<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Date of Report (Date of earliest event reported)
July 29, 1998
GENUS, INC.
-----------
(Exact name of registrant as specified in its charter)
CALIFORNIA
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(State or other jurisdiction of incorporation or organization)
0-17139 94-2790804
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Commission File Number (I.R.S. Employer Identification Number)
1139 Karlstad Drive
Sunnyvale, CA 94089
-------------------
(Address of principal executive offices)
(408) 747-7120
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(Registrant's telephone number, including area code)
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<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 29, 1998, Genus, Inc., a California corporation (the "Registrant"),
sold to Varian Associates, Inc., a Delaware corporation ("Varian"),
substantially all of the assets of, and assigned its rights and obligations
under its existing contracts related to, the Registrant's ion implantations
systems business (the "Business"). Additionally, the Registrant granted to
Varian a royalty free, nonexclusive, irrevocable, worldwide, perpetual license
covering the Registrant's intellectual property related to the Business,
excluding any such intellectual property primarily used in the development,
manufacture, testing and sale of products in the Registrant's chemical vapor and
thin film deposition systems business (the "CVD Business") (the "Licensed
Intellectual Property"), of which the Registrant retains ownership.
The assets of the Registrant sold to Varian consist of all raw materials
and inventories; all machinery, equipment, computers, tapes, data bases,
furniture, automobiles, trucks, vehicles, tools, supplies and parts and other
tangible personal property, whether owned, leased or subleased, which were used
primarily in the conduct of the Business; all written contracts entered into in
the ordinary course of business and necessary for the conduct of the Business,
and that were for the sale and non-warranty service of products of the Business,
all rights, indemnification, warrants, claims and causes of action against third
persons; all security, utility or similar deposits and prepaid expenses related
primarily to the Business; all letters of credit issued in favor of the
Registrant that related to any contract; to the extent permitted by law, all
governmental licenses, permits approvals, license applications, license
amendment applications and product registrations with respect to the conduct of
the Business; real property leased by the Registrant, together with all
improvements thereon and fixtures thereto; all Intellectual Property, other than
the Licensed Intellectual Property; all books and records related to the assets
sold to Varian; all rights to causes of action, claims, lawsuits, arbitrations,
orders, judgements, decrees, awards and injunctions available to or being
pursued by the Registrant; and the goodwill of the Business. Assets retained by
the Registrant include the Registrant's cash or cash equivalents, accounts
receivable and any business, operation, subsidiary or division of the Registrant
other than the Business, which consists primarily of the CVD Business.
The Registrant retains ownership of the Licensed Intellectual Property, and
granted Varian a license under these intellectual property rights pursuant to
the terms of a Cross-License Agreement. The license allows Varian to manufacture
and sell products, other than CVD products under the Licensed Intellectual
Property. The license is royalty free and extends through the term of the last
to expire patent included within the Licensed Intellectual Property. The
License Agreement does not transfer any ownership rights to Varian in the
Licensed Intellectual Property and does not transfer any ownership rights to the
Registrant in the Owned Intellectual Property.
Varian paid the Registrant an aggregate purchase price of $24.15 million,
and will make additional payments if certain revenue targets are achieved during
the next six months. Of the $24.15 million, approximately $14.23 million was
used to pay off short-term borrowings, pro-rated rent on the facility assigned
to Varian, redemption of Series A Preferred Stock, and other accounts
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<PAGE>
payable. Additionally, $1.0 million has been placed in escrow accounts to be
used for certain contingent liabilities. Of these contingent liabilities,
approximately half are expected to be resolved within three months and
approximately half are expected to be resolved after one year. The remaining
approximately $9.0 million of proceeds will be used for general working
capital purposes.
The Registrant received approval of its shareholders for this transaction
in an annual meeting held on July 24, 1998.
ITEM 5. OTHER EVENTS
On July 30, 1998, the Registrant redeemed 70,000 shares of its outstanding
unconverted Series A Convertible Preferred Stock for $4,725,000 and exchanged
the remaining 28,000 shares of its outstanding unconverted Series A Convertible
Preferred Stock for 28,000 shares of Series B Convertible Preferred Stock.
The material agreements between the Registrant and the holders of Series B
Convertible Preferred Stock (the "Investors") and a copy of the Registrant's
press release announcing the redemption and exchange have been filed as exhibits
to this Current Report on Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Financial Data:
The following unaudited pro forma condensed balance sheet of March 31,
1998, and unaudited pro forma condensed statement of operations for the year
ended December 31, 1997 and the three months ended March 31, 1998 give pro forma
effect to the estimated financial effects of the Asset Purchase Agreement (the
"Agreement") with Varian. The pro forma condensed balance sheet as of March 31,
1998 gives pro forma effect to the Agreement as if such transaction was
consummated on that date. The pro forma condensed statements of operations for
the year ended December 31, 1997 and the three months ended March 31, 1998,
present the results of operations of the Company as if the transaction
contemplated by the Agreement occurred on January 1, 1997 and January 1, 1998,
respectively. The pro forma information is based on the historical financial
statements of the Company giving effect to the assumptions and adjustments set
forth in the accompanying notes.
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<PAGE>
GENUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------------------------
Pro Forma
Pro Forma Pro Forma After Sale of
Genus, Inc. Adjustment Note Business
----------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents . . . . . . . . . . . . . $ 3,683 $ 20,100 (1) $ 23,783
Accounts receivable, net . . . . . . . . . . . . . . 11,858 11,858
Inventories . . . . . . . . . . . . . . . . . . . . 9,709 9,709
Net Assets held for sale . . . . . . . . . . . . . . 30,500 (25,310) (2) 5,190
Other current assets . . . . . . . . . . . . . . . . 1,001 1,001
--------- -------- --------
Total current assets . . . . . . . . . . . . . . 56,751 (5,210) 51,541
Property and equipment, net . . . . . . . . . . . . 6,406 6,406
Other assets, net . . . . . . . . . . . . . . . . . 2,025 2,025
--------- -------- --------
Total assets . . . . . . . . . . . . . . . . . . $ 65,182 $ (5,210) $ 59,972
--------- -------- --------
--------- -------- --------
Liabilities and shareholders' equity
Total current liabilities . . . . . . . . . . . . . $ 19,073 $ (2,800) (1) $ 16,273
Long-term debt . . . . . . . . . . . . . . . . . . . 74 74
Shareholders' equity . . . . . . . . . . . . . . . . 46,035 (2,410) (1) 43,625
--------- -------- --------
Total liabilities and shareholders' equity . . . $ 65,182 $ (5,210) $ 59,972
--------- -------- --------
--------- -------- --------
</TABLE>
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<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
-----------------------------------------------------
Pro Forma
After Sale of
Genus, Inc. Business Business
---------- ---------- --------------
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,238 $ (5,823) $ 1,415
Cost and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . 6,941 (4,986) 1,955
Research and Development . . . . . . . . . . . . . . . . 3,332 (1,744) 1,588
Selling, general and administrative . . . . . . . . . . 4,223 (2,750) 1,473
--------- ---------- ---------
Income (loss) from operations . . . . . . . . . . . . (7,258) (3,657) (3,601)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . (156) (80) (76)
--------- ---------- ---------
Loss before income taxes . . . . . . . . . . . . . . . . (7,414) (3,737) (3,677)
Provision for (benefit from) income taxes . . . . . . . . . -- -- --
--------- ---------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . (7,414) (3,737) $ (3,677)
Deemed dividend on preferred stock . . . . . . . . . . . $ 1,829 -- $ 1,829
--------- ---------- ---------
Net loss available to common shareholders . . . . . . . $ (9,243) $ (3,737) $ (5,506)
--------- ---------- ---------
--------- ---------- ---------
Pro forma net loss per share -- basic and diluted . . . . . $ (0.32)
---------
---------
Shares used in per share calculations . . . . . . . . . . . 17,125
---------
---------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------
Pro Forma
After Sale of
Genus, Inc. Business Business
------------ ------------ --------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,286 $ (57,102) $ 27,184
Cost and expenses:
Cost of goods sold . . . . . . . . . . . . . . . . . . . 54,762 (38,022) $ 16,740
Research and Development . . . . . . . . . . . . . . . . 12,327 (6,599) $ 5,728
Selling, general and administrative . . . . . . . . . . 20,326 (12,808) $ 7,518
--------- ---------- --------
Income (loss) from operations . . . . . . . . . . (3,129) (327) (2,802)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . (1,363) (829) (534)
--------- ---------- --------
Income (loss) before income taxes . . . . . . . . . . . (4,492) (1,156) (3,336)
Provision for (benefit from) income taxes . . . . . . . . . 14,844 - 14,844
--------- ---------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (19,336) $ (1,156) $ (18,180)
--------- ---------- --------
--------- ---------- --------
Pro forma net income (loss) per share-basic and diluted . . $ (1.08)
--------
--------
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<PAGE>
Shares used in per share calculations . . . . . . . . . . . 16,860
--------
--------
</TABLE>
Pro Forma Notes:
(1) Reflects proceeds of $24.15 million from Varian, the repayment of $2.8
million of short-term bank borrowings, and the payment of transaction
expenses estimated to be $1.25 million. Since transaction expenses
represent non-recurring charges resulting directly from the Proposed
Transaction that will be included in the operating results of the
Company within the 12 months succeeding the Proposed Transaction, these
transaction expenses were not considered in the pro forma condensed
statements of operations for the year ended December 31, 1997 and the
three months ended March 31, 1998.
