<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A2
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___ TO ___
COMMISSION FILE NUMBER 0-17139
GENUS, INC.
(Exact name of registrant as specified in its charter)
California 94-279080
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1139 Karlstad Drive, Sunnyvale, California 94089
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(Address of principal executive offices) (Zip code)
(408) 747-7120
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common shares outstanding at August 7, 1998: 17,361,162
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 (a) 1997 1998 (a) 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 10,270 $ 19,351 $ 17,508 $ 39,032
Costs and expenses:
Cost of goods sold 9,724 11,540 16,665 23,853
Research and development 2,939 3,058 6,271 6,249
Selling, general and administrative 5,683 4,189 9,906 8,056
Special charge 13,216 -- 13,216 --
---------- --------- --------- ---------
Income (loss) from operations (21,292) 564 (28,550) 874
Other, net (237) (82) (393) (97)
---------- --------- --------- ---------
Income (loss) before income taxes (21,529) 482 (28,943) 777
Provision for income taxes -- 186 -- 300
---------- --------- --------- ---------
Net income (loss) (21,529) 296 (28,943) 477
Deemed dividends on preferred stock (74) -- (1,903) --
---------- --------- --------- ---------
Net income (loss) available to common shareholders $ (21,603) $ 296 $(30,846) $ 477
---------- --------- --------- ---------
---------- --------- --------- ---------
Net income (loss) available to common
shareholders per common share and
per common share assuming dilution $ (1.26) $ 0.02 $ (1.80) $ 0.03
---------- --------- --------- ---------
---------- --------- --------- ---------
Comprehensive income (loss) $ (21,356) $ 321 $(28,509) $ 390
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
(a) See "Restatement Note" in the accompanying notes to the consolidated
financial statements
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
2
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GENUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED AUDITED
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,754 $ 8,700
Accounts receivable (net of allowance for doubtful
accounts of $1,103 in 1998 and $1,097 in 1997) 9,155 19,469
Inventories 5,173 28,986
Net assets held for sale 25,130 --
Other current assets 778 1,029
------------ ------------
Total current assets 43,990 58,184
Property and equipment, net 4,628 15,276
Other assets, net 734 3,278
------------ ------------
Total assets $ 49,352 $ 76,738
------------ ------------
------------ ------------
LIABILITIES
Current liabilities:
Short term bank borrowings $ 2,800 $ 7,200
Accounts payable 11,527 8,723
Accrued expenses 10,205 10,613
Current portion of long-term debt -- 874
------------ ------------
Total current liabilities 24,532 27,410
Long-term debt, less current portion 36 971
------------ ------------
Total liabilities 24,568 28,381
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized, 2,000,000 shares;
Issued and outstanding 98,000 shares at June 30, 1998
and none at December 31, 1997 6,098 --
Common stock, no par value:
Authorized 50,000,000 shares;
Issued and outstanding 17,314,141 shares at
June 30, 1998 and 17,120,628 shares at
December 31, 1997 99,779 99,149
Accumulated deficit (79,598) (48,863)
Cumulative translation adjustment (1,495) (1,929)
------------ ------------
Total shareholders' equity 24,784 48,357
------------ ------------
Total liabilities and shareholders' equity $ 49,352 $ 76,738
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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GENUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (28,943) $ 477
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 1,863 2,420
Special Charge 13,216 --
Changes in assets and liabilities:
Accounts receivable 10,402 (9,973)
Inventories (2,656) 1,629
Other current assets 251 (222)
Accounts payable 2,804 1,630
Accrued expenses (620) (764)
Other, net (817) 113
------------ -----------
Net cash used in operating activities (4,500) (4,690)
------------ -----------
Cash flows from investing activities:
Acquisition of property and equipment (373) (390)
------------ -----------
Net cash used in investing activities (373) (390)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 121 715
Proceeds from issuance of preferred stock and
warrants, net 4,815 --
Proceeds from short-term bank borrowings -- 10,346
Payments of short-term bank borrowings (4,400) (5,500)
Payments of long-term debt (739) (814)
------------ -----------
Net cash provided by financing activities (203) 4,747
------------ -----------
Effect of exchange rate changes on cash 130 (14)
Net decrease in cash and cash equivalents (4,946) (347)
Cash and cash equivalents, beginning of period 8,700 11,827
------------ -----------
Cash and cash equivalents, end of period $ 3,754 $ 11,480
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
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GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with SEC requirements for interim financial statements. These
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1997 Annual
Report on Form 10-K/A.
The information furnished reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for
the fair statement of financial position, results of operations and cash flows
for the interim periods. The results of operations for the interim periods
presented are not necessarily indicative of results to be expected for the full
year.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing income (loss)
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted net income (loss) per share is computed by
dividing income (loss) available to common shareholders, adjusted for
convertible preferred dividends and after-tax interest expense on convertible
debt, if any, by the sum of the weighted average number of common shares
outstanding and potential common shares (when dilutive).
A reconciliation of the numerator and denominator of basic and diluted net
income (loss) per share is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Numerator-basic:
Net income (loss) $ (21,529) $ 296 $ (28,943) $ 477
Deemed dividends on preferred stock (74) -- (1,903) --
----------- --------- ---------- ---------
Net income (loss) available to common shareholders $ (21,603) $ 296 $ (30,846) $ 477
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Denominator-basic:
Weighted average common shares outstanding 17,160 16,782 17,143 16,760
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Basic net income (loss) per share available to common
shareholders $ (1.26) $ 0.02 $ (1.80) $ 0.03
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Numerator-diluted:
Net income (loss) $ (21,529) $ 296 $ (28,943) $ 477
Deemed dividends on preferred stock (74) -- (1,903) --
----------- --------- ---------- ---------
Net income (loss) available to common shareholders $ (21,603) $ 296 $ (30,846) $ 477
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Denominator-diluted:
Weighted average common shares outstanding 17,160 16,782 17,143 16,760
Effect of dilutive securities: stock options -- 72 -- 95
----------- --------- ---------- ---------
17,160 16,854 17,143 16,855
----------- --------- ---------- ---------
----------- --------- ---------- ---------
Diluted net income (loss) per share available to common
shareholders $ (1.26) $ 0.02 $ (1.80) $ 0.03
----------- --------- ---------- ---------
----------- --------- ---------- ---------
</TABLE>
5
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GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
Stock options to purchase approximately 2,502,000 weighted average shares of
common stock were outstanding during the six months ended June 30, 1998 but were
not included in the computation of diluted loss per share because the Company
has a net loss for the six months ended June 30, 1998.
Stock options to purchase approximately 1,685,000 weighted average shares of
common stock were outstanding during the six months ended June 30, 1997 but were
not included in the computation of diluted income per share because the exercise
price was greater than the average market value of the common shares.
COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). Effective January 1, 1998, the Company adopted SFAS 130, which
establishes standards for reporting comprehensive income and its components.
Comparative financial statements for earlier periods have been reclassified to
reflect the adoption of SFAS 130. The Company's other comprehensive income
consists of foreign currency translation adjustments.
