanted Layer for Lateral Isolation
("BILLI") structure. The Company believes that the BILLI technology may offer a
significant competitive advantage for process simplification and epi
replacement, especially in logic applications.
GENUS 1510. The Company's G1510 MeV ion implantation system was designed to
meet low and medium dose requirements in the 40 keV to 3 MeV range. Introduced
in September 1992, the 1510 is Genus' second generation MeV ion implanter and
incorporates the basic design and field experience of its predecessor, the
G1500. It is a fully automated, highly reliable implanter with strong beam
purity at specified throughput of up to 180 wafers per hour on 200mm wafers.
Currently, the Tandetron 1520 and the Genus 1510 are the only commercially
viable implanters capable of performing the full range of implants required for
the BILLI structure, which Genus believes is critical to the future of MeV
technology for advanced memory and logic applications.
Ion implant customers include: Fujitsu, LG, Hitachi, Hyundai, IBM,
Mitsubishi, Samsung, SGS-Thomson, Sharp and Sony.
2
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THIN FILM (CVD)
To manufacture an IC, there are a series of steps during which layers of
conductive and non-conductive materials are deposited onto the surface of wafers
made of semiconducting material. Deposited thin films include those used for
interconnect layers (conductors of electrical current) and those used for
dielectrics (insulating or nonconductive layers). The interconnect or metal
layer is deposited on the wafer surface to provide the electrical connection
between the various circuit elements, while the dielectric layer is deposited
between the interconnect layers to provide electrical insulation between
conductive interconnect layers.
CURRENT THIN FILM PRODUCTS
Genus' CVD products are designed for the deposition of tungsten silicide on
gate interconnects to increase speed. The Company offers three basic hardware
architectures. The most recent hardware architecture is the 7000 series, a
single wafer, tungsten silicide cluster tool. The Company's two other hardware
architectures, the 8700 Series and the 6000 Series, also deposit tungsten
silicide.
GENUS 7000 SYSTEM. To meet the advanced technology requirements of the 64M
DRAM generation and beyond, in December 1994, the Company introduced the Genus
7000, a single wafer, open architecture cluster tool. The initial processes on
this platform are silane and DCS (dichlorosilane) tungsten silicide. The modular
design of the 7000 provides customers with the flexibility of multiple process
configurations while offering standard mechanical interfaces, statistical
process control, diagnostics and industry standard interfaces for factory host
computers. The 7000 uses a small volume, computer-modeled process chamber with
specialized gas distribution which yields a high productivity process and low
downtime.
GENUS 8700 SERIES. A batch CVD tungsten silicide product, the 8700 Series
incorporates six heated chucks in the batch chamber and six gas injection ports,
which enable individual wafer process adjustment of gas flows and chuck
temperature for superior wafer-to-wafer repeatability. The dual cassette load
lock system provides continuous wafer loading and unloading capability, which
results in high system throughput (wafers per hour).
The cold wall reaction chamber and robotic wafer handling system are
designed to ensure highly reliable operation with a minimum of foreign material
generation. The system's through-the-wall mounted main frame design is ideally
suited for use in Class 1 or above cleanrooms. All models of the 8700 can be
configured to process from 100mm (4") to 200mm (8") wafers.
GENUS 6000 SERIES. Similar in design to the 8700 Series, the 6000 Series is
a third-generation tool incorporating new designs to ensure reliability and ease
of maintenance. It was designed to meet the factory automation needs of the
industry. The 6000 Series consists of a closed architecture cluster system which
incorporates the 8700-style six-chuck batch CVD chamber. This system also offers
dual cassette load lock architecture which enables continuous batch processing.
A new robotic handling system allows mechanical set-up through
computer-controlled recipes. The overall design features component upgrades
which provide production-worthy processing of 100mm (4") to 200mm (8") wafers.
Genus' thin film customers include: AMD, Fujitsu, LG, Hitachi, Hyundai, IBM,
Samsung, Sanyo, SGS-Thomson and Sharp.
MARKETING, SALES AND SERVICE
Genus sells and supports its ion implantation and CVD products through
direct sales and customer support organizations in the U.S., Western Europe and
Korea and through six exclusive sales representatives and distributors in the
U.S., Japan, Korea, Taiwan and Hong Kong. Yarbrough Southwest provides sales
distribution in the southwestern region of the United States, and Semifore in
the Northwest. Innotech Corporation, a value-added distributor, offers sales
distribution and field service in Japan. Genus Korea, Ltd., established in
January 1996, provides in-country field service and support. Sales in the Korean
and Taiwanese markets are served by the representative organizations of Aju-Exim
and Spirox, respectively. Hong Kong, Singapore and the Peoples Republic of China
are
3
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served by Katech International, LTD., based in Hong Kong. The Asia/Pacific
organizations provide sales and service, as well as distribution assistance for
spare parts. Genus distributes spare parts from several worldwide depots
including: Sunnyvale, California; Tokyo, Japan; Seoul, Korea; Hsin-Chu City,
Taiwan; and Evry, France. To facilitate its marketing efforts, the Company has a
clean room applications laboratory in Sunnyvale, California.
Genus' products are sold primarily to domestic and foreign device
manufacturers, including both foundries (companies producing semiconductors
principally for other semiconductor manufacturers) and companies producing
semiconductors mainly for outside sales. Genus has sold, installed and supported
equipment to almost every major semiconductor manufacturer in the world.
The Company maintains sales, technical support and service personnel at its
principal executive offices located in Sunnyvale, California, and in
Newburyport, Massachusetts. Genus has also established several foreign
subsidiaries to facilitate its sales and service activities abroad: Genus Korea,
Ltd. in Seoul Korea; Genus KK in Tokyo Japan; Genus Europa SARL in Evry, France;
Genus Europa Ltd. in Melbourn, Herts, England; Genus Europa GmbH in Stuttgart,
Germany; and Genus Europa Srl. in Milan, Italy. These subsidiaries provide
installation, field service, and maintenance, as well as additional technical
support to assist Genus' customers in effectively utilizing the Company's
products. Such services are also provided by the Company's distributors in
Tokyo, Seoul, Taipei and Hong Kong. The Company warrants its products against
defects in material and workmanship for twelve months.
In 1995, one customer accounted for 63% of the Company's net sales. Three
customers accounted for 33%, 19% and 14% of net sales in 1994. In 1993, three
customers accounted for 26%, 23% and 14% of net sales. See Note 14 of Notes to
Consolidated Financial Statements. Although export sales are subject to certain
control restrictions, including approval by the Office of Export and
Administration of the U.S. Department of Commerce, Genus has not experienced any
significant difficulties related to such limitations.
BACKLOG. The Company's backlog at December 31, 1995, was approximately
$45.0 million, compared with approximately $44.0 million at December 31, 1994.
Genus includes in its backlog only those orders for which a customer purchase
order has been received and a delivery date within twelve months has been
specified. The Company's backlog at December 31, 1995 consisted of product
shipments expected to be delivered during calendar year 1996. However, because
of the possibility of customer changes in delivery schedules or cancellations of
orders, the Company's backlog as of any particular date may not be
representative of actual sales for any succeeding period.
RESEARCH AND DEVELOPMENT
Constant technological change, fierce competition and a high rate of
technical obsolescence are key characteristics of the semiconductor equipment
industry. Genus' future prospects depend in part on the Company's ability to
broaden its market acceptance by differentiating its products on the basis of
production-worthiness, technical capability, productivity, particle control, and
customer support. To maintain close relationships with its customers and remain
responsive to their requirements, continued investment is needed for research
and development. In 1993, 1994 and 1995, the Company's research and development
expenditures were approximately $7.8 million, $9.0 million and $12.3 million,
respectively.
As part of its research and development program, the Company has established
technical research relationships with certain major semiconductor manufacturers
to further enhance its products for advanced ULSI devices.
COMPETITION
The Company believes that the principal competitive factors in the
semiconductor equipment market are product performance, quality and reliability,
wafer throughput, customer support, equipment automation, price and
relationships.
4
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Genus competes with a number of companies which historically have had wider
name recognition, broader product acceptance within the industry and
substantially greater resources. In addition, the rapid rate of technological
change in the industry creates opportunities for firms to enter this market and
apply new technologies to meet its needs. Accordingly, the Company anticipates
that it will face competition in the domestic as well as foreign marketplace
from both well-established and new competitors.
In the ion implantation marketplace, the Company's MeV ion implantation
system competes with one other MeV system. The Company believes that its high
energy MeV system currently has certain technological advantages over the
competing MeV system. Genus has new applications for MeV ion implantation
technology which it believes will see widespread use in the future since they
enable significant manufacturing cost reduction and improved integrated circuit
performance. The Company faces direct competition from Eaton Corporation. The
presence of Eaton in the MeV market place has continued to increase during 1995.
There can be no assurance that competition in the Company's particular MeV
product market will not intensify or that Genus' technical advantages may not be
reduced or lost as a result of technical advances made by competitors or changes
in semiconductor processing technology.
In the CVD market, Genus competes with other producers of CVD systems, as
well as alternative methods of deposition, such as sputtering, and thin films
other than tungsten silicide. The Company faces direct competition in tungsten
silicide from Applied Materials, Inc. and Tokyo Electron, Ltd. The impact of
their presence in the CVD tungsten silicide market continued to increase during
1995. There can be no assurance that levels of competition in the Company's
particular CVD product market will not intensify or that Genus' technical
advantages may not be reduced or lost as a result of technical advances made by
competitors or changes in semiconductor processing technology.
MANUFACTURING AND SUPPLIERS
Most of the components for the Company's CVD tungsten silicide systems are
produced in subassemblies by independent domestic suppliers according to the
Company's design and procurement specifications. Many components of the
Company's MeV ion implantation systems are also acquired as subassemblies from
outside domestic vendors. The Company anticipates that the use of such
subassemblies will continue to increase in order to achieve additional
manufacturing efficiencies. The Company has alternate sources of supply for the
components and parts purchased from outside suppliers, except for certain
components used in its CVD tungsten and MeV ion implantation products which are
presently available only from single sources. To date, the Company has been able
to obtain adequate supplies of such components in a timely manner from existing
sources. However, the inability to develop alternate sources or to obtain
sufficient source components as required in the future, could result in delays
of product shipments which could have a material adverse affect on the Company's
operating results.
The Company's thin film CVD operation is located in Sunnyvale, California,
while its MeV ion implantation technology manufacturing operation is located in
Newburyport, Massachusetts.
INTELLECTUAL PROPERTY
The Company believes that because of the rapid technological change in the
industry its future prospects will depend primarily upon the expertise and
creative skills of its personnel in process technology, new product development,
marketing, application engineering, and product engineering, rather than on
patent protection. Nevertheless, the Company has a policy to actively pursue
domestic and foreign patent protection to cover technology developed by the
Company. The Company's current patents include technology relating to cold wall
CVD of tungsten silicide, ion beam formation, high energy ion acceleration, ion
implant angle control, wafer cleaning, and wafer heating and handling in vacuum.
5
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In 1987, the Company's Ion Technology Division (formerly General Ionex) and
Eaton Corporation entered into a licensing agreement whereby the Company uses
certain ion implantation related technology.
EMPLOYEES
As of December 31, 1995, the Company employed 319 people on a full-time
basis. The Company believes that its relations with its employees are
satisfactory. None of the employees are covered by a collective bargaining
agreement.
ENVIRONMENTAL REGULATION
Federal, state and local regulations impose various environmental controls
on the discharge of chemicals and gases used in the manufacturing process. The
Company believes that its activities conform to present environmental
regulations. Increasing public attention has, however, been focused on the
environmental impact of semiconductor operations. While the Company has not
experienced any materially adverse effects on its operations from governmental
regulations, there can be no assurance that changes in such regulations will not
impose the need for additional capital equipment or other requirements. Any
failure by the Company to adequately restrict the discharge of hazardous
substances could subject it to future liabilities or could cause its
manufacturing operations to be suspended.
ITEM 2. PROPERTIES
The Company's executive offices and thin film manufacturing and research and
development operations are presently located in one building in Sunnyvale,
California, totalling approximately 100,500 square feet. The California
facilities are occupied under a lease expiring in October 2002, with a current
annual rental expense of approximately $650,000. Genus' Ion Technology Division
is located in Newburyport, Massachusetts. This facility, totalling approximately
25,000 square feet, is occupied by the Company under a month-to-month lease,
with a current annual rental expense of approximately $175,000. In September
1995, the Company entered into an agreement to lease a new facility for the Ion
Technology Division. The Division expects to move to the new facility by May
1996. This facility, totalling approximately 70,000 square feet, will be
occupied under a lease expiring in May 2017, with an annual rental expense of
approximately $805,000. The Company also leases sales and support offices in
Seoul, South Korea; Tokyo, Japan; Melbourn, Herts, England; Evry, France; and
Rockville Center, New York. The Company owns substantially all of the machinery
and equipment used in its facilities. See Notes 3 and 8 of Notes to Consolidated
Financial Statements. The Company believes that its existing facilities and
capital equipment are adequate to meet its current requirements and that
suitable additional or substitute space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The principal market in which the Company's common stock is traded and the
related security holder matters are set forth under the caption "Common Stock
Information" on page 28 of the Company's 1995 Annual Report to Shareholders.
This information is incorporated herein by this reference thereto. The market
value of the Company's common stock on March 28, 1996 was $5.75 per share.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data of the Company for the years 1991 through 1995 is
included under the caption "Selected Consolidated Financial Data" on page 10 of
the Company's 1995 Annual Report to Shareholders. This information is
incorporated herein by this reference thereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 11 to 13 of the Company's 1995 Annual Report to
Shareholders. This information is incorporated herein by this reference thereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and related notes thereto,
together with the Report of Independent Accountants and the selected quarterly
financial data of the Company are presented on pages 14 to 27 of the Company's
1995 Annual Report to Shareholders. This information is incorporated herein by
this reference thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
------------------------
With the exception of the information incorporated by reference from the
Company's 1995 Annual Report to Shareholders in Parts II and IV of this Form
10-K, the Company's 1995 Annual Report to Shareholders is not to be deemed filed
as a part of this Report.
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7
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PART III
Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement pursuant to Regulation 14A
relating to the Registrant's 1996 Annual Meeting of Shareholders (the "Proxy
Statement") not later than 120 days after the end of the fiscal year covered by
this Report, and certain information included therein is incorporated herein by
reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and nominees for directors of the
Company is incorporated by reference to the Company's Proxy Statement.
The executive officers of the Company, who are elected by and serve at the
discretion of the Board of Directors, and their ages at March 28, 1996, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
William W. R. Elder................. 57 Chairman and Chief Executive Officer
Kent L. Robertson................... 54 Executive Vice President, Chief Financial Officer and Secretary
James M. Burns...................... 49 Executive Vice President and General Manager, Thin Films
Division
John E. Aldeborgh................... 39 Vice President and General Manager, Ion Division
William D. Cole..................... 41 Vice President, Sales
Kevin C. Conlon..................... 42 Vice President, Marketing
Thomas E. Seidel.................... 60 Vice President, Chief Technical Officer
Ernest P. Quinones.................. 36 Corporate Controller, Chief Accounting Officer, and Treasurer
Mario M. Rosati..................... 49 Assistant Secretary
</TABLE>
Except as set forth below, all of the executive officers have been
associated with the Company in their present or other capacities for more than
the past five years. Officers are elected annually by the Board of Directors and
serve at the discretion of the Board. There are no family relationships among
executive officers of the Company.
Mr. Elder, a founder of the Company, served as President and as a director
of the Company from its organization in November 1981 through April 1990. In
April 1990, he was named Chairman of the Board, President and Chief Executive
Officer. Mr. Elder currently serves as Chairman of the Board and Chief Executive
Officer of the Company.
Mr. Robertson joined the Company in June 1995 as Executive Vice President,
Chief Financial Officer and Secretary of the Company. From January 1994 to June
1995 and from February 1987 to March 1992, Mr. Robertson was Senior Vice
President, Chief Financial Officer and Secretary of Pyramid Technology
Corporation, a manufacturer of computer servers. From March 1992 to December
1993, he was associated with RasterOps Corporation, a manufacturer of truecolor
photo realistic imaging systems, as Executive Vice President, Chief Financial
Officer and Secretary. From September 1980 to January 1987 he served as Vice
President, Chief Financial Officer and Secretary of Telco Systems Inc., a
manufacturer of telecommunications equipment.
Mr. Burns joined the Company in February 1995 as Executive Vice President
and General Manager of the Company's Thin Films Division. From August 1992 to
January 1995, Mr. Burns was with Hughes Network Systems, a manufacturer of
advance commercial telecommunications, as Assistant Vice President, Operations.
From December 1991 to July 1992, he was associated with Trimble Navigation, LTD,
a manufacturer of navigational systems, as Director of Customer Satisfaction and
Quality. From November 1990 to July 1991, Mr. Burns was Vice President of
Operations with
8
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Domestic Automation Company, a manufacturer of computerized metering and
communication products. From May 1972 to October 1990, he served in various
positions at Hewlett-Packard Company, a computer and instrumentation
manufacturer, most recently as Group Manufacturing Manager, Peripherals Group.
Mr. Aldeborgh joined the Company in June 1989 as Director of Operations of
the Company's Ion Technology Division. Mr. Aldeborgh has served as Vice
President and General Manager of this Division since January 1993. Prior to
joining the Company, Mr. Aldeborgh was with LTX Corporation, a manufacturer of
semiconductor test equipment, from May 1983 to May 1989, in various management
positions, most recently as Director of Manufacturing for its Linear
Manufacturing Division.
Mr. Cole joined the Company in January 1993 as Vice President of Sales. From
December 1984 to December 1992, he was associated with Teradyne, Inc., a
semiconductor equipment manufacturer, in various sales positions, most recently
as National Sales Manager.