(2) Transfer of $25.31 million of net assets held for sale to Varian. After
giving effect to the sale of the Business, pro forma net assets held for
sale of $5.19 million primarily represent sales of inventory, and
repayments of capital lease obligations of the Business prior to the
Closing.
The unaudited pro forma condensed financial data have been prepared by
company management and are not necessarily indicative of how the Company's
balance sheet and results of operations would have been presented had the
transaction with Varian actually been consummated at the assumed dates, nor are
they necessarily indicative of the presentation of the Company's balance sheet
and results of operations for any future period. The unaudited pro forma
condensed financial data should be read in conjunction with the financial
statements and related notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations incorporated herein by reference.
(c) EXHIBITS (in accordance with Item 601 of Regulation S-K)
2.1* Asset Purchase Agreement, dated April 15, 1998, by and
between Varian Associates, Inc. and Registrant and exhibits
thereto.
Certain exhibits and schedules to the Asset Purchase
Agreement are listed on page (iv) thereto and the
Registrant agrees to furnish them supplementally to the
Securities and Exchange Commission upon request;
provided, however, that the Registrant reserves the
right to seek confidential treatment for those exhibits
and schedules which it deems confidential.
4.2** Convertible Preferred Stock Purchase Agreement, dated
February 2, 1998, among the Registrant and the
Investors.
4.3** Registration Rights Agreement, dated February 2, 1998,
among the Registrant and the Investors.
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<PAGE>
4.4** Certificate of Determination of Rights, Preferences and
Privileges of Series A Convertible Preferred Stock.
4.5 Certificate of Determination of Rights, Preferences and
Privileges of Series B Convertible Preferred Stock.
4.6 Redemption and Exchange Agreement, dated July 16, 1998,
among the Registrant and the Investors.
99.1 Press Release dated July 29, 1998.
99.2 Press Release dated August 3, 1998.
* Incorporated by reference to the Current Report on Form 8-K filed April 24,
1998.
** Incorporated by reference to the Current Report on Form 8-K filed February
17, 1998.
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<PAGE>
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 hereunder duly authorized.
GENUS, INC.
Date: August 4, 1998 /s/ MARY F. BOBEL
--------------------------------------------
Mary F. Bobel
Executive Vice President and Chief Financial
Officer
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT NAME
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2.1* Asset Purchase Agreement, dated April 15, 1998, by and between Varian
Associates, Inc. and Registrant and exhibits thereto.
Certain exhibits and schedules to the Asset Purchase Agreement are
listed on page (iv) thereto and the Registrant agrees to furnish them
supplementally to the Securities and Exchange Commission upon request;
provided, however, that the Registrant reserves the right to seek
confidential treatment for those exhibits and schedules which it deems
confidential.
4.2** Convertible Preferred Stock Purchase Agreement, dated February 2,
1998, among the Registrant and the Investors.
4.3** Registration Rights Agreement, dated February 2, 1998, among the
Registrant and the Investors.
4.4** Certificate of Determination of Rights, Preferences and Privileges of
Series A Convertible Preferred Stock.
4.5 Certificate of Determination of Rights, Preferences and Privileges of
Series B Convertible Preferred Stock.
4.6 Redemption and Exchange Agreement, dated July 16, 1998, among the
Registrant and the Investors.
99.1 Press Release dated July 29, 1998.
99.2 Press Release dated August 3, 1998.
- ---------------
* Incorporated by reference to the Current Report on Form 8-K filed April 24,
1998.
** Incorporated by reference to the Current Report on Form 8-K filed February
17, 1998.
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<PAGE>
EXHIBIT 4.5
CERTIFICATE OF DETERMINATION OF RIGHTS,
PREFERENCES AND PRIVILEGES OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
GENUS, INC.
The undersigned, William W. R. Elder and Mario M. Rosati, do hereby certify
that:
A. They are the duly elected and acting President, Chief Executive Officer and
Chairman of the Board, and Secretary, respectively, of Genus, Inc., a California
corporation (the "Company").
B. Pursuant to the authority conferred upon the Board of Directors by the
Restated Articles of Incorporation of the Company, the said Board of Directors
on July 14, 1998, adopted the following resolution creating a series of
28,000 shares of Preferred Stock designated as Series B Convertible Preferred
Stock:
"RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Company by the Restated Articles of Incorporation, the Board of Directors
does hereby provide for the issue of a series of Preferred Stock of the Company
to be designated "Series B Convertible Preferred Stock" initially consisting of
28,000 shares, and to the extent that the designations, powers, preferences and
relative and other special rights and the qualifications, limitations and
restrictions of the Series B Convertible Preferred Stock are not stated and
expressed in the Restated Articles of Incorporation, does hereby fix and herein
state and express such designations, powers, preferences and relative and other
special rights and the qualifications, limitations and restrictions thereof, as
follows (all terms used herein which are defined in the Restated Articles of
Incorporation shall be deemed to have the meanings provided therein):
Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of
preferred stock shall be designated as 6% Series B Convertible Preferred Stock
(the "PREFERRED STOCK"), and the number of shares so designated shall be 28,000.
Each share of Preferred Stock shall have no par value and a stated value of
$50.00 per share (the "STATED VALUE").
Section 2. DIVIDENDS.
(a) Each holder of Preferred Stock ("HOLDER") shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) equal to 6% per annum,
payable, in cash or shares of Common Stock (as defined in Section 8) at (subject
to the terms and conditions set fort herein) the option of the Company
(provided, that the Preferred Stock shall be deemed to accrue dividends from
February 12, 1998). Dividends on the Preferred Stock shall be due and payable
on February 12 of each year (each a "DIVIDEND PAYMENT DATE"), and any dividends
not paid on any Dividend
<PAGE>
Payment Date shall accrue and shall be due and payable upon conversion of the
Preferred Stock. No dividends shall be due and payable for any partial year
period for which the Dividend Payment Date has not yet occurred. A party that
holds shares of Preferred Stock on a Dividend Payment Date will be entitled to
receive such dividend payment and any other accrued and unpaid dividends which
accrued prior to such Dividend Payment Date, without regard to any sale or
disposition of such Preferred Stock subsequent to the applicable record date.