STATEMENT OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
--------- --------
<S> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the period for:
Interest $ 177 $ 188
Income taxes -- 2
Non-cash investing activities:
Purchase of property and equipment under long-term
debt obligations $ -- $ 753
Non-cash financing activities:
Deemed dividends on preferred stock related to
beneficial conversion feature $ 1,792 $ --
Net assets held for sale 25,130 --
Conversion of Series A Convertible Preferred Stock
to common stock 124 --
</TABLE>
LINE OF CREDIT
The Company had a revolving line of credit agreement with a bank that
provided for maximum borrowings of $10 million which expired in July 1998. At
June 30, 1998, the Company had $2.8 million in borrowings outstanding under the
line of credit which were paid off in July 1998 with proceeds from the Asset
Sale, as defined below. See "Asset Sale".
6
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GENUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 (UNAUDITED)
INVENTORIES
INVENTORIES COMPRISE THE FOLLOWING:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials and parts $ 2,702 $ 15,210
Work in progress 2,092 6,879
Finished goods 379 6,897
------------ ------------
$ 5,173 $ 28,986
------------ ------------
------------ ------------
</TABLE>
ACCRUED EXPENSES
ACCRUED EXPENSES COMPRISE THE FOLLOWING:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
System installation and warranty $ 879 $ 3,741
Accrued commissions and incentives 631 2,062
Accrued payroll and related items 435 1,264
Other 8,260 3,546
------------ ------------
$ 10,205 $ 10,613
------------ ------------
------------ ------------
</TABLE>
ASSET SALE
In April 1998, the Company entered into an agreement with Varian
Associates, Inc. ("Varian") to sell selected assets and transfer selected
liabilities related to the millions of electron volts ("MeV") ion
implantation equipment product line for approximately $25 million plus
additional payments if certain revenue targets are achieved ("Asset Sale").
The completion of the Asset Sale which was subject to approval by the
Company's shareholders as well as to expiration of the applicable waiting
periods under federal Hart-Scott-Rodino premerger notification requirements
occurred in July 1998. As a result of the Asset Sale, the Company will no
longer engage in the ion implant business and will refocus its efforts on
thin film deposition. The Company used a portion of the net proceeds of the
Asset Sale for repayment of certain outstanding indebtedness and the
redemption of 70,000 shares of Series A Convertible Preferred Stock ("Series
A Stock"), with the remaining proceeds to be used for working capital and
general corporate purposes, including investment in R&D of thin film
products. In connection with the Asset Sale and the refocusing of the
Company's business on thin film products, the Company significantly reduced
the workforce at several of its locations during the second quarter,
resulting in the special charge.
REDEMPTION AND EXCHANGE OF SERIES A CONVERTIBLE PREFERRED STOCK
In February 1998, the Company issued equity securities through a private
placement of Series A Stock for gross proceeds of $5 million. On July 29,
1998 the Company redeemed 70,000 shares of the outstanding Series A Stock for
$4.7 million. In addition, the remaining 28,000 shares of Series A Stock
were exchanged for 28,000 shares of Series B Stock which has a fixed
conversion price of $1.25 per share.
SPECIAL CHARGE
During the second quarter of 1998, the Company incurred a special charge
of $13.2 million. Included in this charge are personnel charges of $1.9
million associated with the Company's reduction in workforce as well as $5.4
million in inventory write-downs, and $1.2 million in property and equipment
write-downs. In addition, the Company has provided $1.5 million for expenses
associated with the closing of several sales offices and transaction losses
as a result of the sale of the ion implant group to Varian. Also included in
the special charge are $1.2 million in legal, accounting and banking fees
7
<PAGE>
associated with the Varian transaction. Finally, the special charge includes
a $2.0 million write-off of ion implant inventory that is currently a matter
of dispute with Varian in connection with the Asset Sale to Varian. The
Company and Varian are in the process of resolving the dispute through
arbitration to determine whether Genus or Varian has rights to the one ion
implant sale and inventory. In accordance with generally accepted accounting
principles, if and when the Company prevails in the arbitration, any
adjustments to the Company's financial statements as a result of this gain
contingency will be made in the quarter in which the decision is rendered and
the collection of the amount in question is probable. The Company is not
conceding any rights to the disputed sale and believes that it will prevail
in the arbitration.
RESTATEMENT
The Company recognized a sale of $2.7 million in the second quarter which
was determined to be not in accordance with GAAP, and subsequently reversed.
The appropriate adjustments for the reversal of this sale were made to
revenue, profit, and accounts receivable in the second quarter, and are
reflected in the Company's current financial statements. The amounts for net
loss, net loss available to common shareholders, and net loss available to
common shareholders per common share and per common share assuming dilution
for the three and six month periods ended June 30, 1998 have been restated
from amounts previously reported to reflect the reversal of a recorded sale
and the resulting increase in the special charge. These retroactive
adjustments increased net loss available to common shareholders by $2.7
million ($0.16 per common share) for the three and six month periods ended
June 30, 1998 as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- ----------------
<S> <C> <C>
Previously reported $ (18,903) $ (28,146)
Adjustments (2,700) (2,700)
As adjusted $ (21,603) $ (30,846)
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STATEMENTS IN THIS REPORT WHICH EXPRESS "BELIEF", "ANTICIPATION" OR
"EXPECTATION" AS WELL AS OTHER STATEMENTS WHICH ARE NOT HISTORICAL FACT ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR
ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND ELSEWHERE IN OR INCORPORATED BY REFERENCE INTO THIS REPORT. THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED IN THIS REPORT.
RESULTS OF OPERATIONS
Net sales for the three and six months ended June 30, 1998 were $10.3 million
and $17.5 million, respectively, compared to net sales of $19.4 million and
$39.0 million for the corresponding periods in 1997. The decline is
attributable to lower unit sales of systems as well as lower revenue from spares
and service largely as a result of the Asian financial crisis which began for
the Company during the fourth quarter of 1997. After modest sales growth for
the first nine months of 1997 compared to 1996, during the fourth quarter of
1997, the Company's sales fell from the immediate-prior quarter, and weakness
among the Company's Asian customers continued during the first half of 1998.
Gross margin for the three and six month periods ended June 30, 1998 was 5%
and 5%, compared to 40% and 39%, respectively, for the same periods in 1997.
The gross margin for the first half of 1998 was negatively impacted by the
depressed level of sales resulting in underabsorption of fixed manufacturing and
service costs and lower average selling prices. Even at relatively constant
higher levels of sales, the Company's gross margins have historically been
affected by variations in average selling prices, changes in the mix of product
sales, unit shipment levels, the level of foreign sales, and competitive pricing
pressures.
For the second quarter of 1998, research and development expenses ("R&D")
were $2.9 million, or 22% of sales, compared to $3.1 million, or 16% of sales,
for the second quarter of 1997. R&D spending for the first half of 1998 of $6.3
million remained essentially flat relative to the comparable period in 1997.
Despite the general industry slowdown and the near term outlook for sales, the
Company continues to invest in R&D to position itself for the latter half of
1998 and beyond. The Company continually evaluates its R&D investment in view
of evolving competition and market conditions and expects that R&D spending may
increase during the second half of 1998.
Selling, general and administrative expenses ("SG&A") were $5.7 million for
the second quarter of 1998. Included in this amount is a $1.4 net million
charge for the write-off of an account receivable from Innotech Corporation, the
Company's Japanese distributor. Absent this write-off, SG&A increased slightly
relative to the second quarter of 1997.