Mr. Conlon joined the Company in April 1992 as Vice President of Marketing.
From February 1990 to April 1992, Mr. Conlon held marketing and operations
management positions at Novellus Systems, Inc., a semiconductor equipment
manufacturer, most recently as Director of Manufacturing. From April 1980 to
February 1990, he served in various positions at Applied Materials, Inc., a
semiconductor equipment manufacturer, most recently as Product Marketing
Manager, Implant Division.
Mr. Seidel joined the Company in January 1996, as Vice President and Chief
Technical Officer. From July 1988 to January 1996, Mr. Seidel was associated
with SEMATECH, a Semiconductor-Industry Consortium, in various senior management
positions, most recently as Chief Technologist and Director of Strategic
Technology. From March 1987 to July 1988, Mr. Seidel was associated with the
University of California at Santa Barbara, as head of the Microelectronics
department. From February 1985 to March 1987, Mr. Seidel was employed with J.C.
Schumacher Co., a semiconductor equipment manufacturer, most recently as Senior
Vice President of Technology. From June 1966 to February 1985, Mr. Seidel was
associated with AT&T Bell Laboratories in various technical management
positions.
Mr. Quinones joined the Company in June 1989 as the Company's Director of
Corporate Finance. From October 1991 through February 1995, he served as the
Company's Corporate and Thin Films Division Controller. Mr. Quinones was
appointed Genus' Corporate Controller, Chief Accounting Officer and Treasurer in
March 1995. Prior to joining the Company, Mr. Quinones was with Coopers &
Lybrand L.L.P., a public accounting firm, from July 1982 to May 1989, in various
audit positions, most recently as Audit Manager.
Mr. Rosati has been Assistant Secretary and a director of the Company since
the Company's inception in November 1981 to June 1995. From July 1995 to the
present, Mr. Rosati has been the Company's Assistant Secretary. He is a member
of Wilson, Sonsini, Goodrich & Rosati, P.C., general counsel to the Company.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
9
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
1. FINANCIAL STATEMENTS. The following Consolidated Financial Statements
of Genus, Inc. and Report of Independent Accountants are incorporated by
reference to pages 14 through 27 of the Registrant's 1995 Annual Report to
Shareholders:
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Operations - Years Ended December 31, 1995, 1994
and 1993
Consolidated Statements of Shareholders' Equity - Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. FINANCIAL STATEMENT SCHEDULES. The following financial statement
schedules of Genus, Inc. for the years ended December 31, 1995, 1994 and 1993
are filed as part of this Report and should be read in conjunction with the
Consolidated Financial Statements of Genus, Inc.
<TABLE>
<CAPTION>
SCHEDULE PAGE
--------------------------------------------------------- -----
<S> <C> <C>
Report of Independent Accountants........................ S-1
II -- Valuation and Qualifying Accounts........................ S-2
</TABLE>
Schedules not listed above have been omitted because they are not applicable
or are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
3. EXHIBITS. The Exhibits listed on the accompanying Index to Exhibits
immediately following the financial statement schedules are filed as part of, or
incorporated by reference into, this Report.
4. REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company
during the fiscal quarter ended December 31, 1995.
10
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Sunnyvale, State of California, on the 28th day of March, 1996.
GENUS, INC.
By: /s/ WILLIAM W. R. ELDER
-----------------------------------
William W. R. Elder
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, William W. R. Elder and Kent L. Robertson,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
NAME TITLE DATE
- ------------------------------------------------------ -------------------------------- -----------------------
/s/ WILLIAM W. R. ELDER Chairman, Chief Executive
------------------------------------------- Officer and Director (Principal March 28, 1996
William W. R. Elder Executive Officer)
/s/ KENT L. ROBERTSON Executive Vice President, Chief
------------------------------------------- Financial Officer, Secretary March 28, 1996
Kent L. Robertson (Principal Financial Officer)
Corporate Controller, Chief
ERNEST P. QUINONES Accounting Officer and
------------------------------------------- Treasurer (Principal Accounting March 28, 1996
Ernest P. Quinones Officer)
STEPHEN F. FISHER
------------------------------------------- Director March 25, 1996
Stephen F. Fisher
G. FREDERICK FORSYTH
------------------------------------------- Director March 28, 1996
G. Frederick Forsyth
TODD S. MYHRE
------------------------------------------- Director March 28, 1996
Todd S. Myhre
MARIO M. ROSATI
------------------------------------------- Director March 28, 1996
Mario M. Rosati
</TABLE>
11
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Genus, Inc. and subsidiaries on Form S-8 (File Nos. 33-28394 and 33-38657) of
our reports dated January 26, 1996, on our audits of the consolidated financial
statements and financial statement schedules of Genus, Inc. and subsidiaries as
of December 31, 1995 and 1994, and for each of the three years in the period
ended December 31, 1995, which reports are included in this Annual Report on
Form 10-K.
Coopers & Lybrand L.L.P.
San Jose, California
March 27, 1996
12
<PAGE>
GENUS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1995
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
3.1 Restated Articles of Incorporation of Registrant(2)...................................... --
3.2 By-laws of Registrant, as amended (4).................................................... --
4.1 Common Shares Rights Agreement, dated as of April 27, 1990, between Registrant and Bank
of America, N.T. and S.A., as Rights Agent(6)........................................... --
10.3 Lease dated December 6, 1985 for Registrant's facilities at 4 Mulliken Way, Newburyport,
Massachusetts, and amendment and extension of lease dated March 17, 1987(1)............. --
10.6 Lease dated June 15, 1988 for Registrant's facilities at 100 Merrick Road, West Building,
Rockville Center, New York (1).......................................................... --
10.7 Assignment of Lease dated April 1986 for Registrant's facilities at Unit 11A Melbourn
Science Park, Melbourn, Hertz, England(1)............................................... --
10.8 Registrant's 1981 Incentive Stock Option Plan, as amended (3)............................ --
10.10 Registrant's 1989 Employee Stock Purchase Plan, as amended (7)........................... --
10.11 International Distributor Agreement dated November 23, 1987 between General Ionex
Corporation and Innotech Corporation(1)................................................. --
10.12 Distributor/Representative Agreement dated August 1, 1984 between Registrant and Aju Exim
(formerly Spirox Holding Co./You One Co. Ltd.)(1)....................................... --
10.15 Exclusive Sales and Service Representative Agreement dated October 1, 1989 between
Registrant and AVBA Engineering Ltd(5).................................................. --
10.16 Exclusive Sales and Service Representative Agreement dated as of April 1, 1990 between
Registrant and Indosale PVT Ltd(5)...................................................... --
10.18 License Agreement dated November 23, 1987 between Registrant and Eaton Corporation(1).... --
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
10.21 EXCLUSIVE SALES AND SERVICE REPRESENTATIVE AGREEMENT DATED MAY 1, 1989 BETWEEN REGISTRANT
AND SPIROX TAIWAN, LTD.(4).............................................................. --
10.22 LEASE DATED APRIL 7, 1992 BETWEEN REGISTRANT AND THE JOHN A. AND SUSAN R. SOBRATO 1979
REVOCABLE TRUST FOR PROPERTY AT 1139 KARLSTAD DRIVE, SUNNYVALE, CALIFORNIA(8)........... --
10.24 TERM LOAN AGREEMENT DATED APRIL 17, 1992 BETWEEN THE REGISTRANT AND SILICON VALLEY
BANK(8)................................................................................. --
10.25 ASSET PURCHASE AGREEMENT, DATED MAY 28, 1992, BY AND BETWEEN THE REGISTRANT AND ADVANTAGE
PRODUCTION TECHNOLOGY, INC.(9).......................................................... --
10.26 LICENSE AND DISTRIBUTION AGREEMENT, DATED SEPTEMBER 8, 1992, BETWEEN THE REGISTRANT AND
SUMITOMO MUTUAL INDUSTRIES, LTD.(10).................................................. . --
10.28 MORTGAGE DATED FEBRUARY 1, 1993 WITH BAY BANK MIDDLESEX FOR REGISTRANT'S FACILITIES AT
ONE MERRIMACK LANDING, UNIT 26, NEWBURYPORT, MASSACHUSETTS (11)......................... --
10.29 REVOLVING LOAN AGREEMENT BETWEEN THE REGISTRANT AND SILICON VALLEY BANK DATED MAY 15,
1994 (12)............................................................................... --
10.30 LEASE AGREEMENT DATED AS OF OCTOBER 1995 FOR REGISTRANT'S FACILITIES AT LOT 62 STANLEY
TUCKER DRIVE, NEWBURYPORT, MASSACHUSETTS................................................ --
11.1 COMPUTATION OF NET INCOME/LOSS PER SHARE................................................. --
13.1 ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1995 (TO BE DEEMED FILED
ONLY TO THE EXTENT REQUIRED BY THE INSTRUCTIONS TO EXHIBITS FOR REPORTS ON FORM 10-K)... --
22.1 SUBSIDIARIES OF REGISTRANT(10)........................................................... --
23.1 CONSENT OF INDEPENDENT ACCOUNTANTS (INCLUDED ON PAGE 12)................................. --
24.1 POWER OF ATTORNEY (INCLUDED ON PAGE 11).................................................. --
27.1 FINANCIAL DATA SCHEDULE
</TABLE>
- ------------------------
(1) Incorporated by reference to the exhibit filed with Registrant's
Registration Statement on Form S-1 (No. 33-23861) filed August 18, 1988 and
amended on September 21, 1988, October 5, 1988, November 3, 1988, November
10, 1988 and December 15, 1988, which Registration Statement became
effective November 10, 1988.
(2) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988.
(3) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-8 filed January 17, 1991.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Registration Statement on Form S-1 (No. 33-28755) filed on May 17, 1989 and
amended May 24, 1989, which Registration Statement became effective May 24,
1989.
(5) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989.
(6) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
(7) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990.
I-2
<PAGE>
(8) Incorporated by reference to the exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.
(9) Incorporated by reference to the exhibit filed with the Registrant's Report
on Form 8-K dated June 12, 1992.
(10) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 21, 1992.
(11) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
(12) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994.
I-3
<PAGE>
EXHIBIT 10.30
LEASE
THIS LEASE is made this 30 day of October 1995, by and between
BERKSHIRE-NEWBURY LIMITED PARTNERSHIP, a Massachusetts limited partnership with
a principal office at 1500 Main Street, Springfield, Massachusetts, or its
Assignee, ("Landlord"), and GENUS, INC., a California corporation with a place
of business at 4 Mulliken Way, Newburyport, Massachusetts ("Tenant").
W I T N E S S E T H:
1. PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord,
upon and subject to the terms and provisions of this Lease, the building
premises consisting of approximately Seventy Thousand (70,000) square feet (the
"Building") and the real estate on which the building is to be located, which is
Lot 62 Stanley Tucker Drive, Newburyport, Massachusetts (the "Property"), as
more particularly described on EXHIBIT A attached hereto and incorporated herein
(the Building and the Property are collectively called the "Premises").
2. TERM OF LEASE
The primary term of this Lease ("Initial Term") shall be for seventeen (17)
years commencing on the Commencement Date (as hereinafter defined) and ending on
the day immediately preceding the 18th anniversary of the Commencement Date.
Provided Tenant is not in default under this Lease at the time of its
exercise of any option to extend. Tenant shall have the option of extending the
term of this Lease for four (4) additional periods of five (5) years each upon
written notice to Landlord at least nine (9) months prior to the end of the
Initial Term of this Lease and upon not less than three (3) months written
notice prior to the expiration of each option period hereunder. As used herein
the term "Lease Term" shall mean the Initial Term plus any extension of the term
of this Lease in accordance with this paragraph.
If the rent during any extended term is determined by appraisal and if
Tenant does not, in its sole discretion, approve the rental amount established
by such appraisal, Tenant may rescind its exercise of the Option by giving
Landlord written notice of such election to rescind within ten (10) days after
receipt of all appraisals, but only if all of the following are met: If Tenant
rescinds its exercise of the Option, then (i) the Lease shall terminate on the
ninetieth (90th) day after Tenant's notice of rescission or on the date the
Lease would have otherwise terminated absent Tenant's exercise of the Option,
whichever date is later; and (ii) Tenant shall pay all costs and expenses of the
appraisal, and (iii) Tenant shall pay rent during that ninety (90) day period in
the amount Tenant would have paid for that period, had Tenant not rescinded the
extension.
3. RENT
(a) BASE RENT. From and after the Commencement Date (as defined herein),
Tenant agrees to pay to Landlord at the following address: 1500 Main Street,
Suite 2012, Springfield, MA 01115, or as directed by Landlord, without notice,
demand, offset or deduction except as provided herein, on the Commencement Date
and thereafter, semiannually, in advance, on the first day of January and July
of each and every calendar year during the Lease Term, prorated for any partial
year, one-half of the following sums equal to the annual base rent ("Base
Rent"):
<TABLE>
<CAPTION>
LEASE YEAR*
INITIAL TERM ANNUAL BASE RENT
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
For Lease Years 1-5 $805,000 +/- (12.3846% times (Construction Cost** minus
$6,500,000))***
For Lease Years 6-10 $925,750 +/- (14.2423% times (Construction Cost** minus
$6,500,000))***
For Lease Years 11-15 $975,038 +/- (14.9544% times (Construction Cost** minus
$6,500,000))***
For Lease Years 16-17 $805,000 +/- (12.3846% times (Construction Cost** minus
$6,500,000))***
</TABLE>
<PAGE>
3. RENT (CONTINUED)
<TABLE>
<CAPTION>
LEASE YEAR*
OPTION TERM ANNUAL BASE RENT
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
For First Option Term (Lease Years 18-22) Greater of (a) 95% of fair market value****
For Second Option Term (Lease Years 23-27)
For Third Option Term (Lease Years 28-32) (as determined on the first day of each option term), or
For Fourth Option Term (Lease Years 33-37) (b) the Base Rent payable for the 1st year of the
Initial Term
</TABLE>
As used in this Section the following terms shall have the following
meanings:
*"LEASE YEAR" is a year commencing on the Commencement Date (or an
anniversary thereof) and ending on the date immediately preceding the next
succeeding anniversary of the Commencement Date.
**"CONSTRUCTION COST" is defined in the Improvement Agreement executed
concurrently herewith by Landlord and Tenant.
***When the Construction Cost has been determined, the total thereof shall be
compared to $6,500,000 and the Annual Rent for the Initial Term shall be
adjusted in accordance with the foregoing formulas, upward if the
Construction Cost exceeds $6,500,000, and downward, if the Construction Cost
is less than $6,500,000.
****"FAIR MARKET VALUE" shall be determined at the time of Tenant's exercise of
each option to extend. Upon Tenant's written notice of the exercise of an
option to extend, Landlord and Tenant shall attempt to determine and agree
on fair market value rental for the Premises. Fair market value shall mean
that rental rate currently being charged for comparable manufacturing
facilities in the region, exclusive of the Specialized Improvements, as
defined in EXHIBIT B or as otherwise designated pursuant to the Improvement
Agreement (which are constructed by Landlord, but amortized in the Annual
Rent during the Initial Term), and exclusive of any other improvements in
the Premises that are installed after the Substantial Completion of the
Improvements (as defined in the Improvements Agreement) at Tenant's cost. In
the event Landlord and Tenant cannot agree on said fair market value, each
party shall select a MAI appraiser with experience in commercial valuations
of this nature in the region who shall attempt to agree upon the fair market
value within 20 days and, if they cannot agree the two (2) appraisers
selected shall select a third. In such events the three (3) appraisers shall
each determine fair market value rental for the Premises and the average of
the three (3) shall constitute fair market value for purposes of Base Rent
during said option term. The costs of such appraisers shall be borne equally
by each party.
(b) COMMENCEMENT DATE. Tenant's obligation to pay rent hereunder shall
commence on the earlier of when Landlord delivers to Tenant the Premises with
the Improvements Substantially Completed as defined in the Improvement Agreement
or Tenant actually occupies the Premises for the purposes of conducting its
manufacturing business (herein the "Commencement Date").
(c) ADDITIONAL RENT. Tenant shall pay all expenses related to the repair,
replacement (structural or otherwise), the operation and maintenance of the
Premises, including without limitation real property taxes and insurance
premiums, as additional rent hereunder (the "Additional Rent").
(d) ABSOLUTE NET LEASE. It is the intention of the parties that the rent
payable hereunder shall be absolutely net to Landlord, so that this Lease shall
yield to Landlord the net annual rent specified herein during the Lease Term,
and that all costs, expenses and obligations of every kind and nature whatsoever
relating to the Premises and its physical structures shall be paid by Tenant.
Without limiting any other provision of this Lease, it is expressly understood
and agreed that all repairs, replacements, real estate taxes, operating
expenses, insurance premiums, and all other amounts that Tenant is required to
pay hereunder, together with all interest and penalties that may accrue thereon,
shall be deemed to be Additional Rent, and in the event of nonpayment thereof by
Tenant, Landlord
2
<PAGE>
3. RENT (CONTINUED)
shall have all of the rights and remedies with respect thereto as would accrue
to Landlord for nonpayment of Base Rent. As used in this Lease, "Rent" shall
mean the Base Rent plus Additional Rent. It is expressly understood and agreed
that Landlord shall have no obligation for any cost or expense associated with
the Premises during the Initial Term of the Lease or any extensions thereof.
(e) LIMITATION ON EXPENSES. Notwithstanding anything to the contrary in
this Lease or the Improvement Agreement, Landlord at its sole expense shall pay
and be solely responsible for the following "Costs":
(i) LOSSES CAUSED BY OTHERS. Costs occasioned by the act, omission or
violation of Law by Landlord or its, agents, employees or contractors, or
by the Landlord's or its contractor's violation of this Lease or any loan or
construction contract relating to this Lease or the Improvements.