All overdue accrued and unpaid dividends and other amounts due herewith shall
entail a late fee at the rate of 15% per annum (to accrue daily, from the date
such dividend is due hereunder through and including the date of payment).
Except as otherwise provided herein, if at any time the Company pays less than
the total amount of dividends then accrued on account of the Preferred Stock or
on account of the Company's 6% Series A Convertible Preferred Stock (the "SERIES
A PREFERRED STOCK"), such payment shall be distributed ratably among the Holders
and the holders of the Series A Preferred Stock (the "PREFERRED HOLDERS") based
upon the number of shares held by each Preferred Holder. The Company shall
provide the Holders notice of its intention to pay dividends in cash or shares
of Common Stock not less than 10 Trading Days prior to the Dividend Payment Date
for so long as shares of Preferred Stock are outstanding. If dividends are paid
in shares of Common Stock, the number of shares of Common Stock payable as such
dividend to each Holder shall be equal to the cash amount of such dividend
payable to such Holder on such Dividend Payment Date divided by the closing bid
price of the Common Stock on the Trading Day prior to such Dividend Payment Date
("DIVIDEND CONVERSION PRICE"), further provided that the Dividend Conversion
Price shall not be less than $3.47.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends (and must
deliver cash in respect thereof) on the Preferred Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is insufficient to pay such
dividends in shares of Common Stock;
(ii) the shares of Common Stock to be issued in respect of
such dividends are not registered for resale pursuant to an effective
registration statement that names the recipient of such dividend as a selling
stockholder thereunder (unless such registration statement is not declared
effective solely as a result of the actions of the recipient of such dividend or
if such recipient has failed to provide the Company with the necessary selling
shareholder information to be included in such registration statement) and may
not be sold without volume restrictions pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), as determined by
counsel to the Company pursuant to a written opinion letter, addressed to the
Company's transfer agent in the form and substance acceptable to the Holder;
(iii) the shares of Common Stock to be issued in respect of
such dividends are not listed on the Nasdaq Stock Market or any other exchange
or quotation system on which the Common Stock is then listed for trading;
(iv) the Company has failed to timely satisfy its obligations
pursuant to any Conversion Notice (as defined in Section 5(a)(ii)).
(c) So long as any Preferred Stock shall remain outstanding, neither
the Company nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities (as defined in Section 8),
nor shall the Company directly or indirectly pay or declare any dividend or make
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<PAGE>
any distribution (other than a dividend or distribution described in Section 5)
upon, nor shall any distribution be made in respect of, any Junior Securities,
nor shall any monies be set aside for or applied to the purchase or redemption
(through a sinking fund or otherwise) of any Junior Securities or shares pari
passu with the Preferred Stock, except for repurchases effected by the Company
on the open market, pursuant to a direct stock purchase plan.
Section 3. VOTING RIGHTS.
(a) Except as otherwise provided herein and as otherwise required by
law, the Preferred Stock shall have no voting rights. However, so long as any
shares of Preferred Stock are outstanding, the Company shall not and shall cause
its subsidiaries not to, without the affirmative vote of the Holders of all of
the shares of the Preferred Stock then outstanding,a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock, (b) alter or
amend this Certificate of Determination, (c) authorize or create any class of
stock ranking as to dividends or distribution of assets upon a Liquidation (as
defined in Section 4) or otherwise senior to or pari passu with the Preferred
Stock, (d) amend its Articles of Incorporation, bylaws or other charter
documents so as to affect adversely any rights of any Holders, (e) increase the
authorized number of shares of Preferred Stock and (f) enter into any agreement
with respect to the foregoing.
(b)(i) If the Company shall have defaulted on any of its conversion
obligations, registration obligations or payment obligations hereunder, and such
default has continued for 180 days, then on the 181st day of the continuance of
such default, without the requirement of any additional action by the Company's
Board of Directors or stockholders, the fixed number of directors constituting
the Company's Board of Directors shall be automatically increased, pursuant to
the authority of the Board of Directors to adjust the fixed number of directors
within the authorized minimum and maximum numbers as stated in the Company's
Bylaws, by one directorship and the Preferred Holders, voting together as a
single class, shall be entitled to elect the director to fill the resulting
vacancy on the Company's Board of Directors. At elections for such director,
each Preferred Holder shall be entitled to one vote for each share of Preferred
Stock or Series A Preferred Stock held. Such right to vote as a single class
to elect directors shall, when vested, continue until all defaults which
triggered such right have been completely cured, and when so cured such right to
elect such director separately as a separate class shall cease.
(ii) Whenever such voting right shall have vested, such right
may be exercised initially either, at a special meeting of the Preferred Holders
called as hereinafter provided or at any annual meeting of stockholders held for
the purpose of electing directors, and thereafter at such meetings or by the
written consent of such holders pursuant to the California Corporations Code.
(iii) At any time when the voting right granted by this Section
3(b) shall have vested in the Preferred Holders entitled to vote thereon, and if
such right shall not already have been initially exercised, an officer of the
Company shall, upon written request of Preferred Holders of record of 10% in the
aggregate, of shares of Preferred Stock and Series A Preferred Stock then
outstanding, addressed to the Chief Financial Officer of the Company, call a
special meeting of Preferred Holders. Such meeting shall be held at the
earliest practicable date upon the notice required for annual meetings of
stockholders at the place for holding annual meetings of stockholders of the
Company or, if none, at a place designated by the Chief Financial Officer of the
Company. If notice of such meeting is not mailed within 30 days after such
written request is mailed to the Chief Financial Officer of the Company, by
registered mail, addressed to the Chief
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<PAGE>
Financial Officer of the Company at its principal office (such mailing to be
evidenced by the registry receipt issued by the postal authorities), then the
Preferred Holders of record of 10% of the shares of the Preferred Stock and the
Series A Preferred Stock then outstanding may designate in writing any person to
call such meeting at the expense of the Company, and such meeting may be called
by such person so designated upon the notice required for annual meetings of
stockholders and shall be held at the same place as is elsewhere provided in
this paragraph 3(b)(iii). Any Preferred Holder that would be entitled to vote
at such meeting shall have access to the stock record books of the Company for
the purpose of causing a meeting of stockholders to be called pursuant to the
provisions of this paragraph 3(b)(iii). Notwithstanding the provisions of this
paragraph, however, no such special meeting shall be called or held during a
period within 30 days immediately preceding the date fixed for the Company's
next annual meeting of stockholders.
(iv) The directors elected pursuant to this paragraph 3(b)
shall serve until the next annual meeting or until their respective successors
shall be elected and shall qualify, unless earlier terminated as set forth
below. Any director elected by the Preferred Holders may be removed by, and
shall not be removed otherwise than by, the vote of the Preferred Holders of a
majority of the outstanding shares of the Preferred Stock and the Series A
Preferred Stock who were entitled to participate in such election of directors,
voting as a special class, at a meeting called for such purpose or by written
consent as permitted by law and the Articles of Incorporation and By-laws of the
Company. If the office of the director elected by the Preferred Holders, voting
as a class, becomes vacant by reason of death, resignation, retirement,
disqualification or removal from office or otherwise, the Preferred Holders in
accordance with the above procedures, voting as a class, shall elect a successor
director who shall hold office for the unexpired term in respect of which such
vacancy occurred. Upon any termination of the right of the Preferred Holders to
vote for directors as herein provided, the term of office of all directors then
in office elected by the Preferred Holders, voting as a class, shall terminate
immediately. Whenever the terms of office of the directors elected by the
Preferred Holders shall have expired, the number of directors shall be such
number as may be provided for pursuant to the By-laws of the Company
irrespective of any increase made pursuant to the provisions of this Section
3(b).