During the second quarter of 1998, the Company incurred a special charge
of $13.2 million. Included in this charge are personnel charges of $1.9
million associated with the Company's reduction in workforce as well as $5.4
million in inventory write-downs, and $1.2 million in property and equipment
write-downs. In addition, the Company has provided $1.5 million for expenses
associated with the closing of several sales offices and transaction losses
as a result of the sale of the ion implant equipment product line to Varian
Associates, Inc. ("Varian"). Also included in the special charge are $1.2
million in legal, accounting and banking fees associated with the Varian
transaction. Finally, the special charge includes a $2.0 million write-off
of ion implant inventory that is currently a matter of dispute with Varian in
connection with the Asset Sale to Varian. The Company and Varian are in the
process of resolving the dispute through arbitration to determine whether
Genus or Varian has rights to the one ion implant sale and inventory. In
accordance with generally accepted accounting principles, if and when the
Company prevails in the arbitration, any adjustments to the Company's
financial statements as a result of this gain contingency will be made in the
quarter in which the decision is rendered and the collection of the amount in
question is probable. The Company is not conceding any rights to the
disputed sale and believes that it will prevail in the arbitration.
9
<PAGE>
The net loss for the quarter ended June 30, 1998 was $21.5 million. This
compares with net income of $296,000 for the second quarter of 1997. The net
loss for the six month period was $28.9 million, compared to net income of
$477,000 for the first six months of 1997.
In February 1998, the Company issued $5 million of Series A Convertible
Preferred Stock ("Series A Stock") in a private placement. Warrants were also
issued as part of the transaction. During the first quarter, the Company
recorded deemed dividends on preferred stock of $1.8 million to reflect the
difference between the proceeds allocated to the Series A Stock and the fair
value of the Series A Stock (assuming immediate conversion) upon issuance. For
the second quarter, the Company recorded dividends of $74,000. These charges
resulted in a net loss available to common shareholders of $21.6 million, or
$1.26 per share for the second quarter of 1998 and a net loss available to
common shareholders of $30.8 million or $1.80 per share for the first half of
1998. In July 1998, the Company redeemed 70,000 shares of the Series A Stock
and exchanged the remaining 28,000 shares of Series A Stock for 28,000 shares of
Series B Convertible Preferred Stock ("Series B Stock"). See "Subsequent Events
- - Redemption and Exchange of Series A Convertible Preferred Stock".
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased to $3.8 million at June 30,
1998 from $8.7 million at year-end. Accounts receivable declined from $19.5
million at year-end to $9.2 million at June 30, 1998. The decline in accounts
receivable is due to the lower sales level as well as collections during the
quarter, and the $3.0 million write-off of an account receivable from Innotech
Corporation. The Company's primary source of funds at June 30, 1998 consisted
of $3.8 million in cash. The Company had a $10.0 million revolving line of
credit, secured by substantially all of the assets of the Company which expired
in July 1998. At June 30, 1998, the Company had $2.8 million of borrowings
outstanding under the line of credit, which were paid off with proceeds from the
Asset Sale, as defined below. See "Subsequent Events - Asset Sale to Varian".
The Company incurred operating losses during each of the two years in the
period ended December 31, 1997 and incurred additional operating losses in the
first and second quarters of 1998. Additionally, the Company's bank line of
credit expired in July 1998. However, with the completion of the Asset Sale,
the Company believes that its existing cash resources will be sufficient to fund
the Company's expected working capital requirements for at least the next 12
months. In addition, the Company is in discussions with financial institutions
to secure a line of credit. While the Company feels that its existing cash
resources will be sufficient to implement the Company's operating strategy and
meet the Company's other working capital requirements, if the industry downturn
persists, the Company may be required to seek additional equity or debt
financing. There can be no assurance that the Company would be able to obtain
additional debt or equity financing, if and when needed, on terms that the
Company finds acceptable. Any additional equity or debt financing may involve
substantial dilution to the Company's shareholders, restrictive covenants or
high interest costs.
SUBSEQUENT EVENTS
ASSET SALE TO VARIAN
In April 1998, the Company entered into an agreement with Varian to sell
selected assets and transfer selected liabilities related to the millions of
electron volts ("MeV") ion implantation equipment product line for approximately
$25 million plus additional payments if certain revenue targets are achieved
("Asset Sale"). The completion of the Asset Sale which was subject to approval
by the Company's shareholders as well as to expiration of the applicable waiting
periods under federal Hart-Scott-Rodino premerger notification requirements
occurred in July 1998. As a result of the Asset Sale, the Company will no
longer engage in the ion implant business and will refocus its efforts on thin
film deposition. The Company used a portion of the net proceeds of the Asset
Sale for repayment of certain outstanding indebtedness and the redemption of
70,000 shares of Series A Stock, with the remaining proceeds to be used for
working capital and general corporate purposes, including investment in R&D of
thin film products. In connection with the Asset Sale and the refocusing of the
Company's business on thin film products, the Company significantly reduced the
workforce at several of its locations during the second quarter, resulting in
the special charge.
10
<PAGE>
REDEMPTION AND EXCHANGE OF SERIES A CONVERTIBLE PREFERRED STOCK
In February 1998, the Company issued equity securities through a private
placement of Series A Stock for gross proceeds of $5 million. On July 29, 1998
the Company redeemed 70,000 shares of the outstanding Series A Stock for $4.7
million. In addition, the remaining 28,000 shares of Series A Stock were
exchanged for 28,000 shares of Series B Stock which has a fixed conversion price
of $1.25 per share.
11
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RISK FACTORS
CERTAIN SECTIONS OF MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE
FACTORS SET FORTH ABOVE IN MANAGEMENT'S DISCUSSION AND ANALYSIS AND THIS RISK
FACTORS SECTION. THE DISCUSSION OF THESE FACTORS IS INCORPORATED BY THIS
REFERENCE AS IF SAID DISCUSSION WAS FULLY SET FORTH IN MANAGEMENT'S
DISCUSSION AND ANALYSIS.
HISTORICAL PERFORMANCE. Although the Company had net income of $19.3
million and $4.2 million in the years ended December 31, 1995 and 1994, the
Company experienced losses of $19.3 million, $9.2 million, and $6.9 million
for the years ended December 31, 1997, 1996 and 1993, respectively. In
addition, the Company experienced an additional operating loss of $28.9
million in the first half of 1998. As a result of the Company's inconsistent
sales and operating results in recent years, there can be no assurance that
the Company will be able to attain or sustain consistent future revenue
growth on a quarterly or annual basis, or that the Company will be able to
attain or maintain consistent profitability on a quarterly or annual basis.
RELIANCE ON A SMALL NUMBER OF CUSTOMERS AND CONCENTRATION OF CREDIT RISK.