(ii) INSURANCE, CASUALTIES AND CONDEMNATIONS. Except to the extent of
any shortfall in insurance proceeds caused by Tenant's breach of its
obligations under Section 11, Costs occasioned by fire, acts of God, or
other casualties and Costs occasioned by the exercise of the power of
eminent domain.
(iii) CAPITAL IMPROVEMENTS. The Construction Costs or any other cost or
expenses incurred by the Landlord to construct the Improvements in
accordance with the Improvements Agreement.
(iv) REIMBURSABLE EXPENSES. Costs for which Landlord has a right of
reimbursement from others.
(v) LEASING EXPENSES. Fees, commissions, attorneys' fees, Costs or
other disbursements incurred in connection with negotiations of this
Lease or any financing agreement or construction agreement relating to the
Improvements.
(vi) RESERVES. Depreciation, amortization or other expense reserves.
(vii) MORTGAGES. Interest, charges, attorneys' fees, fees, and other
charges incurred by Landlord in connection with the financing of the
construction of the Improvements or on any other debt, payments on mortgages
and rent under ground leases.
(viii) HAZARDOUS MATERIALS. Costs incurred to investigate the presence
of any Hazardous Material, Costs to respond to any claim of Hazardous
Material contamination or damage, Costs to remove any Hazardous Material
from the Premise, or the soil, groundwater, air, or building materials of
the Improvements, and any judgments or other Costs incurred in connection
with any Hazardous Material exposure or releases, but only to the extent
caused that the Hazardous Material present on the Property or the soil,
groundwater, surface water, air or building materials thereof on the
Commencement Date.
(f) LATE CHARGE. In the event any Annual Base Rent payment is not paid
within fifteen (15) days of its due date, Tenant shall pay Landlord a late
charge equal to two percent (2%) of such payment per month, which late charge
shall be deemed to be due and collectible as Additional Rent hereunder.
4. ADDITIONAL RENT -- TAXES, UTILITIES
(a) Tenant shall pay, as Additional Rent, all general and special taxes,
including all real estate taxes, assessments for local improvements and other
governmental charges which may be charged, assessed, or imposed upon the
Premises. Said payments shall be made directly to the taxing authority with
evidence of payment submitted to Landlord within thirty (30) days of such
payment. Any special assessments by a governmental authority may be paid over
time periods acceptable to said governmental authority, subject to Landlord's
reasonable consent. Landlord shall forward all tax bills to Tenant upon its
receipt of such bills.
3
<PAGE>
4. ADDITIONAL RENT -- TAXES, UTILITIES (CONTINUED)
(b) Tenant shall pay all license fees which may be imposed upon the
business of Tenant conducted upon the Premises.
(c) Tenant shall pay, as Additional Rent and before the same shall become
delinquent, for the maintenance and repair of all grounds, building, parking and
driveways or service roads within the Premises and all of its requirements for
utilities, including, but not limited to, heat, electricity, telephone, water
and sewer use. Tenant shall cause all such utility accounts to be issued or
transferred into its name immediately upon commencement of this Lease.
(d) Taxes and charges shall be equitably adjusted for and with respect to
the first and last partial tax year (if any) of the Lease Term. Where the
applicable tax bills and computations are not available prior to the end of the
term hereof, a tentative computation shall be made on the basis of the previous
year's taxes payable by Tenant, with a final adjustment to be made between
Landlord and Tenant promptly after all bills and computations are available for
such period.
(e) Tenant will have the right to contest the amount or validity, in whole
or in part, of any tax by appropriate proceedings diligently conducted in good
faith. Upon the termination of those proceedings, Tenant will pay the amount of
the tax or part of the tax as finally determined, the payment of which may have
been deferred during the prosecution of the proceedings, together with any
costs, fees, interest, penalties, or other related liabilities. Landlord will
not be required to join in any contest or proceedings unless the provisions of
any law or regulations then in effect require that the proceedings be brought by
or in the name of Landlord. In that event, Landlord will join in the proceedings
or permit them to be brought in its name; however, Landlord will not be
subjected to any liability for the payment of any costs or expenses in
connection with any contest or proceedings, and Tenant will indemnify Landlord
against and save Landlord harmless from any of those costs and expenses.
(f) Tenant will not be obligated to pay local, state or federal net income
taxes assessed against Landlord; local, state or federal capital levy of
Landlord; or sales, excise, franchise, gift, estate, succession, inheritance or
transfer taxes of Landlord.
5. USE OF PROPERTY
(a) During the term of this Lease, Tenant shall use the Premises for
purposes of manufacturing of components and equipment for the semiconductor
industry and any other use permitted by law as a matter of right and in
compliance with all governmental regulations.
(b) Tenant agrees that during the Lease Term:
(i) No auction, fire or bankruptcy sales may be conducted within the
Premises without the prior written consent of Landlord;
(ii)Tenant shall provide at its expense for the collection of trash and
refuse on a timely basis and all refuse shall be kept in cans,
dumpsters and similar appropriate storage at all times;
(iii)
Tenant shall at all times fully and adequately heat the Premises so
as to prevent damage to the Premises, the Building and any
structures, fixtures or equipment located at the Premises;
(iv)Tenant may place on the exterior of the Premises (including, but
without limitation, windows, doors and entrance lobbies) any signs
provided they shall be in compliance with all zoning, building or other
regulations;
(v) Tenant shall not perform any act or carry on any practice which may
injure the Property or cause any offensive odors or loud noise other
than those necessarily a function of Tenant's operations, or constitute a
nuisance or menace to any other persons;
(vi)Tenant shall not use or permit the Property to be used for any
unlawful purpose and will obtain all necessary permits or licenses
required for its use of the Property;
4
<PAGE>
5. USE OF PROPERTY (CONTINUED)
(vii)
Tenant has, at the termination of this Lease, the option to remove
its possessions and possessions of others (including, if there is
then no uncured Event of Default under Section 14 hereof all of Tenant's
Specialized Improvements, as identified on EXHIBIT B or otherwise designated
pursuant to the Improvement Agreement), as the same may be amended by Tenant
from time to time and leave the Premises in the same condition as at the
Commencement Date of the Lease, excepting only reasonable wear and tear,
damage by fire or casualty, eminent domain, Hazardous Materials which were
not placed on the Premises by Tenant, and alterations which Landlord has
previously agreed in writing may be surrendered; and
(viii)
Tenant shall be responsible at its expense for snow removal from the
walks, drives, entrances, exits and parking areas on a timely basis.
6. HAZARDOUS SUBSTANCES
(a) Tenant shall duly comply with the requirements of all applicable
environmental, health, safety and sanitation laws, ordinances, codes, rules and
regulations and interpretations and orders of regulatory and administrative
authority with respect to its use, storage, and release of Hazardous Materials.
(b) Tenant shall not use, handle or store or dispose of any Hazardous
Materials in or about the Premises except as reasonably required in Tenant's
business judgment for its operation of its business and then strictly in
accordance with all applicable laws and regulations. If during the Lease Term
the release or disposal of Hazardous Materials anywhere on the Premises by
Tenant, its agent, employee, contractor, invitee, or any other person for whom
Tenant is legally responsible (including, without limitation, a third party who
comes onto the surface of the Premises and releases a Hazardous Material into
the soil, ground water, surface water, ambient air or building materials of the
Premises during the Lease Term), results in (1) contamination of the soil,
ambient air, surface water or ground water with Hazardous Materials in excess of
legally permitted levels ("Tenant's Contamination") or (2) loss or damage to
person(s) or property, then Tenant agrees to respond in accordance with the
following paragraph:
Tenant shall (i) notify Landlord immediately of any contamination, claim of
contamination, loss or damage, and (ii) after consultation and approval by
Landlord, Tenant shall at its sole expense clean up Tenant's Contamination in
full compliance with all applicable statutes, regulations and standards. No
consent or approval of Landlord shall in any way be construed as imposing upon
Landlord any liability for the means, methods or manner of removal, containment
or other compliance with applicable law for and with respect to the foregoing.
(c) In the event that Tenant does not comply with the provisions of Section
6(b), and in addition to its other rights hereunder, Landlord shall have the
right (but not the obligation), upon 30 calendar days advance notice to Tenant,
except in the case of an emergency (in which case reasonable notice shall be
given to the extent reasonably possible), to cause the illegal release to be
contained and/or removed on behalf of Tenant. The contractors selected by
Landlord shall have the right to enter upon the Premises with such persons,
machinery and equipment as they shall reasonably deem necessary for the purpose
and undertake such remedial containment and cleanup actions as they shall
reasonably deem appropriate, without thereby incurring any liability to Tenant
on account thereof. Tenant shall reasonably cooperate with any such contractors
and render such assistance to such contractors as may be requested to facilitate
the remedial containment and cleanup actions. Tenant shall be liable to Landlord
for all costs and expenses, including all reasonable attorneys' fees reasonably
incurred on account of such remedial action undertaken on Tenant's behalf as a
consequence of Tenant's default and shall reimburse Landlord therefor on demand.
(d) Tenant shall indemnify, defend and hold harmless Landlord from and
against all loss, liability, damage and expense, including costs associated with
administrative and judicial proceedings and attorneys' fees, ever suffered or
incurred by Landlord to the extent caused by
5
<PAGE>
6. HAZARDOUS SUBSTANCES (CONTINUED)
(i) Tenant's failure at any time during the Lease Term to comply with any
environmental, health, safety or sanitation laws, ordinances, codes,
rules or regulations or interpretations or orders of regulatory or
administrative authorities with respect thereto as required by this Lease;
(ii) any release of Hazardous Materials in violation of applicable
Environmental Law on, upon or into the Property occurring during this Lease
by Tenant, its agent, employee, contractor, or any other person for whom
Tenant is legally responsible (including, without limitation, a third party
who comes onto the surface of the Premises and releases a Hazardous Material
into the soil, ground water, surface water, ambient air or building
materials of the Premises during the Lease Term); (iii) any and all damage
to natural resources or real property and/or harm or injury to persons
resulting or alleged to have resulted from such failure to comply as
described in subpart (i) and/or such release as described in subpart (ii)
hereof, and (iv) any release of a Hazardous Material into the soil,
groundwater, surface water, ambient air or building materials of the
Property during the Lease Term, whether by Tenant, or its agent, employee,
contractor, invitee, or any other person for whom Tenant is legally
responsible (including, without limitation, a third party who comes onto the
surface of the Premises and releases a Hazardous Material into the soil,
ground water, surface water, ambient air or building materials of the
Premises during the Lease Term). Notwithstanding the foregoing and any other
thing to the contrary in this Lease, Tenant shall not be liable for any
migration of a Hazardous Material from other property to this Property.
Tenant acknowledges that its obligations and liabilities under this Section
shall survive the expiration or earlier termination of this Lease. If Tenant
fails to meet its obligations to Landlord under this Section, Landlord shall
have the remedies provided in Section 14.
(e) Neither Landlord nor any employee or agent of Landlord or entity under
its control has or will generate, store or spill upon, dispose of or transfer to
or from the Premises any hazardous waste materials.
Landlord shall indemnify and hold Tenant (including any successor to or
assignee of Tenant) harmless from and against all loss, cost, liability, damage
and expense, including reasonable attorneys' fees and the costs of litigation
arising from any hazardous waste materials in or on the Premises due to the
presence of any Hazardous Material in the soil, groundwater, ambient air or
buildings materials of the Improvements on the Commencement date, or any act,
omission or negligence of Landlord, or its employee, contractor, invitee, or
other person for whom Landlord is legally responsible. Landlord acknowledges
that its obligations and liabilities under this Section shall survive the
expiration or earlier termination of this Lease.
Within the time permitted by applicable law, Landlord, at its sole cost,
shall perform or cause to be performed, any investigation, remediation, removal
action, detoxification of the Premises, and shall comply with any Environmental
Law, relating to any Hazardous Material present at on or about the Premises or
the soil, air, improvements, groundwater, surface water, or building materials
thereof on the Commencement Date.
(f) Except to the extent of Tenant's failure to perform its obligations
under this Lease concerning Hazardous Materials, Landlord, for itself hereby
waives and releases all Claims against Tenant and each Tenant Indemnitee, and
all rights to join Tenant or any Tenant Indemnitee in any litigation or
proceeding (including without limitation any Claim arising under CERCLA, the
Resource Conservation and Recovery Act or any other state or federal
Environmental Law), arising out of or in connection with any matter arising in
connection with a Hazardous Material on or about the Premises except to the
extent expressly provided in subsections 6(a) through 6(d) above,
(g) Except as disclosed in the reports attached hereto as EXHIBIT D, true
and correct copies of which have been delivered by Landlord to Tenant, to the
best knowledge of Landlord: (i) no Hazardous Material is present on Premises, or
the soil, surface water or groundwater thereof; (ii) no underground storage
tanks or asbestos containing building materials are present on the Premise; and
(iii) no action,
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6. HAZARDOUS SUBSTANCES (CONTINUED)
proceeding, or claim is pending or threatened regarding the Premise concerning
any Hazardous Material or pursuant to any Environmental Law. Landlord has
delivered to Tenant all reports and environmental assessments of the Premises
conducted at the request of or otherwise available to Landlord and Landlord has
complied with all environmental disclosure obligations imposed upon Landlord by
applicable Law with respect to this transaction.
(h) As used in this Lease, the term "Hazardous Material" shall mean any
material or substance that is now or hereafter prohibited or regulated by any
statute, law, rule, regulation or ordinance or that is now or hereafter
designated by any governmental authority to be radioactive, toxic, hazardous or
otherwise a danger to health, reproduction or the environment. As used herein
"Environmental Laws" shall mean all local, state, or federal laws, statutes,
ordinances, rules, regulations, judgments, injunctions, stipulations, decrees,
orders, permits, approvals, treaties, or protocols now or hereafter enacted,
issued or promulgated by any governmental authority which relate to any
Hazardous Material or to the use, handling, transportation, production,
disposal, discharge, release, emission, sale, or storage of, or the exposure of
any person to, a Hazardous Material.
7. MAINTENANCE, REPAIR, ALTERATIONS AND REMOVALS
(a) Except as otherwise provided in this Lease, Tenant shall, at its sole
expense, keep neat and clean and maintain in good order, condition and repair
the Premises and every part thereof, including, without limitation, the
foundations, roof and drains and structural portions of the Premises, the
exterior and interior portions of air conditioning, heating, sprinkler (if any)
and electrical systems, all doors, windows, plate and glass surrounding the
Premises, all plumbing and sewage facilities within the Premises, fixtures and
interior walls, floors, ceilings and signs.
(b) Subject to the express provisions of this Lease, Tenant shall keep the
Property in a clean, sanitary and safe condition in accordance with the laws of
the Commonwealth of Massachusetts and ordinances of the Town of Newburyport, and
in accordance with all directions, rules and regulations of the Health Officer,
Fire Marshall, Building Inspector and other proper officers of the governmental
agencies having jurisdiction thereover.
(c) Except as otherwise expressly provided in this Lease, Landlord shall
not be responsible for maintaining or making any improvements or repairs of any
kind upon the Property, but this paragraph is not intended to refer to damage by
fire or other insured risk to the Premises, provision for which is hereafter
made. Notwithstanding anything to the contrary in this Lease, Landlord shall
perform and construct, and Tenant shall have no responsibility to perform or
construct, any repair, maintenance or improvement (i) necessitated by the acts
or omissions of Landlord, or its agents, employees, or contractors, (ii)
required as a consequence of any violation of law, private servitude encumbering
the Premises, or construction defect in the Improvements caused by Landlord or
its agent, employee or contractor, and (iii) for which Landlord has a right of
reimbursement from others. Tenant's obligation, if any, to reimburse Landlord
for the costs of such repairs, maintenance and improvements shall be governed by
the other provisions of this Lease.
(d) Tenant shall not make any alterations or other structural or capital
improvements or additions upon the Premises ("Alterations") without first
obtaining, in each instance, the written consent of Landlord which shall not be
unreasonably withheld. Notwithstanding the foregoing, Tenant shall have the
right to make any and all Alteration to the interior space of the Premises, so
long as such Alterations do not impact the structural integrity of the Premises.
Notwithstanding anything to the contrary in this Lease, all Alterations, trade
fixtures and personal property installed in the Premises at Tenant's expense
("Tenant's Property") shall at all times remain Tenant's property and Tenant
shall be entitled to all depreciation, amortization and other tax benefits with
respect thereto. Except for Alterations which cannot be removed without
structural injury to the Premises, at any time Tenant may remove Tenant's
Property from the Premises, provided Tenant repairs all damage caused by such
removal. Landlord shall have no lien or other interest whatsoever in any item
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7. MAINTENANCE, REPAIR, ALTERATIONS AND REMOVALS (CONTINUED)
of Tenant's Property, or any portion thereof or interest therein located in the
Premises or elsewhere, and Landlord hereby waives all such liens and interests.
Within ten (10) days following Tenant's request, Landlord shall execute
documents in form reasonably acceptable to Tenant to evidence Landlord's waiver
of any right, title, lien or interest in Tenant's Property located at the
Premises.
(e) Except as expressly provided in this Lease, Landlord has not made and
does not make any representation or warranty as to any matter affecting or
relating to the Premises, including but not limited to the physical condition
thereof, and Tenant acknowledges that no such representation or warranty has
been made and agrees to lease the Premises in "AS IS" condition as of the date
of this Lease, subject to the completion of Landlord's construction and delivery
obligations and its assignment of warranties as set forth in the Improvement
Agreement, and subject to all of the Landlord's other obligations hereunder.
8. [INTENTIONALLY DELETED.]