(v) So long as any shares of Preferred Stock or Series A
Preferred Stock are outstanding, the By-laws shall contain no provisions that
would restrict the exercise, by the Preferred Holders of the right to elect
directors under the circumstances provided in Section 3(b)(i) above.
Section 4. LIQUIDATION. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "LIQUIDATION"),
the Holders shall be entitled to receive out of the assets of the Company,
whether such assets are capital or surplus, for each share of Preferred Stock an
amount equal to the Stated Value plus all due but unpaid dividends per share,
whether declared or not, before any distribution or payment shall be made to the
holders of any Junior Securities, and if the assets of the Company shall be
insufficient to pay in full such amounts and such amounts due the holders of the
Series A Preferred Stock, then the entire assets available for distribution
shall be distributed among the Preferred Holders ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. A sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of, or a consolidation or
merger of the Company with or into any other company or companies shall not be
treated as a Liquidation, but instead shall be subject to the provisions of
Section 5. The Company shall mail written notice of any such Liquidation, not
less than 45 days prior to the payment date stated therein, to each record
Holder of Preferred Stock.
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<PAGE>
Section 5. CONVERSION.
(a)(i) Each share of Preferred Stock shall be convertible into shares
of Common Stock (subject to reduction pursuant to Section 5(a)(iii) and Section
3.16 of the Purchase Agreement) at the Conversion Ratio (as defined in Section
8) at the option of the Holder in whole or in part at any time after the
Original Issue Date. The Holders shall effect conversions by surrendering the
certificate or certificates representing the shares of Preferred Stock to be
converted to the Company, or its agent, together with the form of conversion
notice attached hereto as EXHIBIT A (the "HOLDER CONVERSION NOTICE"). Each
Holder Conversion Notice shall specify the number of shares of Preferred Stock
to be converted and the date on which such conversion is to be effected, which
date may not be prior to the date the Holder delivers such Holder Conversion
Notice by facsimile (the "HOLDER CONVERSION DATE"). If no Holder Conversion
Date is specified in a Holder Conversion Notice, the Holder Conversion Date
shall be the date that the Holder Conversion Notice is deemed delivered pursuant
to Section 5(h). Subject to Sections 5(b) and 5(a)(iii) hereof, each Holder
Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all shares of Preferred Stock represented by the
certificate or certificates tendered by the Holder with the Holder Conversion
Notice, or if a conversion hereunder cannot be effected in full for any reason,
the Company shall promptly deliver to such Holder (in the manner and within the
time set forth in Section 5(b)) a certificate for such number of shares as have
not been converted.
(ii) On February 14, 2000 or thereafter, the Company may require
the conversion of all, but not less than all, of the then outstanding and
unconverted shares of Preferred Stock with such conversion being effectuated at
the Conversion Price, or if applicable, at the Non-Redemption Conversion Price
then in effect (subject to reduction pursuant to Section 5(a)(iii)) by
delivering to the Holder of such shares to be converted a notice in the form
attached hereto as EXHIBIT B (the "COMPANY CONVERSION NOTICE"), PROVIDED, that,
no such conversion is permitted unless at the time of the delivery of the
Company Conversion Notice and on the Company Conversion Date (as defined below),
(a) the Company shall have complied in all material respects with its
obligations under the Registration Rights Agreement, (b) the Company was at the
time of the issuance of the Preferred Stock and the Company is at the time of
the conversion of the Preferred Stock a "listed corporation" as defined in
subdivision (d) of Section 301.5 of the California Corporations Code, (c) the
shares of Common Stock issuable upon such conversion are listed for trading on
the Nasdaq Stock Market or any other exchange or quotation system on which the
Common Stock is then listed for trading as such is defined by subdivision (d) of
Section 301.5 of the California Corporations Code, (d) the Company is in
compliance with all of its obligations under this Certificate of Determination,
the Purchase Agreement and the Registration Rights Agreement, and (e) the
closing bid price of the Common Stock for at least 20 of the 30 Trading Days
immediately preceding the date of the Company Conversion Notice shall have been
at least $1.875. Each Company Conversion Notice shall specify the date on which
such conversion is to be effected, which date may not be prior to the day after
the Company delivers such Company Conversion Notice by facsimile or later than
10 Trading Days subsequent to such delivery (the "COMPANY CONVERSION DATE"). If
no Company Conversion Date is specified in a Company Conversion Notice, the
Company Conversion Date shall be the date that the Company Conversion Notice is
deemed delivered pursuant to Section 5(h). A Holder Conversion Date and a
Company Conversion Date are sometimes referred to herein as the "CONVERSION
DATE" and a Holder Conversion Notice and a Company Conversion Notice are
sometimes referred to as a "CONVERSION NOTICE." Any conversion pursuant to this
Section 5(a)(ii) shall be subject to Section 5(b) with respect to consequences
of the Company's failure to deliver shares of Common Stock in respect of a
conversion under this Section. If a conversion hereunder cannot be effected in
full for any reason, the Company shall promptly deliver to such tendering Holder
(in
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the manner and within the time set forth in Section 5(b)) a certificate for such
number of shares of Preferred Stock as have not been converted.
(iii) If on the Conversion Date applicable to any conversion,
(A) the Common Stock is then listed for trading on the Nasdaq Stock Market, the
American Stock Exchange or the Nasdaq SmallCap Market, (B) the Conversion Price,
or, if applicable, the Non-Redemption Conversion Price then in effect, is such
that the aggregate number of shares of Common Stock that would then be issuable
upon conversion of all outstanding shares of Preferred Stock and Series A
Preferred Stock, together with any shares of Common Stock previously issued upon
conversion of Preferred Stock or Series A Preferred Stock and in respect of
payment of dividends hereunder or thereunder and shares of Common Stock issuable
upon the exercise of Warrants, would equal or exceed 19.999% of the number of
shares of Common Stock outstanding on the Original Issue Date (the "ISSUABLE
MAXIMUM"), and (C) the Company has not previously obtained Shareholder Approval
(as defined below), then the Company shall deliver to the Holder seeking
conversion a notice within two Trading Days of receiving such conversion request
of the Company's intention to either (1) issue to any Holder so requesting
conversion of Preferred Stock its pro rata portion of the Issuable Maximum in
the same ratio that the number of shares of Preferred Stock held by any such
Holder bears to all shares of Preferred Stock then outstanding and, with respect
to any shares of Common Stock that otherwise would have been issuable to such
Holder in respect of the Conversion Notice at issue or in respect of payment of
dividends hereunder in excess of the Issuable Maximum, the Holder may require
the Company to, as promptly as possible, but in no event later than 60 days
after notice from such Holder convene a meeting of the holders of the Common
Stock and use its best efforts to obtain the Shareholder Approval; provided that
in no event shall such meeting be required to occur prior to May 31, 1998, or
(2) redeem as soon as reasonably possible, but in any event within seven days of
such notice, from funds legally available therefor at the time of such
redemption, the balance of the Preferred Stock subject to such Conversion Notice
at a price per share equal to the product of (i) the average Per Share Market
Value for the five (5) Trading Days immediately preceding (x) the Conversion
Date or (y) the date of payment in full by the Company of such redemption price,
whichever is greater, and (ii) the Conversion Ratio calculated on the Conversion
Date; PROVIDED, HOWEVER, that if the Holder has requested that the Company
obtain Shareholder Approval under clause (1) above and the Company fails for any
reason to obtain such Shareholder Approval within the time period set forth in
clause (1) above, the Company shall be obligated to redeem as promptly as
reasonably possible but in any event within seven days of such failure the
Preferred Stock not converted as a result of the provisions of this Section in
accordance with the provisions of clause (2) above. If the Company is obligated
to redeem shares of Preferred Stock pursuant to this Section and the Company
fails for any reason to pay the redemption price within the time periods set
forth above, the Company will pay a late fee on such redemption price at a rate
of 15% per annum to the converting Holder of Preferred Stock, accruing from the
Conversion Date until the redemption price plus any accrued late fees thereon is
paid in full. The entire redemption price, including late fees thereon, shall
be paid in cash. "SHAREHOLDER APPROVAL" means the approval by a majority of the
total votes cast on the proposal, in person or by proxy, at a meeting of the
shareholders of the Company held in accordance with the Company's Articles of
Incorporation and by-laws, of the issuance by the Company of shares of Common
Stock exceeding the Issuable Maximum as a consequence of the conversion of
Preferred Stock and exercise of the Warrants into Common Stock at a price less
than the greater of the book or market value on the Original Issue Date as and
to the extent required pursuant to Rule 4460(i) of the Nasdaq Stock Market or
Rule 713 of the American Stock Exchange (or any successor or replacement
provision thereof), as applicable.