The Company continued its efforts to expand its customer base in 1997 and was
successful, with new customers in Taiwan and North America. Historically,
the Company has relied on a limited number of customers for a substantial
portion of its net sales. In 1997, two customers, Samsung Electronics
Company, Ltd. and Innotech Corporation accounted for 47% and 17%,
respectively, of the Company's net sales. In 1996, these same two customers
accounted for 53% and 18%, respectively, of the Company's net sales. With
the sale of its ion implantation business in July 1998, the Company's main
customer for its current generation product is Samsung Electronics Company,
Ltd., which accounted for over 90% of the Company's net sales of thin film
products in 1997 and 1996. Because the semiconductor manufacturing industry
is concentrated in a limited number of generally larger companies, the
Company expects that a significant portion of its future product sales will
be concentrated within a limited number of customers. None of these
customers has entered into a long-term agreement requiring it to purchase the
Company's products. Furthermore, sales to certain of these customers may
decrease in the future when those customers complete their current
semiconductor equipment purchasing requirements for new or expanded
fabrication facilities. The loss of a significant customer or any reduction
in orders from a significant customer, including reductions due to customer
departures from recent buying patterns, market, economic or competitive
conditions in the semiconductor industry or in the industries that
manufacture products utilizing ICs, could have a material adverse affect on
the Company's business, financial condition and results of operations.
The Company is dependent on a small number of customers. Accordingly, the
Company is subject to concentration of credit risk. If a major customer were to
encounter financial difficulties and become unable to meet its obligations, the
Company would be adversely impacted.
RELIANCE ON INTERNATIONAL SALES. Export sales accounted for approximately
74%, 84% and 88% of total net sales in the years ended 1997, 1996 and 1995,
respectively. In addition, net sales to South Korean customers accounted for
approximately 50%, 59% and 63%, respectively, of total net sales during the
same periods. During the first half of 1998, the Company sold three systems,
two of which were sold to domestic customers, thereby decreasing export sales
to 40% of total net sales. Nonetheless, the Company anticipates that
international sales, including sales to South Korea, will continue to account
for a significant portion of net sales. As a result, a significant portion of
the Company's sales will be subject to certain risks, including unexpected
changes in regulatory requirements, tariffs and other barriers, political and
economic instability, difficulties in accounts receivable collection,
difficulties in managing distributors or representatives, difficulties in
staffing and managing foreign subsidiary operations and potentially adverse
tax consequences. Although the Company's foreign system sales are primarily
denominated in U.S. dollars and the Company does not engage in hedging
transactions, the Company's foreign sales are subject to the risks associated
with unexpected changes in exchange rates, which could have the effect of
making the Company's products more or less expensive. There can be no
assurance that any of these factors will not have a material adverse affect
on the Company's business, financial condition and results of operations.
Further, the Company has a wholly owned South Korean subsidiary providing
service and support to the installed base of customers and whose functional
currency is the won. As a result of the devaluation of the won in the fourth
quarter of 1997, the Company incurred a foreign exchange loss of $1.1
million. There can be
23
<PAGE>
no assurance that the Company will not incur currency losses or gains in
future quarters as the currency fluctuates.
A substantial portion of the Company's sales is in Asia. Recent turmoil
in the Asian financial markets has resulted in dramatic currency
devaluations, stock market declines, restriction of available credit and
general financial weakness. In addition, Dynamic Random Access Memory
("DRAM") prices have fallen dramatically and may continue to do so as some
Asian integrated circuit ("IC") manufacturers may be selling DRAMs at less
than cost in order to raise cash. These developments may affect the Company
in several ways. Currency devaluation may make dollar-denominated goods,
such as the Company's, more expensive for Asian clients. Asian manufacturers
may limit capital spending. Furthermore, the uncertainty of the DRAM market
may cause manufacturers everywhere to delay capital spending plans. These
circumstances may also affect the ability of Company customers to meet their
payment obligations, resulting in the cancellations or deferrals of existing
orders and the limitation of additional orders. Some of the Company's South
Korean customers have rescheduled their required delivery dates for orders
previously placed and have announced delays in the facilitization of their
new manufacturing areas. In addition, some portion of IC fabrication plant
construction has been subsidized by Asian governments. Financial turmoil may
weaken these governments' willingness to continue such subsidies. Such
developments could have a material adverse affect on the Company's business,
financial condition and results of operations.
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY. The Company's business
depends upon the capital expenditures of semiconductor manufacturers, which in
turn depend on the current and anticipated market demand for ICs and products
utilizing ICs. The semiconductor industry is cyclical and experiences periodic
downturns, which have an adverse affect on the semiconductor industry's demand
for semiconductor manufacturing capital equipment. Semiconductor industry
downturns have adversely affected the Company's revenues, operating margins and
results of operations. There can be no assurance that the Company's revenues
and operating results will not continue to be materially and adversely affected
by future downturns in the semiconductor industry. In addition, the need for
continued investment in R&D, substantial capital equipment requirements and
extensive ongoing worldwide customer service and support capability limits the
Company's ability to reduce expenses. Accordingly, there is no assurance that
the Company will be able to attain profitability in the future.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's revenue and
operating results may fluctuate significantly from quarter to quarter. The
Company derives its revenue primarily from the sale of a relatively small number
of high-priced systems, many of which may be ordered and shipped during the same
quarter. The Company's results of operations for a particular quarter could be
adversely affected if anticipated orders, for even a small number of systems,
were not received in time to enable shipment during the quarter, anticipated
shipments were delayed or canceled by one or more customers or shipments were
delayed due to manufacturing difficulties. The Company's revenue and operating
results may also fluctuate due to the mix of products sold and the channel of
distribution.
COMPETITION. The semiconductor manufacturing capital equipment industry is
highly competitive. Genus faces substantial competition throughout the world.
The Company believes that to remain competitive, it will require significant
financial resources in order to offer a broader range of products, to maintain
customer service and support centers worldwide and to invest in product and
process R&D. Many of the Company's existing and potential competitors have
substantially greater financial resources, more extensive engineering,
manufacturing, marketing and customer service and support capabilities, as well
as greater name recognition than the Company. The Company expects its
competitors to continue to improve the design and performance of their current
products and processes and to introduce new products and processes with improved
price and performance characteristics. If the Company's competitors enter into
strategic relationships with leading semiconductor manufacturers covering
chemical vapor deposition ("CVD") products similar to those sold by the Company,
it would materially adversely affect the Company's ability to sell its products
to these manufacturers. There can be no assurance that the Company will
continue to compete successfully in the United States or worldwide. The Company
faces direct competition in CVD tungsten silicide ("WSiX") from Applied
Materials, Inc. and Tokyo Electron, Ltd. There can be no assurance that these
or other competitors will not succeed in developing new technologies, offering
products at lower prices than those of the Company or obtaining market
acceptance for products more rapidly than the Company.
DEPENDENCE ON NEW PRODUCTS AND PROCESSES. The Company believes that its
future performance will depend in part upon its ability to continue to enhance
its existing products and their process capabilities and to
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<PAGE>
develop and manufacture new products with improved process capabilities. As
a result, the Company expects to continue to invest in R&D. The Company also
must manage product transitions successfully, as introductions of new
products could adversely affect sales of existing products. There can be no
assurance that the market will accept the Company's new products or that the
Company will be able to develop and introduce new products or enhancements to
its existing products and processes in a timely manner to satisfy customer
needs or achieve market acceptance. The failure to do so could have a
material adverse affect on the Company's business, financial condition and
results of operations. Furthermore, if the Company is not successful in the
development of advanced processes or equipment for manufacturers with whom it
has formed strategic alliances, its ability to sell its products to those
manufacturers would be adversely affected.