9. LANDLORD'S ACCESS TO PREMISES
(a) Landlord and its designees shall have the right to enter upon the
Premises at all reasonable hours and upon reasonable notice (except in an
emergency) for the purpose of inspecting the same. If repairs are required to be
made by Tenant pursuant to this Lease, Landlord may demand that Tenant make the
same forthwith, and if Tenant refuses or neglects to commence such repairs and
complete the same with reasonable dispatch, after such demand, Landlord may (but
shall not be required to) make or cause such repairs to be made. If Landlord
makes or causes such repairs to be made, Tenant shall within seven (7) days
following demand of Landlord pay to Landlord the cost thereof reasonably
incurred by Landlord, and if it shall default in such payment, Landlord shall
have the remedies provided in Section 14.
(b) For a period commencing nine (9) months prior to the termination of the
Lease Term (including any extension thereof), upon written notice to Tenant,
Landlord may have reasonable access to the Premises for the purpose of
exhibiting the same to prospective tenants.
10. INDEMNIFICATION; PUBLIC LIABILITY INSURANCE; WORKERS' COMPENSATION
INSURANCE
(a) Subject to Section 10(e), below, Tenant shall indemnify and save
harmless Landlord from and against all claims of whatever nature to the extent
arising from (i) any act, omission or negligence occurring on the Premises
during the Lease Term, or (ii) any negligent act or omission by Tenant, or
Tenant's agents, employees, contractors, invitees, or other persons for whom
Tenant is legally responsible wherever occurring during the Lease Term. This
indemnity and hold harmless agreement shall include indemnity against all costs,
expenses and liabilities reasonably incurred in or in connection with any such
claim or proceeding brought thereon, and the defense thereof.
(b) Tenant shall maintain in full force during the Lease Term a policy or
public liability insurance insuring all Tenant's indemnities described in this
Section 10. Under such policy Landlord (and such other persons as are in privity
of estate with Landlord as may be set out in notice from time to time delivered
to Tenant) and Tenant shall be named as insureds. Each such policy shall be non-
cancellable with respect to Landlord and Landlord's said designees without
thirty (30) days' prior written notice to Landlord, and a duplicate original or
certificate thereof shall be delivered to Landlord at the beginning of the Lease
Term and upon request thereafter. he minimum limits of liability of such
insurance shall be ONE MILLION DOLLARS ($1,000,000.00) per occurrence for
personal injury (or death) and [THREE MILLION DOLLARS ($3,000,000.00)] per
occurrence with respect to damage to property.
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<PAGE>
10. INDEMNIFICATION; PUBLIC LIABILITY INSURANCE; WORKERS' COMPENSATION
INSURANCE (CONTINUED)
In the event Tenant fails to provide such insurance, Landlord may purchase
such insurance and Tenant agrees that within seven (7) days following demand of
Landlord it will pay to Landlord the cost thereof, and if it shall default in
such payment, Landlord shall have the remedies provided in Section 14.
(c) Tenant shall maintain all workers' compensation and other insurance in
compliance with all applicable laws.
(d) Tenant shall use and occupy the Premises at its own risk, and Landlord
shall have no responsibility or liability for any loss of or damage to fixtures
or other personal property of Tenant.
(e) Notwithstanding anything to the contrary in this Lease, Tenant shall
neither release Landlord from, nor indemnify Landlord with respect to: (i) the
negligence or willful misconduct of Landlord, or its employees, agents,
contractors, or other persons for whom Landlord is legally liable; or (ii) a
breach of Landlord's obligations or representations under this Lease, or (iii) a
violation of any law, rule or regulation by Landlord, its agents, contractors,
employees, or other persons for whom Landlord is legally liable. Landlord shall
indemnify and save harmless Tenant from and against all claims of whatever
nature to the extent arising from (i) any act, omission or negligence occurring
on the Premises prior to or after the Lease Term, or (ii) any negligent act or
omission by Landlord, or Landlord's agents, employees, contractors, invitees, or
other persons for whom Landlord is legally responsible wherever occurring during
the Lease Term. This indemnity and hold harmless agreement shall include
indemnity against all costs, expenses and liabilities incurred in or in
connection with any such claim or proceeding brought thereon, and the defense
thereof.
11. PROPERTY INSURANCE
(a) Tenant shall keep, at its expense (which shall be deemed additional
rent), the Premises insured against loss or damage by fire with the usual
extended coverage endorsements in amounts not less than one hundred percent
(100%) of the full replacement value thereof above foundation walls.
(b) Tenant shall keep Tenant's own fixtures, merchandise and equipment
insured against loss or damage by fire, vandalism and theft with the usual
extended coverage endorsements, in such amounts and with such insurance carriers
as Tenant shall determine. It is understood and agreed that Tenant assumes all
risk of damage to its own property arising from any cause whatsoever, including,
without limitation, loss by theft or otherwise.
(c) Insofar as and to the extent that the following provision may be
effective without invalidating or making it impossible to secure insurance
coverage obtainable from responsible insurance companies doing business in the
Commonwealth of Massachusetts (even though extra premium may result therefrom),
Landlord and Tenant mutually agree that with respect to any loss which is
covered by insurance then being carried by them, respectively, or which would be
covered by a standard form of full replacement cost, extended coverage, all-risk
casualty insurance, each releases the other and their respective officers,
directors, employees, successors and assigns of and from any and all claims with
respect to such loss; and they further mutually agree that their respective
insurance policies shall provide that the insurer waives its right to be
subrogated to the rights of the insured against the other party or its agents,
servants or employees for any loss payable under the policy and that the
insurance shall not be validated by reason of the insured's waiver of
subrogation. In the event that an extra premium is payable by either party as a
result of this provision, the other party shall reimburse the party paying such
premium for the amount of such extra premium. If either party is unable to
obtain a waiver of subrogation from its insurer, the said party shall name the
other as an additional insured on their casualty insurance.
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<PAGE>
12. DAMAGE TO PROPERTY
(a) In case during the Lease Term the Premises shall be damaged by fire or
other casualty Landlord shall proceed forthwith to repair such damage and
restore the Premises to substantially their condition at the time of such damage
subject to any zoning laws then in existence, but Landlord shall not be
responsible for any delay which may result from any cause beyond Landlord's
reasonable control and Landlord shall not be required to commence such work
until it receives any proceeds it will receive with respect to the loss.
Landlord and Tenant shall use all reasonable efforts to obtain such proceeds
within a reasonable time. In no event shall Landlord be obligated to pay for any
such repairs or restoration in excess of available insurance proceeds.
(b) If damage to the Premises is not covered by the insurance Tenant is
required to carry pursuant to Section 11 and the cost to restore such damage
exceeds 20% of the replacement cost of the Premises, then Landlord, within sixty
(60) days after the occurrence of such event may give written notice to Tenant
of its election to terminate this Lease, unless Tenant agrees in its discretion
to reimburse the Landlord for the amount of such uncovered costs in excess of
20% of the replacement cost of the Premises.
(c) If the Premises are damaged to such an extent that the restoration
thereof is not reasonably estimated to be completed within 180 days following
the destructive event or if the restoration of the Premises is for any reason
not actually completed within 180 days following the destructive event, then
Tenant shall have the right to terminate this Lease by delivery of written
notice to Landlord.
(d) In the event that the provisions of Section 12(a), (b ), or (c) shall
become applicable, the Base Rent shall be abated or reduced proportionately to
the interference with the Tenant's use of the Premises caused by the casualty
(and Landlord shall return a pro rata portion of the semi-annual advance Base
Rent payment) during any period in which, by reason of such damage or
destruction, there is substantial interference with the operation of the
business of Tenant in the Premises, having regard to the extent to which Tenant
may be required to discontinue its business in the Premises, and such abatement
or reduction shall continue for the period commencing with such destruction or
damage and ending with the completion by Landlord of such repair or
reconstruction as Landlord is obligated to complete. In the event of termination
of this Lease pursuant to this Section 12, this Lease and the Lease Term hereof
shall cease and come to an end within a reasonable time after notice of
termination as is required to permit Tenant to remove its property from the
Premises.
13. EMINENT DOMAIN
(a) If the Premises, or such portion thereof as to render the balance (when
reconstructed) unsuitable for the purposes of Tenant, shall be taken by
condemnation or right of eminent domain, Tenant, upon written notice to
Landlord, shall be entitled to terminate this Lease, provided that such notice
is given not later than sixty (60) days after Tenant has been deprived of
possession. Should any part of the Premises be so taken or condemned, and should
this Lease not be terminated in accordance with the foregoing provision,
Landlord covenants and agrees promptly after such taking or condemnation, and
the determination of Landlord's award therein, to expend so much as may be
necessary of the net amount which may be awarded to Landlord in such
condemnation proceedings in restoring the Premises to an architectural unit as
nearly like their condition prior to such taking as shall be practicable. Should
the net amount so awarded to Landlord be insufficient to cover the cost of
restoring the Premises, as estimated by Landlord's architect, Landlord may, but
shall not be obligated to, supply the amount of such insufficiency and restore
said Premises as above provided, with all reasonable diligence, or Landlord may
terminate this Lease, if Tenant does not supply the necessary additional funds
or agree to a reduction in the Landlord's restoration obligation. Where Tenant
has not already exercised any right of termination accorded to it under the
foregoing portion of this paragraph, Landlord shall notify Tenant of Landlord's
election not later than ninety (90) days after the final determination of the
amount of the award.
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<PAGE>
13. EMINENT DOMAIN (CONTINUED)
(b) Out of any award for any taking of the Premises, in condemnation
proceedings or by right of eminent domain, Landlord shall be entitled to receive
and retain the amounts awarded for such Premises and for Landlord's loss of
Landlord's estate in this Lease. Tenant shall (i) execute any instruments of
assignment as may be reasonably required by Landlord, (ii) join in any petition
for recovery of damages as Landlord may reasonably request, and (iii) turn over
to Landlord any damages that may be recovered in any proceeding which are the
property of Landlord under this Section. Tenant shall be entitled to receive and
retain any amounts which may be specifically awarded to it in any such
condemnation proceedings, because of the taking of its trade fixtures or
furniture and its leasehold improvements loss of goodwill, severance damages,
and moving costs to the extent Tenant was not reimbursed for the same by
Landlord.
(c) In the event of any such taking of the Premises, the minimum rent or a
fair and just proportion thereof, according to the nature and extent of the
damage sustained, shall be suspended or abated, and Landlord shall return a pro
rata portion of the semiannual advance Base Rent payment to Tenant.
14. DEFAULT AND LANDLORD'S REMEDIES
(a) Any one of the following shall be deemed to be a "Default" or an "Event
of Default":
(i) Failure on the part of Tenant to make payment of rent or any other
monetary amount due under this Lease within thirty (30) days after
written notice that such payment is past due.
(ii)With respect to a non-monetary default under this Lease, failure of
Tenant to cure the same within thirty (30) days from the time of
receipt of written notice of default from Landlord or such additional period
reasonably required to cure the default. With respect to defaults requiring
more than thirty (30) days to cure, Tenant shall be obligated to commence
forthwith and to complete as soon as reasonably possible the curing of such
default; and if Tenant fails so to do, the same shall be deemed to be an
Event of Default.
(iii)
The occurrence of any of the following events: (1) the estate hereby
created being taken on execution or by other process of law; (2)
Tenant being judicially declared bankrupt or insolvent according to law; (3)
a general assignment being made of the property of Tenant for the benefit of
creditors; (4) a receiver, guardian, conservator, trustee in involuntary
bankruptcy or other similar officer being appointed to take charge of all or
any substantial part of Tenant's property by a court of competent
jurisdiction; or (5) Tenant executing a trust mortgage, or a petition being
filed by or against Tenant in bankruptcy, or for reorganization or for
arrangements under any provisions of the Bankruptcy Act now or hereafter
enacted, providing a plan for a debtor to settle, satisfy or extend the time
for the payment of debts, and such petition shall not have been dismissed
within thirty (30) days.
(b) Should any Event of Default occur then, notwithstanding any license of
any former breach of covenant or waiver of the benefit hereof or consent in a
former instance, Landlord lawfully may, in addition to any remedies otherwise
available to Landlord, immediately or at any time thereafter, upon ten (10) days
prior written notice, enter into and upon the Premises or any part thereof in
the name of the whole and repossess the same as of Landlord's former estate, and
expel Tenant and those claiming through or under it and remove its or their
effects (forcibly as permitted by applicable law if necessary) without being
deemed guilty of any manner of trespass, and without prejudice to any remedies
which might otherwise be used for arrears of rent or preceding breach of
covenant and/or Landlord may send written notice to Tenant terminating the Lease
Term; and upon the first to occur of: (i) entry as aforesaid; or (ii) the
thirtieth (30th) day following mailing of such notice of termination, this Lease
shall terminate.
(c) Tenant shall, notwithstanding any termination of this Lease as
aforesaid or any entry or re-entry by Landlord, whether by summary proceedings,
termination or otherwise, pay and be liable for
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14. DEFAULT AND LANDLORD'S REMEDIES (CONTINUED)
on the days originally fixed herein for the payment thereof, amounts equal to
the several installments of rent and other charges reserved as they would, under
the terms of this Lease, become due if this Lease had not been terminated or if
Landlord had not entered or re-entered, as aforesaid, and whether the Premises
be relet or remain vacant, in whole or in part, or for a period less than the
remainder of the Lease Term, and for the whole thereof; but Landlord agrees to
use reasonable efforts to relet the Premises and in the event the Premises be
relet by Landlord, Tenant shall be entitled to a credit in the net amount of
rent received by Landlord in reletting, after deduction of all expenses
reasonably incurred in reletting the Premises (including, without limitation,
remodeling costs, brokerage fees, attorneys' fees, repairing, cleaning, moving
and storage costs, and the like), and in collecting the rent in connection
therewith.
Nevertheless, in case of such termination Landlord at its election which may
be made or changed at any time without notice shall be entitled to collect and
receive from Tenant such sum or sums to which it may be entitled as rent
hereunder for the balance of the Lease Term, or demand and receive from Tenant
indemnity against loss of the aforesaid rent hereunder for the balance of the
Lease Term, or collect and receive from Tenant as damages a sum which at the
time of such termination represents the difference between the fair rental value
of the Premises and the rent herein stated for the balance of the Lease Term,
which difference shall be discounted to its present value, or to enforce such
other remedies as are available to it by law.
In any event, in the event of default Tenant shall be liable to Landlord for
all expenses reasonably incurred in connection with such default, including
those described in the first paragraph of this Section and including reasonable
attorneys' fees.
(d) Landlord shall in no event be in default in the performance of any of
Landlord's obligations hereunder unless and until Landlord shall have failed to
perform such obligations within thirty (30) days or such additional time as is
reasonably required to correct any such default after notice by Tenant to
Landlord properly specifying wherein Landlord has failed to perform any such
obligation. If Landlord is in default under this Lease, Landlord shall (i) be
responsible for its reasonable costs and expenses which relate to its default
(including court costs and Tenant's attorneys' fees), and (ii) return a pro rata
portion of the semi-annual advance Base Rent payment to Tenant, if Tenant is
permitted to terminate the Lease.
(e) If Tenant abandons or vacates the Premises, any property left by Tenant
shall be deemed abandoned and Landlord shall have the right to dispose thereof
without accountability to Tenant as permitted by law.
(f) Landlord shall use its best efforts to mitigate any damages resulting
from any default by Tenant, and Tenant shall not in any event be liable for any
damages reasonably mitigable by Landlord.
15. REPRESENTATIONS OF TENANT
Tenant represents and warrants to Landlord that it is a corporation which is
duly organized, validly existing and in good standing under the laws of the
State of California, with all required power and authority to execute this Lease
and perform its obligations hereunder and such performance will not violate or
result in a default under any contract, mortgage, lien, judgment or order to
which Tenant is a party or by which Tenant is bound.
16. RIGHT OF FIRST REFUSAL
In the event Landlord shall receive an offer to purchase, ground lease, or
otherwise acquire the legal and/or beneficial ownership interest in the
Premises, or any interest therein, in whole or in part ("Offer of Purchase")
during the Lease Term, or any extension thereof, and the offer of purchase shall
be satisfactory to Landlord, Landlord shall give Tenant the privilege of
purchasing the Premises or the interest or portion thereof to be acquired at the
price and on the terms of the offer so made. This
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<PAGE>
16. RIGHT OF FIRST REFUSAL (CONTINUED)
privilege shall be given by a notice sent to Tenant at the Premises by
registered mail, requiring Tenant to accept the offer in writing and to sign a
suitable contract to purchase the Premises within the period of fifteen (15)
days after the mailing of the notice.
The failure of Tenant to accept the offer to purchase or sign a contract
within the period provided shall waive Tenant's rights under this Section on
that occasion, but shall not waive Tenant's right to first refusal on other
occasions, and Landlord shall be at liberty to sell the Premises to any other
person, firm or corporation. Any subsequent sale, except to Tenant, shall be
subject to this Lease and any renewals or extensions hereof and to this Section
18. The successor in interest to Landlord shall not disturb Tenant's possession
under this Lease if Tenant is not in default hereunder and shall perform all
Landlord's unperformed obligations.
This right of first refusal shall not apply to any transfer by Landlord of
the property to any person who controls, is under common control with, or is
controlled by Landlord or to Landlord's spouse or lineal descendants (or to a
trust or other legal entity exclusively for their benefit) for estate planning
purposes, provided such transferees shall thereafter be subject to this Section
18 with respect to subsequent transfers.
17. MISCELLANEOUS PROVISIONS
(a) SUBLEASE AND ASSIGNMENT. Tenant shall not sublease any more than
thirty percent (30%) of the square footage of the Leased Premises or assign this
Lease or any of its rights hereunder without the express prior written approval
of Landlord, which consent may not be unreasonably withheld and shall be deemed
given if not reasonably withheld in writing within 10 days following delivery to
Landlord of a written request for consent. In the event Landlord consents to an
assignment or a sublease, Tenant shall remain fully liable for the obligations
of Tenant hereunder, including, without limitation, the obligation to pay the
rent and other amounts provided under this Lease. Consent by Landlord to any
such sublease shall not be deemed to be a consent to a subsequent sublease nor
shall any sublessee have any further right to sublease. Notwithstanding anything
to the contrary in the Lease Form, Tenant may, without Landlord's prior written
consent and without any participation by Landlord in assignment and subletting
proceeds, sublet the Premises or assign the Lease to: (i) a subsidiary,
affiliate, division or corporation controlling, controlled by or under common
control with Tenant; or (ii) a successor corporation related to Tenant by
merger, consolidation, nonbankruptcy reorganization, or government action. For
the purpose of this Lease, sale of Tenant's capital stock through any public
exchange shall not be deemed an assignment, subletting, or any other transfer of
the Lease or the Premises.