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(b) Not later than three Trading Days after any Conversion Date, the
Company will deliver to the Holder (i) a certificate or certificates which shall
be free of restrictive legends and trading restrictions (other than those
required by Section 3.1(b) of the Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of shares of Preferred
Stock (subject to reduction pursuant to Section 5(a)(iii) and Section 3.16 of
the Purchase Agreement), (ii) one or more certificates representing the number
of shares of Preferred Stock not converted, (iii) a bank check in the amount of
accrued and unpaid dividends, if any (if the Company has elected to pay accrued
dividends in cash) and (iv) if the Company has elected to pay accrued dividends
in shares of Common Stock, certificates, which shall be free of restrictive
legends and trading restrictions (other than those required by Section 3.1 (b)
of the Purchase Agreement), representing such number of Shares of Common Stock
as equals such dividend divided by the Conversion Price, or if applicable, the
Non-Redemption Conversion Price, on the Dividend Payment Date; PROVIDED,
HOWEVER, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any shares of
Preferred Stock until certificates evidencing such shares of Preferred Stock are
either delivered for conversion to the Company or any transfer agent for the
Preferred Stock or Common Stock, or the Holder of such Preferred Stock notifies
the Company that such certificates have been lost, stolen or destroyed and
provides a bond (or other adequate security) reasonably satisfactory to the
Company to indemnify the Company from any loss incurred by it in connection
therewith. The Company shall, upon request of the Holder, use its best efforts
to deliver any certificate or certificates required to be delivered by the
Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions, if available. If in the case of any Conversion Notice such
certificate or certificates, including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, are not delivered to or as directed by the applicable
Holder by the third Trading Day after the Conversion Date, the Holder shall be
entitled by written notice to the Company at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such conversion, in
which event the Company shall immediately return the certificates representing
the shares of Preferred Stock tendered for conversion. If the Company fails to
deliver to the Holder such certificate or certificates pursuant to this Section,
including for purposes hereof, any shares of Common Stock to be issued on the
Conversion Date on account of accrued but unpaid dividends hereunder, on or
prior to the third Trading Day after the Conversion Date, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, $5,000 for
each day after such third Trading Day until such certificates are delivered. If
the Company fails to deliver to the Holder such certificate or certificates
pursuant to this Section prior to the 10th day after the Conversion Date, the
Company shall, at the Holder's option (i) redeem, from funds legally available
therefor at the time of such redemption, such number of shares of Preferred
Stock then held by such Holder, as requested by such Holder, and (ii) pay all
accrued but unpaid dividends on account of the Preferred Stock for which the
Company shall have failed to issue Common Stock certificates hereunder, in cash.
The redemption price shall be equal to the sum of (A) the aggregate of all
accrued but unpaid dividends, plus (B) the number of shares of Preferred Stock
then held by such Holder multiplied by (1) the average Per Share Market Value
for the five (5) Trading Days immediately preceding (x) the Conversion Date or
(y) the date of payment in full by the Company of such prepayment price,
whichever is greater, multiplied by, (2) the Conversion Ratio calculated on the
Conversion Date. If the Holder has requested that the Company redeem shares of
Preferred Stock pursuant to this Section and the Company fails for any reason to
pay the redemption price under (2) above within seven days after such notice is
deemed delivered pursuant to Section 5(i), the Company will pay a late fee on
the redemption price at a rate of 15% per annum, in cash to such Holder,
accruing from such seventh day until the redemption price and any accrued late
fees thereon is paid in full. Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing
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shares of Common Stock upon conversion within the period specified herein
(including, without limitation, damages relating to any purchase of shares of
Common Stock by such Holder to make delivery on a sale effected in anticipation
of receiving certificates representing shares of Common Stock upon conversion,
such damages to be in an amount equal to (A) the aggregate amount paid by such
Holder for the shares of Common Stock so purchased MINUS (B) the aggregate
amount of net proceeds, if any, received by such Holder from the sale of the
shares of Common Stock issued by the Company pursuant to such conversion), and
such Holder shall have the right to pursue all remedies available to it at law
or in equity (including, without limitation, a decree of specific performance
and/or injunctive relief).
(c) The conversion price for each share of Preferred Stock (the
"CONVERSION PRICE") in effect on any Conversion Date shall $1.25; PROVIDED,
HOWEVER, that if a "Redemption Default" occurs under Section 6(c), the
conversion price (the "NON-REDEMPTION CONVERSION PRICE") shall be the lesser of
(a) 110% of the Per Share Market Value for the Trading Day immediately preceding
the February 14, 1998 (the "INITIAL NON-REDEMPTION CONVERSION PRICE") provided
that the Initial Non-Redemption Conversion Price shall not be less than $3.47 or
(b) 82% of the average of fifteen (15) closing bid prices of the Common Stock on
the Nasdaq Stock Market or other market or exchange on which the Common Stock is
then listed or traded, during the forty five (45) Trading Days prior to the date
of the applicable Conversion Notice, which fifteen closing bid prices shall be
chosen by the Holder converting such shares of Preferred Stock; PROVIDED,
HOWEVER, that, (a) if a post-effective amendment the Registration Statement (as
defined in the Registration Rights Agreement) with respect to the Underlying
Shares (the "Underlying Shares Registration Statement") is not filed on or prior
to July 31, 1998, or (b) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act of 1934, as amended, if permitted, within five (5) days of the date
that the Company is notified (orally or in writing, whichever is earlier) by the
Commission that the post-effective amendment to the Underlying Shares
Registration Statement will not be "reviewed," or not subject to further review,
or (c) if the post-effective amendment to the Underlying Shares Registration
Statement is not declared effective by the Commission on or prior to the 90th
day after the Original Issue Date, or (d) if such post-effective amendment to
the Underlying Shares Registration Statement is filed with and declared
effective by the Commission but the Underlying Shares Registration thereafter
ceases to be effective as to all Registrable Securities (as such term is defined
in the Registration Rights Agreement) at any time prior to the expiration of the
"EFFECTIVENESS PERIOD" (as such term as defined in the Registration Rights
Agreement), without being succeeded within 10 Trading Days by a subsequent
Underlying Shares Registration Statement filed with and declared effective by
the Commission, or (e) if trading in the Common Stock shall be suspended for
more than three (3) consecutive Trading Days or five (5) Trading Days in the
aggregate, or (f) if the conversion rights of the Holders are suspended for any
reason, or (g) if the Company breaches in a material respect any covenant or
other material term or condition of the Purchase Agreement (other than a
representation or warranty contained therein) to the extent applicable to the
Series B Shares, the Warrants, the Registration Rights Agreement or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated thereby, and such breach continues for a
period of thirty (30) days after written notice thereof to the Company, or (h)
if the Company is required to convene a shareholders meeting pursuant to Section
5(a)(iii) and fails to convene a meeting of shareholders within the time periods
specified in Section 5(a)(iii) or does so convene a meeting of shareholders
within such time period but fails to obtain Shareholder Approval at such
meeting, or (i) if the Company has breached Section 3(p) of the Registration
Rights Agreement (any such failure or breach being referred to as an "EVENT,"
and for purposes of clauses (a), (c) and (f) the date on which such Event
occurs, or for purposes of clause (b) the date on which such five (5) day period
is exceeded, or for purposes of clause (d) the date which such 10 Trading
Day-period is exceeded,
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<PAGE>
or for purposes of clause (e) the date on which such three Trading Day period is
exceeded, or for clause (g) the date on which such thirty (30) day period is
exceeded, being referred to as "EVENT DATE"), the Conversion Price shall be
decreased by 2% each month (i.e., the Conversion Price would decrease by 2% as
of the Event Date and an additional 2% as of each monthly anniversary of the
Event Date) until the earlier to occur of the second month anniversary after the
Event Date and such time as the applicable Event is cured. Commencing the
second month anniversary after the Event Date, the Company shall pay to the
Holders $50,000 (each Holder being entitled to receive such portion of such
amount as equals its pro rata portion of the Preferred Stock then outstanding)
in cash as liquidated damages, and not as a penalty on the first day of each
monthly anniversary of the Event Date until such time as the applicable Event,
is cured. Any decrease in the Conversion Price pursuant to this Section shall
continue notwithstanding the fact that the Event causing such decrease has been
subsequently cured.