PRODUCT CONCENTRATION; RAPID TECHNOLOGICAL CHANGE. Semiconductor
manufacturing equipment and processes are subject to rapid technological
change. The Company derives its revenue primarily from the sale of its WSiX
CVD systems. The Company estimates that the life cycle for these systems is
generally three to five years. The Company believes that its future
prospects will depend in part upon its ability to continue to enhance its
existing products and their process capabilities and to develop and
manufacture new products with improved process capabilities. As a result,
the Company expects to continue to make significant investments in R&D. The
Company also must manage product transitions successfully, as introductions
of new products could adversely affect sales of existing products. There can
be no assurance that future technologies, processes or product developments
will not render the Company's product offerings obsolete or that the Company
will be able to develop and introduce new products or enhancements to its
existing and future processes in a timely manner to satisfy customer needs or
achieve market acceptance. The failure to do so could adversely affect the
Company's business, financial condition and results of operations.
Furthermore, if the Company is not successful in the development of advanced
processes or equipment for manufacturers with whom it currently does
business, its ability to sell its products to those manufacturers would be
adversely affected.
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's success
depends in part on its proprietary technology. While the Company attempts to
protect its proprietary technology through patents, copyrights and trade
secret protection, it believes that the success of the Company will depend on
more technological expertise, continuing the development of new systems,
market penetration and growth of its installed base and the ability to
provide comprehensive support and service to customers. There can be no
assurance that the Company will be able to protect its technology or that
competitors will not be able to develop similar technology independently.
The Company currently has a number of United States and foreign patents and
patent applications. There can be no assurance that any patents issued to
the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to the Company.
From time-to-time, the Company has received notices from third parties
alleging infringement of such parties' patent rights by the Company's
products. In such cases, it is the policy of the Company to defend against
the claims or negotiate licenses on commercially reasonable terms where
considered appropriate. However, no assurance can be given that the Company
will be able to negotiate necessary licenses on commercially reasonable
terms, or at all, or that any litigation resulting from such claims would not
have a material adverse affect on the Company's business and financial
results.
DEPENDENCE ON KEY SUPPLIERS. Certain of the components and sub-assemblies
included in the Company's products are obtained from a single supplier or a
limited group of suppliers. Disruption or termination of these sources could
have a temporary adverse affect on the Company's operations. The Company
believes that alternative sources could be obtained and qualified to supply
these products, if necessary. Nevertheless, a prolonged inability to obtain
certain components could have a material adverse affect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON INDEPENDENT DISTRIBUTORS. The Company currently sells and
supports its CVD products through direct sales and customer support
organizations in the U.S., South Korea and through seven exclusive, independent
sales representatives and distributors in the U.S., Europe, South Korea, Taiwan,
Hong Kong and Singapore. The Company does not have any long-term contracts with
its sales representatives and distributors. Although the Company believes that
alternative sources of distribution are available, the disruption or termination
of its existing distributor relationships could have a temporary adverse affect
on the Company's business, financial condition and results of operations.
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<PAGE>
VOLATILITY OF STOCK PRICE. The Company's Common Stock has experienced
substantial price volatility, particularly as a result of quarter-to-quarter
variations in the actual or anticipated financial results of, or announcements
by, the Company, its competitors or its customers, announcements of
technological innovations or new products by the Company or its competitors,
changes in earnings estimates by securities analysts and other events or
factors. Also, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many technology companies,
in particular, and which have often been unrelated to the operating performance
of these companies. These broad market fluctuations, as well as general
economic and political conditions in the United States and the countries in
which the Company does business, may adversely affect the market price of the
Company's Common Stock. In addition, the occurrence of any of the events
described in these "Risk Factors" could have a material adverse affect on such
market price.
READINESS FOR YEAR 2000. Many existing computer systems and applications,
and other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
These computer systems and applications could fail or create erroneous
results unless corrected so that they can process data related to the year
2000. The Company relies on its systems, applications and devices in
operating and monitoring all major aspects of its business, including
financial systems (such as general ledger, accounts payable and payroll
modules), customer service, infrastructure, embedded computer chips, networks
and telecommunications equipment and end products. The Company also relies
on external systems of business enterprises such as customers, suppliers,
creditors, financial organizations, and of governments both domestically and
globally, directly for accurate exchange of data and indirectly. During
1997, the Company started the implementation of a new business system. One
criteria for the selection of the enterprise software was compliance with
Year 2000 issues. Accordingly, the Company's current estimate is that the
costs associated with the Year 2000 issue, and the consequences of incomplete
or untimely resolution of the Year 2000 issue, will not have a material
adverse affect on the result of operations or financial position of the
Company in any given year. However, despite the Company's efforts to address
the Year 2000 impact on its internal systems, there can be no assurance that
the Company has fully identified such impact or that it can resolve it
without disruption of its business and without incurring significant expense.
In addition, even if the internal systems of the Company are not materially
affected by the Year 2000 issue, the Company could be affected through
disruption in the operation of the enterprises with which the Company
interacts. The Company has not contacted the entities with which it
interacts to determine whether such entities are addressing the Year 2000
issue.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See Subsequent Events discussion regarding redemption and exchange of Series
A Convertible Preferred Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed on the accompanying "Index to Exhibits" are filed as
part hereof, or incorporated by reference into, the report.
(b) Report on Form 8-K
The Company filed a Current Report on Form 8-K dated April 24, 1998 to
describe the sale to Varian Associates, Inc. of the ion implant equipment
product line.
The Company filed a Current Report on Form 8-K/A dated May 7, 1998.
16
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GENUS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 16, 1998 GENUS, INC.
/s/ William W.R. Elder
------------------------------------
William W.R. Elder
Chairman and Chief Executive Officer
/s/ Kenneth Schwanda
-------------------------------------
Kenneth Schwanda
Vice President, Finance
(Principal Accounting Officer)
17
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GENUS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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<S> <C>
2.1 Asset Purchase Agreement, dated April 15, 1998, by and between
Varian Associates, Inc. and Registrant and exhibits thereto (2)
4.2 Convertible Preferred Stock Purchase Agreement, dated February 2,
1998, among the Registrant and the Investors (1)
4.3 Registration Rights Agreement, dated February 2, 1998, among the
Registrant and the Investors (1)
4.4 Certificate of Determination of Rights, Preferences and Privileges
of Series A Convertible Preferred Stock (1)
4.5 Certificate of Determination of Rights, Preferences and Privileges
of Series B Convertible Preferred Stock (4)
4.6 Redemption and Exchange Agreement, dated July 16, 1998, among the
Registrant and the Investors (4)
10.17 Settlement Agreement and Mutual Release, dated April 20, 1998,
between Registrant and James T. Healy (3)
10.18 Form of Change of Control Severance Agreement (3)
10.19 Settlement Agreement and Mutual Release, dated June 30, 1998,
between Registrant and John Aldeborgh
10.20 Settlement Agreement and Mutual Release, dated July 15, 1998,
between Registrant and Mary Bobel
27.1 Financial Data Schedule
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</TABLE>
(1) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 8-K dated February 12, 1998.