(b) WAIVER. Failure on the part of either party to complain of any action
or non-action on the part of Tenant, no matter how long the same may continue,
shall never be deemed to be a waiver by Landlord of any of its rights hereunder.
No waiver at any time of any of the provisions hereof by either party shall be
construed as a waiver of any of the other provisions hereof, and no waiver at
any time of any of the provisions hereof shall be construed as a waiver at any
subsequent time of the same provisions. The consent or approval of a party to or
of any action by Tenant requiring Landlord's consent or approval shall not be
deemed to waive or render unnecessary consent or approval to or of any
subsequent similar act.
No payment, or acceptance, of a lesser amount than shall be due shall be
treated otherwise than as a payment on account. The acceptance of a check for a
lesser amount with an endorsement or statement thereon, or upon any letter
accompanying such check, that such lesser amount is payment in full, shall be
given no effect, and a party may accept such check without prejudice to any
other rights or remedies which the party may have.
(c) COVENANT OF QUIET ENVIRONMENT. Tenant, subject to the terms and
provisions of this Lease on payment of the rent and observing, keeping and
performing all of the terms and provisions of this Lease on its part to be
observed, kept and performed, shall lawfully, peaceably and quietly have, hold,
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<PAGE>
17. MISCELLANEOUS PROVISIONS (CONTINUED)
occupy and enjoy the Premises during the Lease Term without hindrance or
ejection by any persons lawfully claiming under Landlord; but it is understood
and agreed that this covenant and any and all other covenants of Landlord
contained in this Lease shall be binding upon Landlord and Landlord's successors
only with respect to breaches occurring during Landlord's and Landlord's
successors' respective ownership of Landlord's interest hereunder. Subject to
Landlord's duty to complete the Improvements, it is further understood and
agreed that with respect to any services to be furnished, neither Landlord or
Tenant shall in no event be liable for failure to furnish the same when
prevented from so doing by strike, lockout, breakdown, accident, order or
regulation of or by any governmental authority, or failure of supply, or
inability by the exercise of reasonable diligence to obtain supplies, parts or
employees necessary to furnish such services, or because of war or other
emergency, or for any cause beyond their reasonable control, or for any cause
due to any act or neglect of the other party or its servants, agents, employees,
licensees, contractors or any person claiming by, through or under the other
party.
(d) STATUS REPORT. Recognizing that both parties may find it necessary to
establish to third parties, such as accountants, banks, mortgagees, or the like,
the then current status of performance hereunder, either party, on the written
request of the other made from time to time, will promptly furnish a written
statement of the status of any matter pertaining to this Lease, which the other
party reasonably requests.
(e) NOTICE TO MORTGAGEE. After receiving written notice from any person,
firm or other entity, that it holds a mortgage (which term shall include a deed
of trust) which includes as part of the mortgaged premises the Premises, Tenant
shall, so long as such mortgage is outstanding, be required to give to such
holder the same notice as is required to be given to Landlord under the terms of
this Lease, but such notice may be given by Tenant to Landlord and such holder
concurrently. It is further agreed that such holder shall have the same
opportunity to cure any default, and the same time within which to affect such
curing, as is available to Landlord; and if necessary to cure such a default,
such holder shall have access to the Premises.
(f) ASSIGNMENT OF RENTS. With reference to any assignment by Landlord of
Landlord's interest in this Lease, or the rents payable hereunder, conditional
in nature or otherwise, which assignment is made to the holder of a mortgage or
deed of trust on the Premises, Tenant agrees:
(i) that the execution thereof by Landlord, and the acceptance thereof by
such holder, shall never be deemed an assumption by such holder of
any of the obligations of Landlord hereunder, unless such holder shall, by
written notice sent to Tenant, specifically otherwise elect;
(ii)that, except as aforesaid, such holder shall be treated as having
assumed Landlord's obligations hereunder only upon foreclosure of
such holder's mortgage or deed of trust and the taking of possession of the
Premises by such holder; and
(iii)
Tenant shall, at the request of Landlord, execute a consent to any
such assignment of the Lease and an agreement to attorn to such
mortgagee in the event of its exercise of its right under the assignment.
(g) LEASE SUBORDINATE TO MORTGAGE. The rights and interest of Tenant under
this Lease shall be subject and subordinate to any mortgages or deeds of trust
that may hereafter be placed upon the Premises and to any and all advances to be
made thereunder, and to the interest thereon, and all renewals, modifications,
replacements and extensions thereof, if the mortgagee or trustee named in said
mortgages or deeds of trust shall elect by written notice delivered to Tenant at
the time the encumbrance is created to subject and subordinate the rights and
interest of Tenant under this Lease to the lien of its mortgage or deed of
trust; provided, however, that said mortgagee agrees to execute an agreement
providing, in substance, that in consideration of Tenant's written agreement to
continue occupancy under the same terms and conditions of this Lease and to
attorn to mortgagee, the right of
14
<PAGE>
17. MISCELLANEOUS PROVISIONS (CONTINUED)
possession of Tenant to the Premises and Tenant's rights arising out of this
Lease, shall not be disturbed by the mortgagee in the exercise of its rights
under the mortgage or deed provided that Tenant shall not be in default
hereunder. In the event of such election, and upon notification by such
mortgagee or trustee to Tenant to that effect and delivery of a recognition and
non-disturbance agreement in a form reasonably acceptable to Tenant, the rights
and interest of Tenant under this Lease shall be deemed to be subordinate to the
lien of said mortgage or deed of trust, whether this Lease is dated prior to or
subsequent to the date of said mortgage or deed of trust, and no further
instrument of subordination shall be necessary; provided, however, that Tenant
shall execute and deliver whatever instruments said mortgagee or trustee may
reasonably require for such purposes, and in the event Tenant fails so to do
within twenty (20) days after demand in writing, Tenant does hereby make,
constitute and irrevocably appoint Landlord as its attorney-in-fact and in its
name, place and stead so to do.
(h) MECHANICS' LIENS. Tenant shall immediately discharge (either by
payment or by filing of the necessary bond, or otherwise) any mechanic's,
materialmen's or other lien against the Property and/or Landlord's interest
therein, which liens may arise out of any payment due for, or purported to be
due for, any labor, services, materials, supplies or equipment alleged to have
been furnished to or for Tenant after completion of the Improvements in, upon or
about the Property. Landlord shall immediately discharge (either by payment or
by filing of the necessary bond, or otherwise) any mechanic's, materialmen's or
other lien against the Premises and/or Tenant's interest therein, which liens
may arise out of any payment due for, or purported to be due for, any labor,
services, materials, supplies or equipment alleged to have been furnished to or
for Landlord in, upon or about the Premises.
(i) NO BROKERS. Tenant and Landlord warrant and represent that neither has
dealt with any broker in connection with the consummation of this Lease other
than Mr. Clifford Hurley of the Leggat Company, Inc., 1 Liberty Square, Boston,
Massachusetts. Landlord shall pay any commission due to said broker.
(j) INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this
Lease, or the application thereof to any person or circumstance shall, to any
extent, be invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
(k) PROVISIONS BINDING. Except as herein otherwise expressly provided, the
terms hereof shall be binding upon and shall inure to the benefit of the heirs,
executors, administrators, successors and assigns, respectively, of Landlord and
Tenant. The reference contained to successors and assigns of Tenant is not
intended to constitute a consent to assignment by Tenant not permitted by this
Lease, but as reference only to those instances permitted by this Lease.
(l) RECORDING. Tenant shall not record the Lease, but the parties shall
execute and record a Notice of Lease (and the rights of first refusal and the
options hereunder) in recordable form and complying with applicable
Massachusetts laws, and reasonably satisfactory to Tenant's and Landlord's
attorneys. In no event shall such document set forth the rental or other charges
payable by Tenant under this Lease; and such document shall expressly state that
it is executed pursuant to the provisions contained in this Lease, and is not
intended to vary the terms and conditions of this Lease.
15
<PAGE>
17. MISCELLANEOUS PROVISIONS (CONTINUED)
(m) NOTICES. All notices shall be in writing and delivered by certified
mail or personal delivery, to the parties at the addresses set forth below, or
to such other address or addresses as the parties may from time to time
hereafter designate:
Landlord: G. Christopher Peznola
Berkshire Acquisition Corporation
1500 Main Street, Suite 2012
Springfield, MA 01115
With copy to:
Robinson Donovan Madden & Barry, P.C.
1500 Main Street, Suite 1600
Springfield, MA 01115
Attn: Robert P. Cunningham, Esq.
Tenant: Division Controller
Genus, Inc.
Ion Technology Division
4 Mulliken Way
Newburyport, MA 01950
With copies to:
Genus, Inc.
1139 Karlstad Dr.
Sunnyvale, CA 94089
Attn: Chief Financial Officer
and
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304-1050
Attn: Real Estate Dept.
(n) HEADINGS. The headings throughout this instrument are for convenience
and reference only, and the words contained therein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction or meaning
of the provisions of this Lease.
(o) ENTIRE AGREEMENT. All negotiations, consideration, representations and
understandings between Landlord and Tenant are incorporated in this Lease, the
Improvement Agreement, and in the schedules and exhibits attached hereto and
thereto, all of which are hereby incorporated herein by this reference and all
of which may be modified or altered only by agreement in writing between
Landlord and Tenant. No act or omission of any employee or agent of Landlord
shall alter, change or modify any of the provisions hereof.
(p) GOVERNING LAW. This Lease shall be governed exclusively by the
provisions hereof and by the laws of the Commonwealth of Massachusetts, as the
same may from time to time exist.
18. ACQUISITION OF PROPERTY
Concurrently herewith Landlord shall forthwith enter into a Purchase and
Sale Agreement with the Newburyport Area Industrial Development Corporation, in
form and substance reasonably satisfactory to Tenant (the "Purchase Agreement"),
for the 10.62 acres of land in the Lord Dexter Industrial Park, known as Lot 62,
Stanley Tucker Drive, Newburyport, Massachusetts, as more particularly described
in EXHIBIT A to this Lease (the "Property"). Landlord shall perform its
obligations under the Purchase Agreement so that the purchase may close on or
before September 30,
16
<PAGE>
18. ACQUISITION OF PROPERTY (CONTINUED)
1995. Landlord hereby acknowledges that there are no conditions precedent to the
Landlord's obligation to purchase the Property under the Purchase Agreement,
other than that Landlord obtains record and marketable title to the Property
from the seller thereof, with only those exceptions to title permitted by the
Purchase Agreement.
19. PREPAID RENT & SECURITY DEPOSIT
Concurrently with the Landlord's acquisition of the Premises pursuant to the
Purchase and Sale Agreement, the Tenant shall deposit into escrow, for delivery
to Landlord on the Commencement Date, (1) good funds in the amount of Five
Hundred Thousand Dollars ($500,000.00) as prepayment of the last Base Rent
payable during the Initial Term (the "Prepaid Rent") and (2) a letter of credit
"Security Deposit" or evidence of a cash "Security Deposit" with a custodian
complying with the requirements of this paragraph. Within three (3) days
following delivery of written notice to the escrow holder that the Commencement
Date has occurred, the escrow holder shall deliver the Prepaid Rent and the
letter of credit Security Deposit or evidence of the cash custodial Security
Deposit, as the case may be, to the Landlord. Tenant shall promptly execute such
documents as the Landlord shall reasonably request to accomplish such delivery
of the Prepaid Rent and such Security Deposit items to the Landlord.
The Prepaid Rent shall be retained by Landlord as a prepayment of the last
Base Rent payable during the Initial Term of this Lease. The Security Deposit
shall be held by the Landlord or the custodian, as security for Tenant's
performance of its obligations hereunder, and not as prepayment of rent.
Tenant shall provide the Security Deposit in one of the following forms, or
combination thereof from time to time, at its option:
(1)Tenant shall deliver to the Landlord, at Tenant's sole cost, an
irrevocable letter of credit in the form attached hereto as EXHIBIT E (an
"ILC") which (i) is drawn upon a financial institution reasonably acceptable to
Landlord, (ii) is irrevocable, unconditional and transferrable, (iii) is for a
term of at least twelve (12) months, and (iv) may be drawn upon by Landlord at
sight upon submission of a declaration by an officer of Landlord, under penalty
of perjury, declaring that the Landlord is entitled to draw upon the ILC. If
Tenant provides Landlord with an ILC meeting the foregoing requirements, then
any cash being held as a Security Deposit in excess of the total Security
Deposit requirements stated below shall be returned to Tenant upon demand.
(2)Tenant shall deposit with a financial institution selected by Tenant and
reasonably acceptable to Landlord, cash or federally insured bonds and/or
notes to be held by such institution in accordance with a pledge and custodial
agreement in the form of attached EXHIBIT C. All interest accruing on any such
deposit shall be paid to Tenant as earned.
The Security Deposit shall be in the following amounts during the following
time periods of the Lease Term:
<TABLE>
<S> <C>
Commencement Date until the Fifth Anniversary
of the Commencement Date $ 2,800,000
Fifth Anniversary of the Commencement Date
until the Tenth Anniversary of the
Commencement Date $ 1,850,000
Tenth Anniversary of the Commencement Date
until the Thirteenth Anniversary of the
Commencement Date $ 900,000
Thirteenth Anniversary of the Commencement
Date until the Fourteenth Anniversary of the
Commencement Date $ 500,000
After the Fourteenth Anniversary of the
Commencement Date $ 0
</TABLE>
17
<PAGE>
19. PREPAID RENT & SECURITY DEPOSIT (CONTINUED)
Landlord may from time to time draw upon the Security Deposit, if, but only
if, one of the following "Drawing Conditions" is satisfied:
(1) FIRST DRAWING CONDITION. The Tenant fails to pay any Base Rent payable
under this Lease within thirty (30) days following notice to Tenant that the
amount is past due, and as of the date of the notice of such past due rent the
most recent public financial statement filing in Tenant's 10K or 10Q filed with
the Securities Exchange Commission ("SEC") reflects an amount of shareholder
equity of less than Twenty-Five Million Dollars ($25,000,000.00). In the event
Tenant becomes a private company and no longer files with the SEC, such
shareholder equity shall be measured based on audited annual financial
statements prepared in accordance with generally accepted accounting principles.
(2) SECOND DRAWING CONDITION. The Tenant fails to pay any Base Rent
payable under this Lease within thirty (30) days following notice to Tenant that
the amount is past due.
(3) THIRD DRAWING CONDITION. Landlord has not received a renewed ILC nor
an ILC commitment issued for a minimum of an additional one (1) year period as
of the date which is fourteen (14) days prior to the then stated expiration date
of the ILC.
In the event of the First Drawing Condition set forth above occurs, the
Landlord shall have the right to draw upon the ILC and retain the proceeds of
said ILC or other form of Security Deposit held hereunder as payment for
Tenant's violation of the security provision set forth herein. In no event,
however, shall any payments rendered hereunder be construed as liquidated
damages and Landlord shall have all rights at law and in equity reserved;
provided, however, that the amount of the Security Deposit paid to Landlord
shall reduce, but not below zero, the amount of damages which may be owing by
Tenant to Landlord on account of the Event of Default.
In the event the Second Drawing Condition occurs, the Landlord shall have
the right to draw upon the ILC and retain the amount of proceeds of said ILC or
other form of Security Deposit held hereunder equal to the amount of past due
Base Rent payable under the terms of the Lease plus reasonable costs of
collection thereof with the balance of the ILC proceeds to be remitted to
Landlord's lender, Shawmut Bank, N.A. (the "Custodian"), as custodian. Such
proceeds shall be held by Custodian in escrow under the Pledge and Custodial
Agreement as required for any non-ILC Security Deposit hereunder unless and
until the ILC is replaced with another ILC complying with this section. If the
amount of said past due Base Rent plus costs is not reimbursed by Tenant in the
form of a replacement ILC or additional Security Deposit to the Custodian for a
period of sixty (60) days following notice to Tenant that the amount of Base
Rent is past due, then, upon written notice from Landlord, the remaining
proceeds of the ILC or other form of Security Deposit held by Custodian shall be
immediately remitted to Landlord as payment for Tenant's violation of the
security provision set forth herein and treated in the manner described above as
if the First Drawing Condition occurred.
If the Third Drawing Condition is satisfied, all of the proceeds of the ILC
may be drawn for immediate remittance to Custodian and such proceeds shall be
held by Custodian in escrow under the Pledge and Custodial Agreement as required
for any non-ILC Security Deposit hereunder, unless and until the ILC is replaced
with another ILC complying with this Section.
In the event the Security Deposit or any portion thereof is applied by
Landlord to cure any failure of the Tenant to pay Base Rent owing by the Tenant
hereunder, Tenant agrees to restore the deposit to the full amount thereof upon
demand. The Security Deposit (or so much of it that has not been applied to cure
Tenant's default in accordance with this paragraph) shall be returned to Tenant
within fourteen (14) days following the expiration of the Lease Term.
If Landlord transfers the Premises during the Lease Term, Landlord shall
deliver the Security Deposit to the transferee of Landlord's interest, in which
event the transferring Landlord will be released from all liability for the
return of the Security Deposit.