(i) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall (a) pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities or pari passu
securities (other than with respect to the Series A Preferred Stock) payable in
shares of Common Stock, (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Conversion Price, or, if
applicable, the Initial Non-Redemption Conversion Price, shall be multiplied by
a fraction of which the numerator shall be the number of shares of Common Stock
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 5(c)(ii) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall issue rights or warrants to all holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value of Common Stock at the
record date mentioned below, the Conversion Price, or, if applicable, the
Initial Non-Redemption Conversion Price, shall be multiplied by a fraction, of
which the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Initial Conversion Price pursuant to this
Section 5(c)(iii), the Conversion Price, or, if applicable, the Initial
Non-Redemption Conversion Price, shall immediately upon such expiration be
recomputed, and effective immediately upon such expiration, be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price, or, if applicable, the Initial Non-Redemption Conversion
Price, made pursuant to the provisions of this SECTION 5 after the issuance of
such rights or warrants) had the adjustment of the Conversion Price, or, if
applicable, the Initial Non-Redemption Conversion Price, made upon the issuance
of such rights or warrants been made on the basis of that number of shares of
Common Stock actually purchased upon the exercise of such rights or warrants.
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<PAGE>
(iii) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to Holders of Preferred Stock) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security (excluding those referred
to in Sections 5(c)(ii) and (iii) above), then in each such case the Conversion
Price, or, if applicable, the Non-Redemption Conversion Price, at which each
share of Preferred Stock shall thereafter be convertible shall be determined by
multiplying the Conversion Price, or, if applicable, the Non-Redemption
Conversion Price, in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value of Common
Stock determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of Directors in
good faith; PROVIDED, HOWEVER, that in the event of a distribution exceeding ten
percent (10%) of the net assets of the Company, if the Holders of a majority in
interest of the Preferred Stock dispute such valuation, such fair market value
shall be determined by a nationally recognized or major regional investment
banking firm or firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the financial statements
of the Company) (an "APPRAISER") selected in good faith by the Holders of a
majority in interest of the shares of Preferred Stock then outstanding; and
PROVIDED, FURTHER, that the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional Appraiser, in good faith,
in which case the fair market value shall be equal to the average of the
determinations by each such Appraiser. In either case the adjustments shall be
described in a statement provided to the Holders of Preferred Stock of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(iv) All calculations under this SECTION 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(v) Whenever the Conversion Price, or, if applicable, the
Non-Redemption Conversion Price, is adjusted pursuant to Section
5(c)(i),(ii),(iii) or (iv), the Company shall promptly mail to each Holder of
Preferred Stock, a notice setting forth the Conversion Price, or, if applicable,
the Non-Redemption Conversion Price, after such adjustment and setting forth a
brief statement of the facts requiring such adjustment.
(vi) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person pursuant to
which (i) a majority of the Company's Board of Directors will not constitute a
majority of the board of directors of the surviving entity or (ii) less than 50%
of the outstanding shares of the capital stock of the surviving entity will be
held by the same shareholders of the Company prior to such reclassification,
consolidation or merger, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or property, the Holders
of the Preferred Stock then outstanding shall have the right thereafter to
convert such shares only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holders of the Preferred Stock shall be entitled upon such
event to receive such amount of securities, cash or property as the shares of
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the Common Stock of the Company into which such shares of Preferred Stock could
have been converted immediately prior to such reclassification, consolidation,
merger, sale, transfer or share exchange would have been entitled; PROVIDED,
HOWEVER, that if such reclassification, consolidation or merger is (i) approved
by the Company's Board of Directors, and (ii) would not prevent the Company from
obtaining a pooling of interest treatment as evidenced by a certificate to this
effect provided to the Holder by the Company's independent accountants, each
Holder shall have the option to require the Company to redeem, from funds
legally available therefor at the time of such redemption, its shares of
Preferred Stock at a price per share equal to the product of (i) the average Per
Share Market Value for the five (5) Trading Days immediately preceding (1) the
effective date, the date of the closing or the date of the announcement, as the
case may be, of the reclassification, consolidation, merger, sale, transfer or
share exchange the triggering such redemption right or (2) the date of payment
in full by the Company of the redemption price hereunder, whichever is greater,
and (ii) the Conversion Ratio calculated on the date of the closing or the
effective date, as the case may be, of the reclassification, consolidation,
merger, sale, transfer or share exchange triggering such redemption right, as
the case may be. The entire redemption price shall be paid in cash, and the
terms of payment of such redemption price shall be subject to the provisions set
forth in Section 6(b). The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder of Preferred Stock the right to receive the securities, cash or
property set forth in this Section 5(c)(vii) upon any conversion or redemption
following such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications, consolidations,
mergers, sales, transfers or share exchanges.
(vii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
C. the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
D. the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of
any compulsory share of exchange whereby the
Common Stock is converted into other securities,
cash or property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding up
of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the Holders of Preferred Stock at their last addresses as they
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shall appear upon the stock books of the Company, at least 20 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Preferred Stock
during the 20-day period commencing the date of such notice to the effective
date of the event triggering such notice.