(2) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 8-K dated April 15, 1998.
(3) Incorporated by reference to the exhibit filed with the Registrant's Annual
Report on Form 10-K/A for the year ended December 31, 1997.
(4) Incorporated by reference to the exhibit filed with the Registrant's
Current Report on Form 8-K dated July 29, 1998.
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<PAGE>
EXHIBIT 10.19
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is made by and
between GENUS, INC. (the "Company"), and JOHN ALDEBORGH ("Employee").
WHEREAS, Employee was employed by the Company;
WHEREAS, Employee and the Company entered into a Letter Agreement dated
January 9, 1998.
WHEREAS, the Company and Employee have entered into a Change of Control
Severance Agreement (the "Change of Control Agreement") .
WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship and to release each other from any claims arising from
or related to the employment relationship;
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee (collectively referred to as "the Parties") hereby agree
as follows:
1. RESIGNATION. Employee resigns his employment with the Company
effective June 30, 1998.
2. CONSIDERATION. The Company agrees to pay Employee at his normal
rate of pay of four thousand two hundred sixty nine Dollars and twenty three
cents ($4,269.23) per week, less applicable withholding, for nine (9) months
from the effective date of his resignation (the "payment period"), in
accordance with the Company's payroll practices, up to and including the
closing date of the sale of certain assets of the Ion Implantation systems
business to Varian Associates, Inc. (the "Closing Date"). As of the Closing
Date, however, all remaining pay due under this agreement shall accelerate and
become due and owing. During the payment period, Employee will not be
entitled to the accrual or continuation of any employee benefits, including,
but not limited to, vacation benefits or bonuses.
3. VESTING OF STOCK. The Parties agree that for purposes of
determining the number of shares of the Company's common stock which Employee
is entitled to purchase from the Company, Employee's vesting shall cease as of
the date of this Agreement. The exercise of any stock options shall continue
to be subject to the terms and conditions of the Company's Stock Option Plan
and the applicable Stock Option Agreement between Employee and the Company.
4. BENEFITS. Employee shall have the right to convert his health
insurance benefits to individual coverage pursuant to COBRA.
<PAGE>
5. CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the Company
and shall continue to comply with the terms and conditions of any
Confidentiality Agreement between Employee and the Company. Employee shall
return all the Company property and confidential and proprietary information
in his possession to the Company on the Effective Date of this Agreement.
6. PAYMENT OF SALARY. Employee acknowledges and represents that the
Company has paid all salary, wages, bonuses, accrued vacation, commissions and
any and all other benefits due to Employee.
7. RELEASE OF CLAIMS. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee
by the Company. Employee and the Company, on behalf of themselves, and their
respective heirs, family members, executors, officers, directors, employees,
investors, shareholders, administrators, affiliates, divisions, subsidiaries,
predecessor and successor corporations, and assigns, hereby fully and forever
release each other and their respective heirs, family members, executors,
officers, directors, employees, investors, shareholders, administrators,
affiliates, divisions, subsidiaries, predecessor and successor corporations,
and assigns, from, and agree not to sue concerning, any claim, duty,
obligation or cause of action relating to any matters of any kind, whether
presently known or unknown, suspected or unsuspected, that any of them may
possess arising from any omissions, acts or facts that have occurred up until
and including the Effective Date of this Agreement including, without
limitation,
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of stock of the Company,
including, without limitation, any claims for fraud, misrepresentation, breach
of fiduciary duty, breach of duty under applicable state corporate law, and
securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment;
termination in violation of public policy; discrimination; breach of contract,
both express and implied; breach of a covenant of good faith and fair dealing,
both express and implied; promissory estoppel; negligent or intentional
infliction of emotional distress; negligent or intentional misrepresentation;
negligent or intentional interference with contract or prospective economic
advantage; unfair business practices; defamation; libel; slander; negligence;
personal injury; assault; battery; invasion of privacy; false imprisonment;
and conversion;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair
Labor Standards Act, the Employee Retirement Income Security Act of 1974, The
Worker Adjustment and Retraining Notification Act, Older Workers Benefit
Protection Act; the California Fair Employment and Housing Act, and Labor Code
section 201, ET SEQ. and section 970, ET SEQ.;
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<PAGE>
(e) any and all claims for violation of the federal, or any state,
constitution;
(f) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
(g) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release as
to the matters released. This release does not extend to any obligations
incurred under this Agreement.
8. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Employee
acknowledges that he is waiving and releasing any rights he may have under the
Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Employee and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date of this Agreement. Employee acknowledges that
the consideration given for this waiver and release Agreement is in addition
to anything of value to which Employee was already entitled. Employee further
acknowledges that he has been advised by this writing that (a) he should
consult with an attorney PRIOR to executing this Agreement; (b) he has at
least twenty-one (21) days within which to consider this Agreement; (c) he has
at least seven (7) days following the execution of this Agreement by the
parties to revoke the Agreement; and (d) this Agreement shall not be effective
until the revocation period has expired.
9. CIVIL CODE SECTION 1542. The Parties represent that they are not
aware of any claim by either of them other than the claims that are released
by this Agreement. Employee and the Company acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Employee and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any
other statute or common law principles of similar effect.
10. NO PENDING OR FUTURE LAWSUITS. Employee represents that he has no
lawsuits, claims, or actions pending in his name, or on behalf of any other
person or entity, against the Company or any other person or entity referred
to herein. Employee also represents that he does not intend to bring any
claims on his own behalf or on behalf of any other person or entity against
the Company or any other person or entity referred to herein.
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<PAGE>
11. APPLICATION FOR EMPLOYMENT. Employee understands and agrees that,
as a condition of this Agreement, he shall not be entitled to any employment
with the Company, its subsidiaries, or any successor, and he hereby waives any
right, or alleged right, of employment or re-employment with the Company.
Employee further agrees that he will not apply for employment with the
Company, its subsidiaries or related companies, or any successor.
12. CONFIDENTIALITY. The Parties hereto each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the
contents and terms of this Agreement, and the consideration for this Agreement
(hereinafter collectively referred to as "Settlement Information"). Each
Party hereto agrees to take every reasonable precaution to prevent disclosure
of any Settlement Information to third parties, and each agrees that there
will be no publicity, directly or indirectly, concerning any Settlement
Information. The Parties hereto agree to take every precaution to disclose
Settlement Information only to those employees, officers, directors,
attorneys, accountants, governmental entities, and family members who have a
reasonable need to know of such Settlement Information.
13. NO COOPERATION. Employee agrees he will not act in any manner that
might damage the business of the Company. Employee agrees that he will not
counsel or assist any attorneys or their clients in the presentation or
prosecution of any disputes, differences, grievances, claims, charges, or
complaints by any third party against the Company and/or any officer,
director, employee, agent, representative, shareholder or attorney of the
Company, unless under a subpoena or other court order to do so.
14. NON-DISPARAGEMENT. Each party agrees to refrain from any
defamation, libel or slander of the other, or tortious interference with the
contracts and relationships of the other. All inquiries by potential future
employers of Employee will be directed to the Company 's Human Resources
department. Upon inquiry, the Company shall only state the following:
Employee 's last position and dates of employment.