18
<PAGE>
19. PREPAID RENT & SECURITY DEPOSIT (CONTINUED)
In the event Tenant fails to pay any Base Rent payable under this Lease
within thirty (30) days following notice to Tenant that the amount is past due,
but Tenant's shareholder equity is determined in the First Drawing Condition
stated above to be greater than Twenty-Five Million Dollars ($25,000,000.00),
then the parties agree that the Security Deposit (including any ILC constituting
the Security Deposit) shall continue to be maintained and survive any Default by
Tenant under this Lease. In addition, if any such Default in a Base Rent payment
occurs, then the amortization of the amount of the Security Deposit as the Lease
Term elapses, as specified above, shall be suspended for the time period of any
such Default. Upon cure of the Default, the Security Deposit may be reduced in
accordance with the foregoing schedule.
The obligations of this Section 19 shall survive any expiration of
termination of this Lease.
20. [INTENTIONALLY DELETED.]
21. [INTENTIONALLY DELETED.]
22. ATTORNEYS' FEES
Notwithstanding anything to the contrary in the Lease Form, if either
Landlord or Tenant shall bring any action or legal proceeding for an alleged
breach of any provision of this Lease, to recover rent, to terminate this Lease
or otherwise to enforce, protect or establish any term or covenant of this
Lease, the prevailing party shall be entitled to recover as a part of such
action or proceeding, or in a separate action brought for that purpose,
reasonable attorneys' fees, court costs, and expert fees as may be fixed by the
court. "Prevailing party" as used in this Paragraph includes a party who
dismisses an action for recovery hereunder in exchange for sums allegedly due,
performance of covenants allegedly breached or considerations substantially
equal to the relief sought in the action.
23. TENANT'S RIGHTS ON TERMINATION
Landlord acknowledges that the Property was designated by Tenant for
acquisition by Landlord. Accordingly, if this Lease terminates prior to the
Commencement Date because Landlord is unwilling or unable to complete the
Improvements in accordance with this Lease and the Improvement Agreement for
causes other than the Default of Tenant, then Tenant shall have the option to
purchase the Premises (including the Property and the Improvements then
existing) from Landlord. This option may be exercised at anytime prior to the
twentieth (20th) day following delivery of Landlord's notice to Tenant that the
Lease has terminated and that if Tenant does not exercise the option herein
granted within twenty (20) days following delivery of said notice then such
option shall be deemed waived. Upon exercise by Tenant of its option to purchase
the Landlord shall sell the Premises to the Tenant and the Tenant shall purchase
the Premises from the Landlord. To facilitate such purchase the parties shall
execute a purchase agreement memorializing their obligations and containing any
other provisions required to complete the conveyance in accordance with local
custom; provided, however that if the parties cannot agree upon such customary
terms within ten (10) days following either party's request for an agreement,
then the customary terms shall be determined by the presiding judge of the Essex
County court having jurisdiction over the Premises in the State of
Massachusetts. The purchase shall close on the forty-fifth (45th) day following
delivery to Landlord of Tenant's exercise notice. The purchase price of the
property shall be equal to that portion of the Construction Cost (as defined in
the Improvement Agreement) actually paid or incurred by the Landlord prior to
the date of the closing of the sale of the Premises to the Tenant, less any
damages legally recoverable by Tenant on account of Landlord's default. Title to
the Premises shall be delivered to Tenant in the condition received by Landlord
from the Seller, as evidenced by a title insurance policy in the form obtained
by Landlord when it purchased the Property from said seller.
[SIGNATURE BLOCKS ON NEXT PAGE]
19
<PAGE>
WITNESS the execution hereof, under seal, in any number of counterpart
copies, each of which counterpart copies shall be deemed to be an original for
all purposes as of the day and year first above written.
BERKSHIRE-NEWBURYPORT LIMITED
PARTNERSHIP, Landlord
<TABLE>
<S> <C>
By
- -------------------------------------------- -------------------------------------------
Witness OSCAR N. PLOTKIN, President of
Newburyport General Corp.,
its general partner
</TABLE>
GENUS, INC., Tenant
<TABLE>
<S> <C>
By
- -------------------------------------------- -------------------------------------------
Witness Its
--------------------------------------------
</TABLE>
[ATTACH NOTARY ACKNOWLEDGMENTS AND SEAL AS REQUIRED BY LAW]
20
<PAGE>
EXHIBIT A
LEASED PREMISES
21
<PAGE>
EXHIBIT B
TENANT'S "SPECIALIZED IMPROVEMENTS"
[NEED TO ATTACH INITIAL LIST -- LIST WILL BE AUGMENTED AT TENANT'S REQUEST,
IF CONSTRUCTION COST EXCEEDS [COST ESTIMATE]]
22
<PAGE>
EXHIBIT C
[ATTACH FORM OF PLEDGE & CUSTODIAL AGREEMENT]
23
<PAGE>
EXHIBIT D
[ATTACH ENVIRONMENTAL REPORTS]
24
<PAGE>
EXHIBIT E
[ATTACH FORM OF IRREVOCABLE LETTER OF CREDIT]
25
<PAGE>
EXHIBIT 11.1
GENUS, INC.
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE (A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Average common shares outstanding.............................................. 15,334 12,545 12,170
Computation of incremental outstanding shares
Net effect of dilutive stock options based on treasury stock method.......... 729 561 --
--------- --------- ---------
16,063 13,106 12,170
--------- --------- ---------
--------- --------- ---------
Net income (loss).............................................................. $ 19,282 $ 4,177 $ (6,883)
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per share (b).................................................. $ 1.20 $ 0.32 $ (0.57)
--------- --------- ---------
--------- --------- ---------
</TABLE>
(a) See Note 1 of Notes to Consolidated Financial Statements.
(b) Primary and fully diluted earnings per share are materially the same for all
years presented.
S-1
<PAGE>
SCHEDULE II
GENUS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN E
----------- ----------- -----------
COLUMN A BALANCE AT CHARGED TO COLUMN D BALANCE
- ----------------------------------------------------------------- BEGINNING COSTS AND ---------- AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------------------------------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
1995
Allowance for doubtful accounts.................................. $ 250 $ -- $ -- $ 250
Inventory reserves............................................... 2,665 995 389 3,271
Product warranty and installation accruals....................... 2,394 3,640 1,716 4,318
1994
Allowance for doubtful accounts.................................. 250 0 0 250
Inventory reserves............................................... 3,250 947 (1,533) 2,665
Product warranty and installation accruals....................... 2,042 2,094 (1,742) 2,394
1993
Allowance for doubtful accounts.................................. 270 475 (495) 250
Inventory reserves............................................... 4,766 1,419 (2,935) 3,250
Product warranty and installation accruals....................... 1,737 1,381 (1,076) 2,042
</TABLE>
S-2
<PAGE>
EXHIBIT 13.1
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Net sales..................................................................... $ 100,350 $ 63,616 $ 44,236
Net income (loss)............................................................. 19,282 4,177 (6,883)
Net income (loss) per share................................................... 1.20 0.32 (0.57)
Working capital............................................................... 50,061 23,201 22,162
Shareholders' equity.......................................................... 75,361 36,986 31,751
</TABLE>
<PAGE>
To Our Shareholders
Genus achieved considerable success during 1995 due to a substantial
increase in the shipments of our high energy (MeV) ion implantation and chemical
vapor deposition (CVD) systems. Our sales grew 58% over 1994 to $100.4 million.
In addition, our entire product line has been strengthened with the first
production shipments of our CVD cluster tool platform and the introduction of
our third-generation MeV ion implanter.
Throughout 1995, the semiconductor industry continued to expand at a
substantial pace. A sizable portion of this gain is a result of increased
integrated circuit (IC) sales that were fueled primarily by strong personal
computer and telecommunications demand. As a supplier of capital equipment
specifically designed to provide low-cost production solutions for both thin
films and ion implantation, Genus is well positioned to take advantage of this
market expansion.
From late 1994 through 1995, we enhanced our product line and now offer
stronger and more competitive systems than ever before. These new products --
the Genus 7000 and the Tandetron-TM- 1520 -- build upon our technology
leadership and provide highly competitive process results, high throughput and
low cost-of-ownership.
The initial shipments of our Genus 7000, a single-wafer CVD cluster tool,
were installed directly into production at one of the world's leading DRAM
manufacturers. The rapid migration of these systems into production, rare in the
semiconductor industry, attests to the cost savings and reliability demonstrated
by the 7000 system.
High energy ion implantation continues to be an area of great growth
potential for Genus. MeV ion implantation demand is driven by the technology's
ability to reduce manufacturing costs for memory and logic devices. Using Genus'
buried implanted layer for lateral isolation (BILLI)* structure and our
Tandetron 1520 implanter, manufacturers can save up to 20% on total wafer
fabrication costs.
In January of 1996, we strengthened our technology organization with the
addition of Thomas Seidel, formerly SEMATECH's director of strategic technology.
Dr. Seidel joins us as chief technical officer. During the last year, we further
broadened our management team with the addition of James Burns as executive vice
president and general manager of our Thin Film Division and Kent Robertson as
executive vice president and chief financial officer, and with the promotion of
John Ogawa Borland to the post of vice president of strategic technology.
In 1995, the strengthening of our customer support program resulted in an
award for exemplary service from Samsung. We are building on this solid
foundation by establishing locally based service centers such as our wholly
owned Korean subsidiary, which opened in January of 1996. In addition, we are
supporting our existing customer base with ongoing product enhancements that add
value to their installed systems.
I would like to thank all Genus employees for their continuing dedication.
Their hard work has made it possible for us to make the important changes
necessary to position the Company for future growth. We are confident that the
significant additions to our product line and the expansion of our customer
support capabilities will enable us to maintain a competitive edge. We are
continuing to leverage our technology leadership to adapt to the ever-changing
landscape of our dynamic market.
William W. R. Elder
Chairman and Chief Executive Officer
2
<PAGE>
A CHANGING MARKET
The explosive growth of the semiconductor industry is nothing short of
phenomenal. Even conservative industry forecasts have been revised upward with
many analysts now anticipating a market of $350 billion by the year 2000.
Leading this tremendous growth is the proliferation of computer technology and
the expanding range of other electronic products now incorporating integrated
circuits.
The continued decrease in IC cost-per-function is the engine driving the
growth of the semiconductor industry. With higher cost-effectiveness and more
capability on each chip, the electronics industry has created enormous and very
challenging market opportunities. For semiconductor manufacturers, this shift
has made cost reduction a vital objective.
REDUCED PRODUCTION COSTS As a leader in innovative technologies that
significantly reduce the cost of fabricating semiconductors, Genus continues to
capitalize on this heightened emphasis on cost reduction. Genus MeV ion
implantation and CVD products break new ground by enabling chip makers to
simplify their IC production processes and lower their cost-of-ownership.
TECHNOLOGY LEADERSHIP
In 1995, Genus demonstrated ongoing technical leadership in its served
markets and strengthened its product offering with the introduction of two new
systems. The Company shipped its first integrated cluster tool for tungsten
silicide thin-film deposition, the Genus 7000, directly into production. Later
in 1995, Genus took an important evolutionary step in MeV ion implantation with
the introduction of the Tandetron 1520 MeV ion implantation system.
HIGH ENERGY ION IMPLANTATION
MeV ion implantation, used in the fabrication of both memory and logic
devices, implants electrically charged dopant ions into a silicon substrate.
Driven by the technology's ability to simplify processing and reduce
manufacturing costs by up to 20%, the MeV ion implantation market tripled in
1995 and is projected to grow another 50% in 1996. Analysts predict that MeV ion
implantation will continue to be one of the fastest-growing segments of the
front-end capital equipment market.
Genus' Tandetron 1520 MeV ion implantation system was introduced in the
fourth quarter of 1995. Designed to be a "production workhorse," it provides
significant cost savings for both memory and logic IC production. In logic
devices using Genus' BILLI structure, the Tandetron 1520 replaces the need for
expensive silicon epitaxy. Eliminating this step can save manufacturers as much
as $229 per 8-inch wafer according to VLSI Research, Inc. In addition, the
process reduces cycle time and boosts capacity by up to 16%. A "super fab"
manufacturer producing 40,000 wafer starts per month can gain savings of more
than $100 million per year.* The wide energy range of the Tandetron also enables
it to perform medium current implants that further reduce manufacturing costs by
increasing product utilization.
THIN-FILM DEPOSITION Tungsten silicide CVD technology is commonly used to
produce faster memory devices. For more than 12 years, Genus has been a leading
supplier in this market, a position the Company strengthened with the first
production shipments of the Genus 7000. This modular, single-wafer system
provides significantly higher throughput, improved reliability and lower
cost-of-ownership. The benefits of the 7000 were validated when Samsung, the
world's leading DRAM manufacturer, moved its first system shipments directly
into 16-Mb DRAM production at 0.35 micron m. The system's dichlorosilane (DCS)
chemistry provides the higher throughput, step coverage, lower fluorine content
and predictable device speed essential for advanced ICs.
To support both its MeV ion implantation and CVD advanced technologies,
Genus established a local service presence and greatly expanded its support
organizations in Korea and Japan. These efforts, and other strategies currently
under development, are designed to strengthen the Company's customer
satisfaction programs and capabilities throughout the world.
3
<PAGE>
Genus' current product offerings represent the leading edge of industry
technology. Both MeV ion implantation and CVD products provide the capabilities
essential for the most advanced devices as well as the cost-saving potential
vital to success in today's rapidly growing semiconductor market.
LOOKING TOWARD THE FUTURE
Genus' current product line provides a solid foundation for future growth.
Through continued innovation and improvement combined with strategic
partnerships, Genus will be able to provide more robust solutions for a wider
range of semiconductor processing steps as technology advances into the future.
NEW FILMS With the multimodule cluster tool design of the Genus 7000, the
Company will offer a wider range of thin films in 1996. New innovative CVD films
are currently under development in joint programs with leading semiconductor
manufacturers. In addition, Genus' DCS chemistry is also expected to gain wider
industry acceptance as its improved productivity and film properties make it
more attractive for submicron manufacturing.
PIONEERING FUNDAMENTAL CHANGE During 1995, Genus introduced new advanced
MeV ion implantation techniques that promise to change the way many CMOS
semiconductors will be built. One of these techniques, Genus' BILLI structure,
is expected to gain in usage as more manufacturers realize significant cost
savings as a result of the process' ability to eliminate 20 - 40 steps in CMOS
memory and logic device production. To create added momentum for wider
acceptance in the logic market, Genus initiated joint development programs to
use the BILLI structure for epi replacement with several key customers in 1995.
A key milestone was achieved in January of 1996 when a major U.S. logic device
manufacturer announced the fabrication of the world's first logic IC using the
BILLI structure and a Genus MeV ion implanter to replace the epi layer.
As the industry moves toward larger wafer sizes with 300-mm wafer production
as early as 1997, the process step reduction made possible by the BILLI
structure's epi replacement capabilities will gain in importance. Genus'
Tandetron 1520 MeV ion implanter is ideally suited to take advantage of the
economic opportunities created with this new technology.
Through continuously pursuing technical leadership and anticipating industry
technology changes, Genus is positioned for growth in tomorrow's dynamic
semiconductor market.
4
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND EMPLOYEE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 100,350 $ 63,616 $ 44,236 $ 40,079 $ 51,528
Gross profit........................................ 39,239 24,967 13,900 9,661 18,646
Gross profit as a percentage of sales............... 39% 39% 31% 24% 36%
Income (loss) from operations....................... $ 7,976 $ 3,729 $ (6,974) $ (17,382) $ (5,130)
Net income (loss)................................... 19,282 4,177 (6,883) (17,095) (3,980)
Net income (loss) per share......................... $ 1.20 $ 0.32 $ (0.57) $ (1.45) $ (0.35)
Cash and cash equivalents........................... $ 12,630 $ 10,188 $ 10,423 $ 9,684 $ 22,169
Total assets........................................ 95,247 54,997 45,205 49,258 60,957
Long-term obligations, less current portion......... 1,034 523 1,042 2,342 168
Working capital..................................... 50,061 23,201 22,162 29,455 42,817
Shareholders' equity................................ 75,361 36,986 31,751 37,771 54,390
Backlog............................................. 44,996 44,011 18,945 7,783 15,656
Number of employees................................. 319 264 212 246 259
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Genus' net sales in 1995 increased 58 percent over net sales in 1994 to
$100.4 million. The increase in net sales was primarily due to the introduction
of the Genus 7000 tungsten chemical vapor deposition (CVD) system with higher
average selling prices (ASP) and, secondarily, to greater unit sales of the
Company's high energy (MeV) ion implantation system. In addition, the increase
was driven by continued strong demand for capital equipment by semiconductor
manufacturers, particularly in Korea. The increase in net sales was made despite
the continued competitiveness in the markets the Company serves. Foreign sales
accounted for 88 percent of the Company's net sales in 1995, compared to 89
percent in 1994. Net sales from the Company's customer support group increased
five percent when compared to the same period in 1994.
Gross profit for the years ended 1995 and 1994 was 39 percent of net sales.
While there was no change in the Company's consolidated gross profit percentage
between 1995 and 1994, gross margins on products sold by the Company's Thin Film
Division (TFD) and Ion Technology Division (ITD) in 1995 were significantly
different. During 1995, gross margins at TFD improved three percentage points
and eroded five percentage points at ITD. The improvement in gross margin at TFD
was as a result of higher ASP on Genus 7000 system sales, improved production
cycle times and manufacturing efficiencies due to increased volumes. The erosion
in gross margins at ITD was due principally to increased service and warranty
costs, higher product transition costs associated with the introduction of the
division's new Tandetron 1520 MeV ion implantation system, manufacturing
inefficiencies related to volume and product transition and lower ASP due to
competitive pressures.