(ix) If at any time when the Non-Redemption Conversion Price
is in effect, the Company (i) makes a public announcement that it intends to
enter into a Change of Control Transaction (as defined below) or (ii) any
person, group or entity (including the Company, but excluding a Holder or any
affiliate of a Holder) publicly announces a bona fide tender offer, exchange
offer or other transaction to purchase 50% or more of the Common Stock (such
announcement being referred to herein as a "MAJOR ANNOUNCEMENT" and the date on
which a Major Announcement is made, the "ANNOUNCEMENT DATE"), then, in the event
that a Holder seeks to convert shares of Preferred Stock on or following the
Announcement Date, the Non-Redemption Conversion Price shall, effective upon the
Announcement Date and continuing through the earlier to occur of the
consummation of the proposed transaction or tender offer, exchange offer or
other transaction and the Abandonment Date (as defined below), be equal to the
lower of (x) the average Per Share Market Value on the five Trading Days
immediately preceding (but not including) the Announcement Date and (y) the
Non-Redemption Conversion Price in effect on the Conversion Date for such
Preferred Stock. "ABANDONMENT DATE" means with respect to any proposed
transaction or tender offer, exchange offer or other transaction for which a
public announcement as contemplated by this paragraph has been made, the date
upon which the Company (in the case of clause (i) above) or the person, group or
entity (in the case of clause (ii) above) publicly announces the termination or
abandonment of the proposed transaction or tender offer, exchange offer or
another transaction which caused this paragraph to become operative.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Preferred Stock and payment of dividends on
Preferred Stock, each as herein provided, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holders of
Preferred Stock, not less than such number of shares of Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(a) and Section 5(c)) upon the
conversion of all outstanding shares of Preferred Stock and payment of dividends
hereunder. The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid and nonassessable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
may if otherwise permitted, make a cash payment in respect of any final fraction
of a share based on the Per Share Market Value at such time. If the
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Company elects not, or is unable, to make such a cash payment, the Holder of a
share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
(g) Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
undesignated stock.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Executive Officer of the Company at the
facsimile telephone number or address of the principal place of business of the
Company as set forth in the Purchase Agreement. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each Holder of Preferred
Stock at the facsimile telephone number or address of such Holder appearing on
the books of the Company, or if no such facsimile telephone number or address
appears, at the principal place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (Eastern Standard Time), (ii) the date after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section later than 8:00 p.m.
(Eastern Standard Time) on any date and earlier than 11:59 p.m. (Eastern
Standard Time) on such date, (iii) upon receipt, if sent by a nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given.
Section 6. REDEMPTIONS.
(a) All outstanding and unconverted shares of Preferred Stock on the
fifth anniversary of the Original Issue Date may be redeemed at any time
thereafter by the Company pursuant to this Section 6(a), from funds legally
available therefor at a price per share equal to the product of (i) the average
Per Share Market Value for the five (5) Trading Days immediately preceding (1)
the fifth anniversary of the Original Issue Date or (2) the date of payment in
full by the Company of the redemption price hereunder, whichever is greater, and
(ii) the Conversion Ratio calculated on the fifth anniversary of the Original
Issue Date. Thereafter, all shares of Preferred Stock shall cease to be
outstanding and shall have the status of authorized but undesignated stock. The
entire redemption price shall be paid in cash.
(b) If any portion of the applicable redemption price under Section
6(a) shall not be paid by the Company within seven (7) calendar days after the
date due, late fees shall accrue thereon at the rate of
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<PAGE>
15% per annum until the redemption price plus all such late fees are paid in
full (which amount shall be paid as liquidated damages and not as a penalty).
In addition, if any portion of such redemption price remains unpaid for more
than 7 calendar days after the date due, the Holder of the Preferred Stock
subject to such redemption may elect, by written notice to the Company given
within 30 days after the date due, to either (i) demand conversion in accordance
with the formula and the time frame therefor set forth in Section 5 of all of
the shares of Preferred Stock for which such redemption price, plus accrued
liquidated damages thereof, has not been paid in full (the "UNPAID REDEMPTION
SHARES"), in which event the Per Share Market Price for such shares shall be the
lower of the Per Share Market Price calculated on the date such redemption price
was originally due and the Per Share Market Price as of the Holder's written
demand for conversion, or (ii) invalidate AB INITIO such redemption,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (i) above, the Company shall within three (3) Trading Days of its receipt
of such election deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Redemption Shares subject to such Holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than three (3) Trading Days from receipt of Holder's notice of
such election, return to the Holder all of the Unpaid Redemption Shares.
(c) At any time and from time to time after the Original Issue Date,
each Holder shall have the right, at such Holder's option, to require the
Company to redeem all of such Holder's Series B Shares from funds legally
available therefor at a redemption price per share equal to the Stated Value per
share. A Holder may exercise such right by delivering to the Company a written
notice requesting such redemption together with certificates representing all of
such Holder's Series B Shares, duly endorsed for transfer. The Company shall
deliver to the Holder the redemption price within seven (7) calendar days. The
entire redemption price shall be paid in cash. If the Company fails to deliver
the redemption price to the Holder within such seven (7) day period (a
"REDEMPTION DEFAULT"), then upon notice to the Company by such Holder of the
existence of such Redemption Default the Non-Redemption Conversion Price shall
become applicable to all of the Series B Shares then outstanding.
Section 7. PAYMENT RESTRICTIONS. Notwithstanding any provision to
the contrary contained herein, if payment of any amounts payable by the Company
to the Holders hereunder, including, without limitations, any amounts payable as
dividends, penalties or upon redemption of Preferred Stock would be prohibited
in the absence of consent from Sumitomo Bank of California pursuant to the
Company's Credit Agreement dated August 15, 1997 with Sumitomo Bank of
California, as the same may be amended, supplemented, superseded or replaced
from time to time, or any replacement facility, then the Company shall use its
best efforts to obtain such consent as promptly as practicable after any such
payment is required, and any amounts payable by the Company with respect to its
obligation to pay any such dividends, penalties, or redemption payments shall
continue to accrue until such consent is obtained. Nothing contained in this
Section 7 shall be construed as a waiver by the Holders of any rights they may
have hereunder.
Section 8. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"COMMON STOCK" means the Company's common stock, no par value, and
stock of any other class into which such shares may hereafter have been
reclassified or changed.
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<PAGE>
"CONVERSION RATIO" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid late fees thereon) but only to the extent not paid in shares
of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price, or if applicable, the Non-Redemption
Conversion Price at such time.
"JUNIOR SECURITIES" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation preference
to the Preferred Stock.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"PER SHARE MARKET VALUE" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on the Nasdaq Stock Market
or other stock exchange or quotation system on which the Common Stock is then
listed or if there is no such price on such date, then the closing bid price on
such exchange or quotation system on the date nearest preceding such date, or
(b) if the Common Stock is not listed then on the Nasdaq Stock Market or any
stock exchange or quotation system, the closing bid price for a share of Common
Stock in the over-the-counter market, as reported by the Nasdaq Stock Market or
in the National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an Appraiser selected in good faith by
the Holders of a majority in interest of the shares of the Preferred Stock;
PROVIDED, HOWEVER, that the Company, after receipt of the determination by such
Appraiser, shall have the right to select an additional Appraiser, in which
case, the fair market value shall be equal to the average of the determinations
by each such Appraiser; and PROVIDED, FURTHER that all determinations of the Per
Share Market Value shall be appropriately adjusted for any stock dividends,
stock splits or other similar transactions during such period.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Preferred Stock Purchase
Agreement, dated as of February 2, 1998, among the Company and the original
Holders of the Preferred Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of February 2, 1998, by and among the Company and the
original Holders.
"TRADING DAY" means (a) a day on which the Common Stock is traded on
the Nasdaq Stock Market or other stock exchange or market on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on the Nasdaq
Stock Market or any stock exchange or market, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); PROVIDED, HOWEVER, that in the
event that
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<PAGE>
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"UNDERLYING SHARES" means the number of shares of Common Stock into
which the Shares are convertible and the shares or Common Stock issuable upon
payment of dividends thereon, in accordance with the terms hereof and the
Purchase Agreement .