15. TAX CONSEQUENCES. The Company makes no representations or
warranties with respect to the tax consequences of the payment of any sums to
Employee under the terms of this Agreement. Employee agrees and understands
that he is responsible for payment, if any, of local, state and/or federal
taxes on the sums paid hereunder by the Company and any penalties or
assessments thereon. Employee further agrees to indemnify and hold the Company
harmless from any claims, demands, deficiencies, penalties, assessments,
executions, judgments, or recoveries by any government agency against the
Company for any amounts claimed due on account of Employee's failure to pay
federal or state taxes or damages sustained by the Company by reason of any
such claims, including reasonable attorneys' fees.
16. COSTS. The Parties shall each bear their own costs, expert fees,
attorneys' fees and other fees incurred in connection with this Agreement.
17. ARBITRATION. The Parties agree that any and all disputes arising
out of the terms of this Agreement, their interpretation, and any of the
matters herein released, shall be subject to
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<PAGE>
binding arbitration in Santa Clara county (if Employee is a California
resident) or Employee's home county before the American Arbitration
Association under its California Employment Dispute Resolution Rules or by a
judge to be mutually agreed upon. The Parties agree that the prevailing party
in any arbitration shall be entitled to injunctive relief in any court of
competent jurisdiction to enforce the arbitration award. The Parties agree
that the prevailing party in any arbitration shall be awarded its reasonable
attorney's fees and costs.
18. AUTHORITY. The Company represents and warrants that the undersigned
has the authority to act on behalf of the Company and to bind the Company and
all who may claim through it to the terms and conditions of this Agreement.
Employee represents and warrants that he has the capacity to act on his own
behalf and on behalf of all who might claim through him to bind them to the
terms and conditions of this Agreement. Each Party warrants and represents
that there are no liens or claims of lien or assignments in law or equity or
otherwise of or against any of the claims or causes of action released herein.
19. NO REPRESENTATIONS. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Agreement. Neither
party has relied upon any representations or statements made by the other
party hereto which are not specifically set forth in this Agreement.
20. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
21. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the Company, and supersedes and replaces any and all prior
agreements and understandings concerning Employee's relationship with the
Company and his compensation by the Company.
22. NO ORAL MODIFICATION. This Agreement may only be amended in writing
signed by Employee and the President of the Company.
23. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
24. EFFECTIVE DATE. This Agreement is effective seven days after it has
been signed by both Parties.
25. COUNTERPARTS. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
26. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
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(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement
and of the releases it contains; and
(d) They are fully aware of the legal and binding effect of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
GENUS, Inc.
Dated: May 5, 1998 By /s/ WILLIAM W.R. ELDER
--------------------------------------
William W. R. Elder
Chairman of the Board
John Aldeborgh, an individual
Dated: May 5, 1998 /s/ JOHN ALDEBORGH
--------------------------------------------
John Aldeborgh
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<PAGE>
EXHIBIT 10.20
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is made by and
between GENUS, INC. (the "Company"), and MARY BOBEL ("Employee").
WHEREAS, Employee was employed by the Company;
WHEREAS, Employee and the Company entered into a Letter Agreement dated
February 19, 1997.
WHEREAS, the Company and Employee have entered into a Change of Control
Severance Agreement (the "Change of Control Agreement") .
WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship and to release each other from any claims arising from
or related to the employment relationship;
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee (collectively referred to as "the Parties") hereby agree
as follows:
1. RESIGNATION. Employee resigns her employment with the Company and
from her position as the Company's Chief Financial Officer effective July 15,
1998.
2. CONSIDERATION. The Company agrees to pay Employee at her normal
rate of pay of thirteen thousand seven hundred fifty Dollars ($13,750.00) per
month, less applicable withholding, for nine (9) months from the effective
date of her resignation (the "payment period") in accordance with the
Company's payroll practices (provided that Employee does not revoke this
Agreement under paragraph 8) up to and including the closing date of the sale
of certain assets of the Ion Implantation systems business to Varian
Associates, Inc. (the "Closing Date"). As of the Closing Date, however, all
remaining pay due under this Agreement shall accelerate and become due and
owing. During the payment period, Employee will not be entitled to the
accrual or continuation of any employee benefits, including, but not limited
to, vacation benefits or bonuses. The Company further agrees to pay up to
$5000 in outplacement costs that Employee incurs by directly paying the
outplacement vendor in an amount not to exceed $5,000 upon the receipt of such
invoice(s) from the outplacement vendor.
3. VESTING OF STOCK. The Parties agree that for purposes of
determining the number of shares of the Company's common stock which Employee
is entitled to purchase from the Company, Employee's vesting shall cease as of
the date of this Agreement. The exercise of any stock options shall continue
to be subject to the terms and conditions of the Company's Stock Option Plan
and the applicable Stock Option Agreement between Employee and the Company.
4. BENEFITS. Employee shall have the right to convert his health
insurance benefits to
<PAGE>
individual coverage pursuant to COBRA.
5. CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the Company
and shall continue to comply with the terms and conditions of any
Confidentiality Agreement between Employee and the Company. Employee shall
return all the Company property and confidential and proprietary information
in his possession to the Company on the Effective Date of this Agreement.
6. PAYMENT OF SALARY. Employee acknowledges and represents that the
Company has paid all salary, wages, bonuses, accrued vacation, commissions and
any and all other benefits due to Employee.
7. RELEASE OF CLAIMS. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee
by the Company. Employee and the Company, on behalf of themselves, and their
respective heirs, family members, executors, officers, directors, employees,
investors, shareholders, administrators, affiliates, divisions, subsidiaries,
predecessor and successor corporations, and assigns, hereby fully and forever
release each other and their respective heirs, family members, executors,
officers, directors, employees, investors, shareholders, administrators,
affiliates, divisions, subsidiaries, predecessor and successor corporations,
and assigns, from, and agree not to sue concerning, any claim, duty,
obligation or cause of action relating to any matters of any kind, whether
presently known or unknown, suspected or unsuspected, that any of them may
possess arising from any omissions, acts or facts that have occurred up until
and including the Effective Date of this Agreement including, without
limitation,
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of stock of the Company,
including, without limitation, any claims for fraud, misrepresentation, breach
of fiduciary duty, breach of duty under applicable state corporate law, and
securities fraud under any state or federal law;
(c) any and all claims for wrongful discharge of employment;
termination in violation of public policy; discrimination; breach of contract,
both express and implied; breach of a covenant of good faith and fair dealing,
both express and implied; promissory estoppel; negligent or intentional
infliction of emotional distress; negligent or intentional misrepresentation;
negligent or intentional interference with contract or prospective economic
advantage; unfair business practices; defamation; libel; slander; negligence;
personal injury; assault; battery; invasion of privacy; false imprisonment;
and conversion;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair
Labor Standards Act, the Employee Retirement Income Security Act of 1974, The
Worker Adjustment and Retraining Notification Act, Older Workers Benefit
Protection Act; the California
-2-
<PAGE>
Fair Employment and Housing Act, and Labor Code section 201, ET SEQ. and
section 970, ET SEQ.;
(e) any and all claims for violation of the federal, or any state,
constitution;
(f) any and all claims arising out of any other laws and
regulations relating to employment or employment discrimination; and
(g) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release as
to the matters released. This release does not extend to any obligations
incurred under this Agreement.