In 1995, research and development (R&D) expenses were $12.3 million compared
to $9.0 million in 1994, a 36 percent increase. The $3.3 million increase in R&D
was due to continued investments made by the Company in additional headcount,
higher new product development material costs and greater depreciation expenses
associated with equipment purchased for new product development. As a percentage
of net sales, R&D expenses in 1995 and 1994 were 12 percent and 14 percent,
respectively. The decrease in R&D expenses as a percentage of sales was due
principally to the increased net sales volume. The Company's R&D expenses in
1995 and 1994 are net of the capitalization of software costs of $0.9 million
and $0.8 million, respectively. The Company serves markets that are highly
competitive and rapidly changing. For these reasons, the Company believes that
it must continue to maintain its investment in R&D to develop competitive,
market driven products. In addition, the Company continually evaluates its R&D
investment in view of evolving competitive and market conditions.
Selling, general and administrative (S,G&A) expenses as a percentage of
sales were 19 percent for both years ended December 31, 1995 and 1994. On an
absolute dollar basis, S,G&A expenses for the year ended December 31, 1995
increased $6.8 million when compared to the same period in 1994. The absolute
dollar increase was primarily due to headcount additions and related payroll
costs to support the Company's growth rate, higher sales commissions and
incentives and increased depreciation expense.
During the year ended December 31, 1995, the Company had $0.3 million in
other income, compared to $0.7 million in other income for the same period in
1994. The decrease in other income was due to the write-off of leasehold
improvements in connection with the relocation of the Company's ITD facility
scheduled for mid-1996 and the gain on the sale of property and equipment in
1994, but not in 1995; offset by higher interest income earned on higher cash
balances outstanding during 1995 when compared to the same period in 1994.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The effective tax rate for the year ended December 31, 1995 was (132)
percent compared to an effective tax rate of 5 percent for the same period in
1994. The significant change in the effective tax rate was due primarily to the
one-time recognition of deferred tax assets in accordance with Financial
Accounting Standard No. 109, "Accounting for Income Taxes." As a result of this
one-time recognition in 1995, the Company anticipates that the effective tax
rate in 1996 will approximate the statutory rate.
The Company has continued to experience positive order and financial
performance in recent quarters. These results have been primarily due to strong
market conditions for the Company's products in Korea, and one Korean customer
in particular, as a result of increased investments in semiconductor
manufacturing facilities in this region. However, due to the inconsistency in
the Company's order rate during the second half of 1995, the Company's reliance
on one customer for a significant portion of its orders, the continued
competitive market environment for the Company's products and the historically
cyclical nature of the semiconductor equipment market, the Company remains
cautious about the short-term prospects for its business. The Company continues
to make strategic investments in new product development and manufacturing
improvements with a view to improving future performance by enhancing product
offerings; however, such investment may adversely affect short-term operating
performance. The Company is also continuing its efforts to implement
productivity improvements for future operating performance. The Company believes
that the future economic environment could continue to lengthen the order and
sales cycles for its products, causing it to continue to simultaneously book and
ship some orders during the same quarter.
1994 COMPARED TO 1993
Genus' net sales in 1994 were $63.6 million, an increase of 44 percent over
net sales in 1993 of $44.2 million. This increase in net sales was primarily due
to increased system sales of the Company's MeV ion implantation system as a
result of increased market acceptance of MeV ion implantation in the
semiconductor manufacturing process and, secondarily, to changes in the
Company's CVD product mix with higher ASP. In addition, the increase was driven
by continued strong demand for capital equipment from semiconductor
manufacturers, particularly in Korea where significant investments were made in
dynamic random-access memory (DRAM) manufacturing facilities. Foreign sales
accounted for 89 percent of the Company's net sales in 1994 compared to 84
percent in 1993. Net sales from the Company's customer support group were $15.6
million in 1994 compared to $13.5 million in 1993, a 16 percent increase.
Gross margin in 1994 was 39 percent compared to 31 percent in 1993. The
improvement in gross margin was due to increased unit sales volumes with higher
ASP, improved manufacturing efficiencies due to increased sales volumes and
other gross margin improvement programs implemented by the Company. In 1994, the
Company included all service expenses in cost of goods sold. Prior to 1994, the
Company included a portion of service costs in S,G&A expenses. As a result of
this reclassification, the financial statements for prior periods have been
reclassified to conform with the presentation in 1994. Previously reported
results were not affected by this reclassification.
In 1994, R&D expenses were $9.0 million compared to $7.8 million in 1993, a
16 percent increase. The $1.2 million increase in R&D expenses was due to
increased investments made by the Company in new product development in both of
its divisions. As a percentage of net sales, R&D expenses in 1994 and 1993 were
14 percent and 18 percent, respectively. The decrease in R&D expenses as a
percentage of sales was primarily due to the increased net sales volume. The
Company's R&D expenses in 1994 are net of software capitalization costs of $0.8
million.
As a percentage of net sales, S,G&A expenses in 1994 and 1993 were 19
percent and 28 percent, respectively. This significant change was primarily due
to increased net sales volumes. On an absolute dollar basis, S,G&A expenses in
1994 were marginally lower than 1993 levels.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During 1994, the Company earned $0.7 million in other income compared to
$0.1 million in other income in 1993. This increase was primarily a result of
the gain on the sale of property and equipment of approximately $0.5 million
during the second quarter of 1994. During 1993, the Company incurred a special
charge of $0.6 million related to the severance packages and other
payroll-related costs associated with a reduction in work force during 1993.
Effective January 1, 1993, the Company changed its method of accounting for
income taxes by adopting Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes." The effective tax rate of 1994 was 5 percent and
related primarily to alternative minimum tax. The low effective tax rate was due
to the Company's utilization of net operating loss carryforwards to offset
regular taxable income.
LIQUIDITY AND CAPITAL RESOURCES
During the 12 months ended December 31, 1995, the Company's cash and cash
equivalents increased $2.4 million due principally to issuance of common stock
of $18.3 million, offset by cash used by operations of $4.1 million, the
repayment of short-term bank borrowings of $3.8 million, repayments of long-term
debt of $1.4 million, the purchase of property and equipment of $5.6 million and
the capitalization of software development cost of $0.9 million.
The $4.1 million decrease in cash from operating activities resulted
primarily from an increase of $11.6 million in accounts receivable due to the
inability to collect the receivables from shipments made late in the fourth
quarter, an increase in inventories of $9.8 million as a result of inventory
purchases received late in the fourth quarter to support shipments in the first
quarter of 1996, an increase in other assets of $0.7 million related to higher
long-term deposits and an increase in deferred tax assets of $11.6 million. The
decrease in cash from operations was primarily offset by an increase in accounts
payable of $1.3 million as a result of inventory purchases made late in the
quarter for fourth-quarter shipments and the cash management practices of the
Company, and an increase of $4.4 million in accrued expenses due to increased
retrofit costs, increased warranty and commission accruals as a result of higher
sales volumes, and increased accruals for profit sharing and incentives. In
addition, the decrease in cash from operating activities was offset by
depreciation and amortization of $4.2 million and net income of $19.3 million.
At December 31, 1995, the Company's primary source of funds consisted of
$12.6 million in cash and cash equivalents and funds available under a $10.0
million revolving line of credit. The line of credit is secured by substantially
all of the assets of the Company and expires in May 1996. At December 31, 1995,
the Company had no borrowings outstanding under the line of credit.
Capital expenditures during 1995 were $5.6 million and related primarily to
acquisition of machinery and equipment for the Company's R&D and Applications
Laboratories. In September 1995, the Company entered into an agreement to lease
a new facility in Newburyport, Massachusetts for its Ion Technology Division.
The Company estimates that it will expend approximately $3.0 million for
leasehold improvements and equipment associated with the new facility. The
Company intends to finance these expenditures through new or existing lease
lines. Furthermore, the Company anticipates that it will continue to make
additional capital expenditures during 1996 that will be funded through existing
working capital or lease financing.
On February 17, 1995, the Company sold 2,539,018 shares of common stock
through a private placement offering, which generated net proceeds of
approximately $16.2 million.
The Company believes that existing cash and cash equivalents, cash generated
from operations, if any, and existing credit facilities will be sufficient to
satisfy its cash needs in the near term and for the foreseeable future.
8
<PAGE>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................................................. $ 12,630 $ 10,188
Accounts receivable (net of allowance for doubtful accounts of $250 in 1995 and
1994)................................................................................. 26,796 15,169
Inventories............................................................................ 24,437 14,677
Other current assets................................................................... 623 655
Current deferred taxes................................................................. 4,427
---------- ----------
Total current assets................................................................. 68,913 40,689
Property and equipment, net.............................................................. 14,627 11,492
Other assets, net...................................................................... 3,824 2,816
Noncurrent deferred taxes................................................................ 7,883
---------- ----------
$ 95,247 $ 54,997
---------- ----------
LIABILITIES
Current Liabilities:
Short-term bank borrowings............................................................. 3,800
Accounts payable....................................................................... 7,129 5,858
Accrued expenses....................................................................... 11,042 6,625
Current portion of long-term debt and capital lease obligations........................ 681 1,205
---------- ----------
Total current liabilities............................................................ 18,852 17,488
---------- ----------
Long-term debt and capital lease obligations, less current portion....................... 1,034 523
---------- ----------
Commitments (Note 8)
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized, 2,000,000 shares;
Issued and outstanding, none
Common stock, no par value:
Authorized, 20,000,000 shares;
Issued and outstanding, 16,163,539 shares (1995) and 12,813,028 shares (1994)........ 95,683 76,590
Accumulated deficit.................................................................... (20,322) (39,604)
---------- ----------
Total shareholders' equity............................................................. 75,361 36,986
---------- ----------
$ 95,247 $ 54,997
---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
----------- --------- ---------
<S> <C> <C> <C>
Net sales..................................................................... $ 100,350 $ 63,616 $ 44,236
Costs and expenses:
Cost of goods sold.......................................................... 61,111 38,649 30,336
Research and development.................................................... 12,259 8,999 7,788
Selling, general and administrative......................................... 19,004 12,239 12,466
Special charge................................................................ 620
----------- --------- ---------
Income (loss) from operations............................................. 7,976 3,729 (6,974)
Other income, net............................................................. 327 661 91
----------- --------- ---------
Income (loss) before provision for (benefit from) income taxes............ 8,303 4,390 (6,883)
Provision for (benefit from) income taxes..................................... (10,979) 213
----------- --------- ---------
Net income (loss)......................................................... $ 19,282 $ 4,177 $ (6,883)
----------- --------- ---------
Net income (loss) per share................................................... $ 1.20 $ 0.32 $ (0.57)
----------- --------- ---------
Shares used in per share calculations......................................... 16,063 13,106 12,170
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE YEARS ENDED
DECEMBER 31, 1995
----------------------------------
COMMON ACCUMULATED
STOCK DEFICIT TOTAL
--------- ------------ ---------
<S> <C> <C> <C>
Balances, January 1, 1993.................................................... $ 74,669 $ (36,898) $ 37,771
Issuance of 213,922 shares of common stock under stock option plan......... 344 344
Issuance of 254,998 shares of common stock under employee stock purchase
plan...................................................................... 519 519
Net loss................................................................... (6,883) (6,883)
--------- ------------ ---------
Balances, December 31, 1993.................................................. 75,532 (43,781) 31,751
Issuance of 214,024 shares of common stock under stock option plan......... 573 573
Issuance of 195,274 shares of common stock under employee stock purchase
plan...................................................................... 485 485
Net income................................................................. 4,177 4,177
--------- ------------ ---------
Balances, December 31, 1994.................................................. 76,590 (39,604) 36,986
Issuance of 2,539,018 shares of common stock under private placement
offering.................................................................. 16,222 16,222
Issuance of 542,450 shares of common stock under stock option plan......... 1,161 1,161
Tax benefit on exercise of stock options................................... 750 750
Issuance of 269,043 shares of common stock under employee stock purchase
plan...................................................................... 960 960
Net income................................................................. 19,282 19,282
--------- ------------ ---------
Balances, December 31, 1995.................................................. $ 95,683 $ (20,322) $ 75,361
--------- ------------ ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
--------- ------------ ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................................... $ 19,282 $ 4,177 $ (6,883)
Adjustments to reconcile to net cash from operating activities:
Special charge........................................................... 84
(Gain) loss on disposal of property and equipment............................ 261 (461)
Depreciation and amortization............................................ 4,244 2,622 3,261
Deferred taxes........................................................... (11,560)
Changes in assets and liabilities:
Accounts receivable.................................................... (11,627) (2,442) 2,027
Inventories............................................................ (9,760) (3,945) 2,447
Other current assets................................................... 32 37 291
Accounts payable....................................................... 1,271 3,632 (1,260)
Accrued expenses....................................................... 4,417 (558) 2,466
Other, net............................................................. (701) (68) 131
--------- ------------ ---------
Net cash provided by (used in) operating activities.................. (4,141) 2,994 2,564
--------- ------------ ---------
Cash flows from investing activities:
Acquisition of property and equipment...................................... (5,594) (4,671) (3,543)
Proceeds from disposition of property and equipment........................ 595
Sales of marketable securities............................................. 2,844
Capitalization of software development costs............................... (937) (831)
--------- ------------ ---------
Net cash used in investing activities................................ (6,531) (4,907) (699)
--------- ------------ ---------
Cash flows from financing activities:
Proceeds from issuance of common stock..................................... 18,343 1,058 863
Proceeds from short-term bank borrowings................................... 6,600 11,500
Payments of short-term bank borrowings..................................... (3,800) (4,900) (9,400)
Payments of long-term debt................................................. (1,429) (1,080) (1,245)
--------- ------------ ---------
Net cash provided by financing activities............................ 13,114 1,678 1,718
--------- ------------ ---------
Increase (decrease) in cash.................................................. 2,442 (235) 3,583
Decrease in marketable securities............................................ (2,844)
Cash and cash equivalents, beginning of year................................. 10,188 10,423 9,684
--------- ------------ ---------
Cash and cash equivalents, end of year....................................... $ 12,630 $ 10,188 $ 10,423
--------- ------------ ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest................................................................... $ 172 $ 180 $ 283
Income taxes............................................................... 209 154 69
Noncash investing and financing activities:
Purchase of property and equipment under long-term debt obligations........ 1,416 842
Tax benefit on exercise of stock options................................... 750
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 1. -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Genus develops, manufactures, markets and services advanced thin-film
deposition and high energy (MeV) ion implantation equipment used in the
fabrication of advanced semiconductor integrated circuits. The Company's
products are marketed worldwide either directly to end users or through
exclusive sales representative arrangements. The Company's customers include
semiconductor manufacturers located throughout the United States, Europe and in
the Pacific Rim including Japan, Korea and Taiwan. Genus conducts its business
within one industry segment. The following is a summary of Genus' significant
accounting policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Genus, Inc.
and its wholly owned subsidiaries after elimination of intercompany accounts and
transactions.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents and classifies such amounts
as cash.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents approximates estimated
fair value because of the short maturity of those financial instruments. Based
on rates currently available to the Company for debt with similar terms and
remaining maturities, the carrying value of long-term debt approximates
estimated fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and trade receivables. The Company
places its cash investments with three high credit quality financial
institutions located in the United States. The Company performs ongoing credit
evaluations of its customers. The Company does not require collateral from its
customers and maintains an allowance for credit losses, which historically have
not been material.
INVENTORIES
Inventories are stated at the lower of cost or market, using standard costs
that approximate actual costs, under the first-in, first-out method.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives, which range from 3 to 10
years. Leasehold improvements are amortized using the straight-line method over
their estimated useful lives or the remaining lease term, whichever is less.
OTHER ASSETS
Other assets include goodwill and software development costs and are stated
at cost. Goodwill represents the cost in excess of an acquired business and is
amortized on a straight-line basis over 15 years. Software development costs
represent costs incurred subsequent to establishing the technological
feasibility of software products and are amortized over the expected life of the
products, estimated to be three years.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 1. -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue related to systems is recognized upon shipment or, prior to
shipment, upon completion of customer source inspection and factory acceptance
of the system where risk of loss and title to the system passes to the customer.
A provision for the estimated future cost of system installation, warranty and
commissions is recorded when revenue is recognized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company accounts for income taxes using a method that requires deferred
tax assets to be computed annually on an asset and liability method and adjusted
when new tax laws or rates are enacted. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized. Income tax expense (benefit) is the tax payable (refundable) for the
period plus or minus the change in deferred tax assets and liabilities during
the period.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing the net income (loss) by
the weighted average number of common and common equivalent (when dilutive)
shares of common stock outstanding during each year.
RECENT ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued Statement
No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires the Company to review
for impairment long-lived assets, certain identifiable intangibles and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company does
not expect SFAS No. 121 to have a material impact on the Company's financial
condition or results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation,"
which establishes a fair value-based method of accounting for stock-based
compensation plans. The Company is currently following the requirements of APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company plans to
adopt SFAS No. 123 during 1996, utilizing the disclosure alternative.
RECLASSIFICATION
Certain amounts in prior years' financial statements have been reclassified
to conform to the current year's presentation. These reclassifications did not
change previously reported results.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 2. -- INVENTORIES
Inventories comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Raw materials and parts.................................................................... $ 12,922 $ 8,156
Work in process............................................................................ 10,048 6,118
Finished goods............................................................................. 1,467 403
--------- ---------
$ 24,437 $ 14,677
--------- ---------
--------- ---------
</TABLE>
NOTE 3. -- PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Equipment.................................................................................. $ 12,512 $ 8,460
Demonstration equipment.................................................................... 12,877 11,909
Furniture and fixtures................................................................... 1,960 1,952
Leasehold improvements..................................................................... 6,366 5,901
--------- ---------
33,715 28,222
Less accumulated depreciation and amortization............................................. (19,944) (18,262)
--------- ---------
13,771 9,960
Construction in process.................................................................... 856 1,532
--------- ---------
$ 14,627 $ 11,492
</TABLE>
Equipment includes $2,258 and $842 of assets under capital leases at
December 31, 1995 and 1994, respectively. Accumulated amortization on these
assets is $713 and $144 at December 31, 1995 and 1994, respectively.