8. ACKNOWLEDGMENT OF WAIVER OF CLAIMS UNDER ADEA. Employee
acknowledges that he is waiving and releasing any rights he may have under the
Age Discrimination in Employment Act of 1967 ("ADEA") and that this waiver and
release is knowing and voluntary. Employee and the Company agree that this
waiver and release does not apply to any rights or claims that may arise under
ADEA after the Effective Date of this Agreement. Employee acknowledges that
the consideration given for this waiver and release Agreement is in addition
to anything of value to which Employee was already entitled. Employee further
acknowledges that he has been advised by this writing that (a) he should
consult with an attorney PRIOR to executing this Agreement; (b) he has at
least twenty-one (21) days within which to consider this Agreement; (c) he has
at least seven (7) days following the execution of this Agreement by the
parties to revoke the Agreement; and (d) this Agreement shall not be effective
until the revocation period has expired.
9. CIVIL CODE SECTION 1542. The Parties represent that they are not
aware of any claim by either of them other than the claims that are released
by this Agreement. Employee and the Company acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Employee and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any
other statute or common law principles of similar effect.
10. NO PENDING OR FUTURE LAWSUITS. Employee represents that he has no
lawsuits, claims, or actions pending in his name, or on behalf of any other
person or entity, against the Company or any other person or entity referred
to herein. Employee also represents that he does not
-3-
<PAGE>
intend to bring any claims on his own behalf or on behalf of any other person
or entity against the Company or any other person or entity referred to herein.
11. APPLICATION FOR EMPLOYMENT. Employee understands and agrees that,
as a condition of this Agreement, he shall not be entitled to any employment
with the Company, its subsidiaries, or any successor, and he hereby waives any
right, or alleged right, of employment or re-employment with the Company.
Employee further agrees that he will not apply for employment with the
Company, its subsidiaries or related companies, or any successor.
12. CONFIDENTIALITY. The Parties hereto each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the
contents and terms of this Agreement, and the consideration for this Agreement
(hereinafter collectively referred to as "Settlement Information"). Each
Party hereto agrees to take every reasonable precaution to prevent disclosure
of any Settlement Information to third parties, and each agrees that there
will be no publicity, directly or indirectly, concerning any Settlement
Information. The Parties hereto agree to take every precaution to disclose
Settlement Information only to those employees, officers, directors,
attorneys, accountants, governmental entities, and family members who have a
reasonable need to know of such Settlement Information.
13. NO COOPERATION. Employee agrees he will not act in any manner that
might damage the business of the Company. Employee agrees that he will not
counsel or assist any attorneys or their clients in the presentation or
prosecution of any disputes, differences, grievances, claims, charges, or
complaints by any third party against the Company and/or any officer,
director, employee, agent, representative, shareholder or attorney of the
Company, unless under a subpoena or other court order to do so.
14. NON-DISPARAGEMENT. Each party agrees to refrain from any
defamation, libel or slander of the other, or tortious interference with the
contracts and relationships of the other. All inquiries by potential future
employers of Employee will be directed to the Company 's Human Resources
department. Upon inquiry, the Company shall only state the following:
Employee 's last position and dates of employment. A press release announcing
Employee's resignation shall be made.
15. TAX CONSEQUENCES. The Company makes no representations or
warranties with respect to the tax consequences of the payment of any sums to
Employee under the terms of this Agreement. Employee agrees and understands
that he is responsible for payment, if any, of local, state and/or federal
taxes on the sums paid hereunder by the Company and any penalties or
assessments thereon. Employee further agrees to indemnify and hold the Company
harmless from any claims, demands, deficiencies, penalties, assessments,
executions, judgments, or recoveries by any government agency against the
Company for any amounts claimed due on account of Employee's failure to pay
federal or state taxes or damages sustained by the Company by reason of any
such claims, including reasonable attorneys' fees.
16. COSTS. The Parties shall each bear their own costs, expert fees,
attorneys' fees and
-4-
<PAGE>
other fees incurred in connection with this Agreement.
17. ARBITRATION. The Parties agree that any and all disputes arising
out of the terms of this Agreement, their interpretation, and any of the
matters herein released, shall be subject to binding arbitration in Santa
Clara County before the American Arbitration Association under its California
Employment Dispute Resolution Rules, or by a judge to be mutually agreed upon.
The Parties agree that the prevailing party in any arbitration shall be
entitled to injunctive relief in any court of competent jurisdiction to
enforce the arbitration award. The Parties agree that the prevailing party in
any arbitration shall be awarded its reasonable attorney's fees and costs.
18. AUTHORITY. The Company represents and warrants that the undersigned
has the authority to act on behalf of the Company and to bind the Company and
all who may claim through it to the terms and conditions of this Agreement.
Employee represents and warrants that he has the capacity to act on his own
behalf and on behalf of all who might claim through him to bind them to the
terms and conditions of this Agreement. Each Party warrants and represents
that there are no liens or claims of lien or assignments in law or equity or
otherwise of or against any of the claims or causes of action released herein.
19. NO REPRESENTATIONS. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Agreement. Neither
party has relied upon any representations or statements made by the other
party hereto which are not specifically set forth in this Agreement.
20. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
21. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the Company, and supersedes and replaces any and all prior
agreements and understandings concerning Employee's relationship with the
Company and his compensation by the Company.
22. NO ORAL MODIFICATION. This Agreement may only be amended in writing
signed by Employee and the President of the Company.
23. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
24. EFFECTIVE DATE. This Agreement is effective seven days after it has
been signed by both Parties.
25. COUNTERPARTS. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
-5-
<PAGE>
26. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation, and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement
and of the releases it contains;
(d) They are fully aware of the legal and binding effect of this
Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
GENUS, Inc.
Dated: May 4, 1998 By /s/ WILLIAM W.R. ELDER
-----------------------------------
William W. R. Elder
Chairman of the Board
Mary Bobel, an individual
Dated: May 4, 1998 /s/ MARY BOBEL
-----------------------------------
Mary Bobel
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3754
<SECURITIES> 0
<RECEIVABLES> 10258
<ALLOWANCES> (1103)
<INVENTORY> 5173
<CURRENT-ASSETS> 43990<F1>
<PP&E> 24979
<DEPRECIATION> (20351)
<TOTAL-ASSETS> 49352
<CURRENT-LIABILITIES> 24532
<BONDS> 0
0
6098
<COMMON> 99779
<OTHER-SE> (81093)
<TOTAL-LIABILITY-AND-EQUITY> 49352
<SALES> 17508
<TOTAL-REVENUES> 17508
<CGS> 16665
<TOTAL-COSTS> 46058
<OTHER-EXPENSES> (393)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (28943)
<INCOME-TAX> 0
<INCOME-CONTINUING> (28943)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30846)<F2>
<EPS-PRIMARY> (1.80)
<EPS-DILUTED> (1.80)
<FN>
<F1>net assets held for sale 25,130
<F2>deemed dividends on preferred stock (1903)
</FN>
</TABLE>