NOTE 4. -- OTHER ASSETS
Other assets comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Goodwill..................................................................................... $ 3,802 $ 3,802
Software development costs................................................................... 1,768 831
--------- ---------
5,570 4,633
Accumulated amortization--goodwill........................................................... (2,167) (1,913)
Accumulated amortization--software development costs......................................... (458) (82)
--------- ---------
2,945 2,638
Other........................................................................................ 879 178
--------- ---------
$ 3,824 $ 2,816
--------- ---------
</TABLE>
Amortization expense for software development costs was $376 and $82 in 1995
and 1994, respectively. There was no amortization expense for software
development costs in 1993.
NOTE 5. -- SHORT-TERM BORROWINGS
The Company has a working capital line of credit agreement with a bank that
provides for maximum borrowings of $10.0 million, which expires in May 1996.
Borrowings under the line of credit
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 5. -- SHORT-TERM BORROWINGS (CONTINUED)
are collateralized by substantially all the assets of the Company and bear
interest at the bank's prime rate (8 1/2 percent at December 31, 1995). At
December 31, 1995, the Company had no borrowings outstanding under the line of
credit. In addition, the Company has a Term Loan Agreement with the same bank
that provides $3.0 million to fund leasehold improvements for one of its
facilities (see Note 7). At December 31, 1995, $11 thousand was outstanding
under the Term Loan Agreement. Both agreements require the Company to comply
with certain financial covenants and restrict the payment of dividends.
NOTE 6. -- ACCRUED EXPENSES
Accrued expenses comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
System installation and warranty........................................................... $ 4,318 $ 2,394
Accrued commissions and incentives......................................................... 3,227 1,527
Accrued payroll and related items.......................................................... 1,104 966
Other...................................................................................... 2,393 1,738
--------- ---------
$ 11,042 $ 6,625
--------- ---------
</TABLE>
NOTE 7. -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt comprises the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Term loan payable in monthly installments through January 1996 at 10 percent interest per
annum and collateralized by substantially all assets
of the Company.............................................................................. $ 11 $ 910
Capitalized lease obligations with interest rates of 4.2-11.2 percent........................ 1,581 678
Mortgage loan payable in monthly installments through October 2000 at 9 1/4 percent interest
per annum and collateralized by a building.................................................. 123 140
--------- ---------
1,715 1,728
--------- ---------
Less amounts due within one year............................................................. (681) (1,205)
--------- ---------
$ 1,034 $ 523
--------- ---------
</TABLE>
The future aggregate principal payments of long-term debt and capital lease
obligations are as follows:
<TABLE>
<S> <C>
1996............................................................................... $ 797
1997............................................................................... 612......
1998............................................................................... 276
1999............................................................................... 91
2000............................................................................... 151
---------
$ 1,927
Less amounts representing interest on long-term debt and capital lease
obligations....................................................................... (212)
---------
Principal payments and present value of minimum capital lease obligations.......... $ 1,715
---------
</TABLE>
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 7. -- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Certain of the capital lease agreements require the Company to comply with
specific financial covenants and to pay stipulated amounts upon default or
termination prior to the expiration of the basic lease terms.
NOTE 8. -- LEASE COMMITMENTS
The Company leases certain of its facilities and various office equipment
under operating leases expiring through the year 2017. The Company is
responsible for property taxes, insurance and maintenance under the facility
leases. Certain of these leases contain renewal options.
At December 31, 1995, minimum lease payments required under these operating
leases are as follows:
<TABLE>
<S> <C>
1996........... $ 1,652
1997........... 1,748
1998........... 1,482
1999........... 1,517
2000........... 1,517
Thereafter..... 12,942
---------
$ 20,858
---------
</TABLE>
Rent expense for 1995, 1994 and 1993 was $1,251, $1,304 and $1,260,
respectively.
NOTE 9. -- CAPITAL STOCK
PRIVATE PLACEMENT OFFERING
On February 17, 1995, the Company sold 2,539,018 shares of common stock for
$16.2 million through a private placement offering.
STOCK OPTION PLAN
The Company has a 1991 Stock Option Plan (the "Plan") under which the Board
of Directors may issue incentive and nonstatutory stock options. The Plan
expires ten years after adoption and the Board of Directors has the authority to
determine to whom options will be granted, the number of shares, the term and
the exercise price. The options are exercisable at times and in increments as
specified by the Board of Directors, and expire five to ten years from the date
of grant. These options generally vest over a three-year period. At December 31,
1995, the Company had reserved 2,053,006 shares of common stock for issuance
under the Plan; 35,161 shares of common stock remain available for future
grants; and options to purchase 351,866 shares of common stock were exercisable.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 9. -- CAPITAL STOCK (CONTINUED)
Activity under the Plan is set forth in the table below:
(in thousands, except per share data)
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------
SHARES PRICE PER SHARE TOTAL
--------- ------------------ ---------
<S> <C> <C> <C>
Balance, January 1, 1993................................................. 1,219 $ 1.25 to $ 5.13 $ 2,754
Granted.................................................................. 320 1.88 to 4.00 811
Exercised................................................................ (214) 1.25 to 2.88 (344)
Terminated............................................................... (113) 1.25 to 5.13 (294)
--------- ------------------ ---------
Balance, December 31, 1993............................................... 1,212 1.25 to 4.38 2,927
Granted.................................................................. 383 3.63 to 6.88 1,631
Exercised................................................................ (214) 1.25 to 4.38 (573)
Terminated............................................................... (102) 1.25 to 4.38 (303)
--------- ------------------ ---------
Balance, December 31, 1994............................................... 1,279 1.25 to 6.88 3,682
Granted.................................................................. 938 7.75 to 15.63 9,161
Exercised................................................................ (542) 1.25 to 6.88 (1,161)
Terminated............................................................... (89) 1.25 to 13.13 (395)
--------- ------------------ ---------
Balance, December 31, 1995............................................... 1,586 $ 1.75 to $15.63 $ 11,287
--------- ------------------ ---------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved a total of 1,300,000 shares of common stock for
issuance under a qualified stock purchase plan, which provides substantially all
Company employees with the right to acquire shares of the Company's common stock
through payroll deductions. Under the plan, the Company's employees, subject to
certain restrictions, may purchase shares of common stock at the lesser of 85
percent of fair market value at either the beginning of each two-year offering
period or the end of each six-month purchase period within the two-year offering
period. At December 31, 1995, 1,102,667 shares have been issued under the plan.
COMMON STOCK PURCHASE RIGHTS
In July 1990, the Company distributed a dividend to shareholders comprised
of a right to purchase one share of common stock ("Right") for each outstanding
share of common stock of the Company they hold. These rights do not become
exercisable or transferrable apart from the common stock until the Distribution
Date, which is either the tenth day after a person or group (a) acquires
beneficial ownership of 20 percent or more of the Company's common stock or (b)
announces a tender or exchange offer, the consummation of which would result in
ownership by a person or group of 30 percent or more of the Company's common
stock. After the Distribution Date, each Right will entitle the holder to
purchase from the Company one share of common stock at a price of $28.00 per
share.
If the Company is acquired in a merger or other business combination
transaction, or if 50 percent or more of its consolidated assets or earnings
power is sold, each Right will entitle the holder to purchase at the exercise
price that number of shares of the acquiring company having a then-current
market value of two times the exercise price of the Right. In the event that the
Company is the surviving corporation in a merger and the Company's common stock
remains outstanding, or in the event that an acquiring party engages in certain
self-dealing transactions, each Right not owned by the acquiring party will
entitle the holder to purchase at the exercise price that number of shares of
the Company's common stock having a then-current market value of two times the
exercise price of the Right.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 9. -- CAPITAL STOCK (CONTINUED)
The Rights are redeemable at the Company's option for $.01 per Right prior
to becoming exercisable, may be amended at the Company's option on or prior to
the Distribution Date and expire on July 3, 2000.
NOTE 10. -- EMPLOYEE BENEFIT PLAN
During 1988, the Company adopted the Genus, Inc. 401(k) Plan (the "401(k)
Plan") to provide retirement and incidental benefits for eligible employees. The
401(k) Plan provides for Company contributions as determined by the Board of
Directors that may not exceed 6 percent of the annual aggregate salaries of
those employees eligible for participation. In 1995 and 1994, the Company
contributed $61 thousand and $34 thousand, respectively, to the 401(k) Plan. No
Company contributions were made in 1993.
NOTE 11. -- SPECIAL CHARGE
During 1993, the Company incurred special charges of $0.6 million relating
primarily to the severance packages and other payroll-related costs associated
with a reduction in workforce at its Thin Film Division.
NOTE 12. -- OTHER INCOME, NET
Other income, net, comprises the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Interest income....................................................................... $ 790 $ 221 $ 163
Interest expense...................................................................... (172) (180) (283)
Disposal of leasehold improvements.................................................... (261)
Gain on sale of property and equipment................................................ 461
Other, net............................................................................ (30) 159 211
--------- --------- ---------
$ 327 $ 661 $ 91
--------- --------- ---------
</TABLE>
NOTE 13. -- INCOME TAXES
For the year ended December 31, 1993, there was no provision for income
taxes. Income tax expense (benefit) for the years ended December 31, 1995 and
1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Federal:
Current.................................................................................. $ 431 $ 165
Deferred................................................................................. (11,036)
---------- ---------
(10,605) 165
---------- ---------
State:
Current.................................................................................. 150 48
Deferred................................................................................. (524)
---------- ---------
(374) 48
---------- ---------
$ (10,979) $ 213
---------- ---------
</TABLE>
Actual deferred taxes are greater than reflected above for 1995 by $750
thousand for the stock option deduction benefit recorded as an increase to
shareholders' equity.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 13. -- INCOME TAXES (CONTINUED)
The Company's effective tax rate for the years ended December 31, 1995 and
1994 differs from the U.S. federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Federal income tax at statutory rate............................................................... 34% 34%
Benefit of net operating loss...................................................................... (34%) (34%)
Change in valuation allowance...................................................................... (134%)
Other.............................................................................................. 2% 5%
--- ---
(132%) 5%
--- ---
</TABLE>
The components of the net deferred tax asset comprise the following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................................................... $ 7,027 $ 10,600
Tax credit carryforward................................................................ 1,288 1,200
Accounts receivable reserves........................................................... 97 100
Inventory reserves..................................................................... 1,274 1,100
Nondeductible accrued expenses......................................................... 2,395 2,800
Other reserves......................................................................... 483
--------- ---------
12,564 15,800
Deferred tax liabilities:
Depreciation and amortization.......................................................... (254) (630)
12,310 15,170
Valuation reserve.......................................................................... (15,170)
--------- ---------
$ 12,310 $ 0
--------- ---------
</TABLE>
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns.
At December 31, 1995, the Company had the following income tax carryforwards
available:
<TABLE>
<CAPTION>
TAX EXPIRATION
REPORTING DATES
--------- ------------
<S> <C> <C>
U.S. regular tax operating losses....................................................... $ 25,000 2002-2008
U.S. business tax credits............................................................... 1,285 2002-2008
State net operating losses.............................................................. 8,030 1997-1998
</TABLE>
NOTE 14. -- SEGMENT INFORMATION
The Company is engaged in the design, manufacture, marketing and servicing
of advanced thin-film deposition systems and high energy ion implantation
systems used primarily in the semiconductor manufacturing industry. The
Company's sales are primarily generated from two products, CVD tungsten silicide
and MeV ion implantation systems. The Company's CVD system is designed for the
deposition of tungsten silicide to create multiple interconnect layers on
integrated circuits. The MeV ion implantation system drives electrically charged
ions into the surface of a silicon wafer to convert the electrical
characteristics of the wafer. Both products are primarily used in the
manufacturing of DRAMs. Its business serves the semiconductor manufacturing
industry only. Net sales, identifiable assets and the results of operations of
subsidiaries in foreign countries are not material.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
NOTE 14. -- SEGMENT INFORMATION (CONTINUED)
INTERNATIONAL SALES
International sales (principally from sales to customers in Asia and Europe)
for 1995, 1994 and 1993 represented 88 percent, 89 percent and 84 percent of net
sales, respectively.
MAJOR CUSTOMERS
One customer accounted for 63 percent of net sales in 1995. Three customers
accounted for 33 percent, 19 percent and 14 percent of net sales in 1994. In
1993, three customers accounted for 26 percent, 23 percent and 14 percent of net
sales.
NOTE 15. -- INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1995 QUARTER ENDED
------------------------------------------------
(in thousands, except per share data)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 22,526 $ 25,057 $ 27,241 $ 25,526
Gross profit.................................................. 9,220 10,168 10,498 9,353
Net income.................................................... 1,938 2,340 2,361 12,643
Net income per share.......................................... 0.13 0.14 0.14 0.77
<CAPTION>
1995 QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 13,773 $ 14,966 $ 18,246 $ 16,631
Gross profit.................................................. 5,317 6,017 6,970 6,663
Net income.................................................... 652 1,051 1,132 1,342
Net income per share.......................................... 0.05 0.08 0.09 0.10
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
GENUS, INC.
We have audited the accompanying consolidated balance sheets of Genus, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Genus, Inc. and
subsidiaries as of December 31, 1995 and 1994 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand LLP
San Jose, California
January 26, 1996
22
<PAGE>
COMMON STOCK INFORMATION
The common stock of Genus, Inc., is traded on the Nasdaq National Market
under the symbol GGNS. The high and low last sales prices for 1995 and 1994, set
forth below are as reported by the Nasdaq National Market. At March 12, 1996,
the Company has 503 shareholders.
<TABLE>
<CAPTION>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
First Quarter.............................................................. $ 11 1/4 $ 7 1/2 $ 5 3/4 $ 2 7/8
Second Quarter............................................................. 14 1/8 9 1/2 4 7/8 3 1/4
Third Quarter.............................................................. 16 3/4 11 15/16 5 5/8 3 5/16
Fourth Quarter............................................................. 15 1/2 6 49/64 8 3/8 5 1/2
</TABLE>
The Company has not paid cash dividends on its common stock since inception,
and its Board of Directors presently intends to reinvest the Company's earnings,
if any, in its business. Accordingly, it is anticipated that no cash dividends
will be paid to holders of common stock in the foreseeable future.
ANNUAL SHAREHOLDERS' MEETING
The 1996 annual meeting of shareholders will be held on April 30, 1996 at
2:00 p.m. at The Westin Hotel, 5101 Great America Parkway, Santa Clara,
California 95054.
FORM 10-K
A copy of the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission may be obtained from the Company without
charge by writing to Investor Relations, Genus, Inc., 1139 Karlstad Drive,
Sunnyvale, CA 94089.
23
<PAGE>
<TABLE>
<S> <C>
GENUS CORPORATE OFFICERS WORLDWIDE LOCATIONS
William W. R. Elder Corporate Headquarters
Chairman, Chief Executive Officer Genus, Inc.
Kent L. Robertson 1139 Karlstad Drive
Executive Vice President, Sunnyvale, CA 94089
Chief Financial Officer, (408) 747-7120
Secretary Ion Technology Division
James M. Burns Genus, Inc.
Executive Vice President 4 Mulliken Way
Thin Film Division Newburyport, MA 01950
John E. Aldeborgh (508) 463-1500
Vice President Genus Europa SARL
Ion Technology Division Zac du Clos aux Pois
William D. Cole CE 4817, Lisses
Vice President, Sales 91048 Evry Cedex
Kevin C. Conlon France
Vice President, Marketing 011-331-69-89-79-20
Thomas E. Seidel, Ph. D. Genus Korea, Ltd.
Vice President, 3F, KEC Building
Chief Technical Officer #275-7, Yangjae-Dong
Ernest P. Quinones Seocho-Ku, Seoul, South Korea
Corporate Controller, 011-822-589-4800
Chief Accounting Officer, Genus KK
Treasurer Shin Yokohama West Building
Mario M. Rosati, Assistant Secretary 2-3-3 Shin Yokohama, Kouhoku-ku
Partner Yokohama, Japan 222
Wilson, Sonsini, Goodrich & Rosati 011-81-45-476-0581
BOARD OF DIRECTORS SALES AND
William W. R. Elder SERVICE OFFICES
Chairman, Chief Executive Officer United States
Genus, Inc. Sunnyvale, California
Todd S. Myhre Newburyport, Massachusetts
Former Chief Operating Officer Rockville Center, New York
Genus, Inc. Europe
Mario M. Rosati * + Melbourn, England
Partner Evry, France
Wilson, Sonsini, Goodrich & Rosati Asia/Pacific
Stephen F. Fisher * + Hsin-chu City, Taiwan, R.O.C.
Managing Director Hong Kong
Bachow & Associates, Inc. Seoul, South Korea
G. Frederick Forsyth Yokohama, Japan
Senior Vice President
Worldwide Operations
Apple Computer, Inc.
</TABLE>
* Member of Audit Committee
+ Member of Compensation Committee
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the year
ended Dec 31 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,630
<SECURITIES> 0
<RECEIVABLES> 27,046
<ALLOWANCES> 250
<INVENTORY> 24,437
<CURRENT-ASSETS> 68,913
<PP&E> 34,571
<DEPRECIATION> 19,944
<TOTAL-ASSETS> 95,247
<CURRENT-LIABILITIES> 18,852
<BONDS> 1,034
0
0
<COMMON> 95,683
<OTHER-SE> 20,322
<TOTAL-LIABILITY-AND-EQUITY> 75,361
<SALES> 100,350
<TOTAL-REVENUES> 100,350
<CGS> 61,111
<TOTAL-COSTS> 92,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,303
<INCOME-TAX> 10,979
<INCOME-CONTINUING> 19,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,282
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