Section 9. REDEMPTION OPTION UPON TRIGGERING EVENT. In addition to
all other rights of the Holders contained herein, after a Triggering Event (as
defined below), each Holder shall have the right, at such Holder's option, to
require the Company to redeem all or a portion of such Holder's Preferred Stock
at a price per share of Preferred Stock equal to the product of (i) the average
Per Share Market Value for the five (5) Trading Days immediately preceding (1)
the date of the Triggering Event or (2) the date of payment in full by the
Company of such redemption price, whichever is greater, and (ii) the Conversion
Ratio calculated on the date of the Triggering Event. A "Triggering Event" shall
be deemed to have occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be
declared effective by the Commission on or prior to the date that is 180 days
after the Original Issue Date;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the Holder of the Preferred Stock for sale of the Registrable Securities (as
defined in the Registration Rights Agreement) other than in accordance with the
terms of the Registration Rights Agreement, provided that the cause of such
lapse or unavailability is not due to factors solely within the control of such
Holder seeking to be redeemed pursuant to this Section 8;
(iii) the failure of the Common Stock to be listed on the
Nasdaq Stock Market, The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc. for a period of seven consecutive days; or
(iv) the Company's notice to any Holder of Preferred Stock,
including by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of any Preferred Stock into shares of
Common Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of this Company be, and they hereby are,
authorized and directed to prepare and file a Certificate of Determination of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of California law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
C. That the authorized number of shares of Preferred Stock of the Company is
2,000,000; that the number of shares constituting Series A Convertible Preferred
Stock is 100,000, of which 100,000 shares have been issued and 98,000 remain
outstanding; and that the authorized number of shares constituting Series B
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<PAGE>
Convertible Preferred Stock is 28,000 (that is the series created by this
Certificate and the resolution set forth above), of which no shares have been
issued.
We further declare under penalty of perjury under the laws of this State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Date: July 14, 1998.
/s/ William W. R. Elder
---------------------------------------------
William W. R. Elder, President, Chief
Executive Officer and Chairman of the Board
/s/ Mario M. Rosati
---------------------------------------------
Mario M. Rosati, Secretary
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series B
Convertible Preferred Stock indicated below, into shares of Common Stock, no par
value (the "Common Stock"), of Genus, Inc. (the "Company") according to the
conditions hereof, as of the date written below. If shares are to be issued in
the name of a person other than undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates and opinions as reasonably requested by the Company in accordance
therewith. No fee will be charged to the Holder for any conversion, except for
such transfer taxes, if any.
Conversion calculations:
----------------------------------------------------
Date to Effect Conversion
----------------------------------------------------
Number of shares of Preferred Stock to be Converted
----------------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------------
Applicable Conversion Price
----------------------------------------------------
Signature
----------------------------------------------------
Name
----------------------------------------------------
Address
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<PAGE>
EXHIBIT B
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Genus, Inc. (the "COMPANY") hereby
notifies the addressee hereof that the Company hereby elects to exercise its
right to convert [ ] shares of its 6% Series B Convertible Preferred Stock
(the "PREFERRED STOCK") held by the Holder into shares of Common Stock, no par
value (the "COMMON STOCK") of the Company according to the terms hereof, as of
the date written below. No fee will be charged to the Holder for any conversion
hereunder, except for such transfer taxes, if any which may be incurred by the
Company if shares are to be issued in the name of a person other than the person
to whom this notice is addressed.
Conversion calculations:
----------------------------------------------------
Date to Effect Conversion
----------------------------------------------------
Number of shares of Preferred Stock to be Converted
----------------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------------
Applicable Conversion Price
----------------------------------------------------
Name of Holder
----------------------------------------------------
Address of Holder
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<PAGE>
EXHIBIT 4.6
REDEMPTION AND EXCHANGE AGREEMENT
This REDEMPTION AND EXCHANGE AGREEMENT, dated as of July 16, 1998 (this
"Agreement") is entered into by and among Genus, Inc. (the "Company"),
Southbrook International Investments, Ltd. ("Southbrook"), Westover Investments
L.P. ("Westover"), Montrose Investments, Ltd. ("Montrose"), Brown Simpson
Strategic Growth Fund, L.P. ("Brown Simpson, L.P.") and Brown Simpson Strategic
Growth Fund, Ltd. ("Brown Simpson Ltd."; and collectively, with Southbrook,
Westover, Montrose and Brown Simpson, L.P., the "Purchasers").
A. The Company and the Purchasers entered into the Convertible Preferred
Stock Purchase Agreement, dated as of February 2, 1998 (the "Stock Purchase
Agreement"), pursuant to which the Company sold 100,000 shares of its 6% Series
A Convertible Preferred Stock (the "Series A Shares") which have the rights,
preferences and privileges set forth in the Certificate of Determination of the
Company filed with the California Secretary of State as of February 3, 1998 (the
"Series A Certificate of Determination").
B. The Company has entered into a Asset Purchase Agreement, dated as of
April 15, 1998, with Varian Associates, Inc. ("Varian") pursuant to which the
Company is selling certain assets to Varian (the "Varian Sale").
NOW, THEREFORE, in consideration of the mutual promises, representations,
warrants and conditions set forth herein, and intending to be legally bound, the
Company and the Purchasers agree as follows:
1. REDEMPTION. The Company and Purchasers, severally and not jointly,
hereby agree that the Company will redeem and the Purchasers will tender for
redemption (the "Redemption") on the business day following the closing of and
the Company's receipt of proceeds from the Varian Sale that number of Series A
Shares as is set forth opposite such Purchaser's name below (collectively, the
"Redeemed Series A Shares") for the redemption price set forth opposite such
Purchaser's name below:
<TABLE>
<CAPTION>
Purchaser Shares Redemption Price
-------------------------- ------ ----------------
<S> <C> <C>
Southbrook 35,000 $ 2,362,500.00
Westover 11,200 $ 756,000.00
Montrose 16,800 $ 1,134,000.00
Brown Simpson, L.P. 1,400 $ 94,500.00
Brown Simpson, Ltd. 5,600 $ 378,000.00
------ ----------------
Total: 70,000 $ 4,725,000.00
</TABLE>
<PAGE>
2. EXCHANGE. As soon as is practicable after the redemption price
described in paragraph 1 has been paid to such Purchaser, each Purchaser agrees
severally and not jointly that it will exchange (the "Exchange") each remaining
Series A Share held by it (collectively, the "Non-Redeemed Series A Shares") for
a newly issued share of Series B Convertible Preferred Stock ("Series B Shares")
having the rights, preferences and privileges set forth in the Certificate of
Determination attached hereto as Exhibit A (the "Series B Certificate of
Determination"). The Series B Shares will be issuable as follows:
<TABLE>
<CAPTION>
Purchaser Remaining Series A Shares Series B Shares Issuable
------------------- ------------------------- ------------------------
<S> <C> <C>
Southbrook 13,000 (*) 13,000
Westover 4,800 4,800
Montrose 7,200 7,200
Brown Simpson, L.P. 600 600
Brown Simpson, Ltd. 2,400 2,400
------ ------
Total: 28,000 28,000
</TABLE>
An original copy of the Series B Certificate of Determination has been filed
with the California Secretary of State. For purposes of the Series A
Certificate of Determination, the Series B Shares shall be considered a "series
of Preferred Stock issued and sold in accordance with the Purchase Agreement"
and the signatures of all of the Purchasers below shall be deemed to be an
affirmative vote of the holders of the Series A Shares permitting the issuance
of the Series B Shares. The parties agree that the Stock Purchase Agreement
shall be deemed amended to the extent necessary to reflect the agreements set
forth herein and Section 1.3(b) of the Stock Purchase Agreement shall be of no
further force and effect.
3. ESCROW. Immediately upon receipt of the proceeds of the Varian Sale,
the Company will wire into the client trust account of Wilson Sonsini Goodrich &
Rosati, P.C. ("WSGR"), the sum of $4,725,000 (the "Redemption Amount"). Each
Purchaser agrees to deliver all certificates representing the Series A Shares
(the "Series A Certificates") held by it, duly endorsed for transfer, to WSGR,
which will act as escrow agent (in such capacity, "Escrow Agent"), not later
than the business day after receipt by such Purchaser of notice from Escrow
Agent that Escrow Agent has received the Redemption Amount in its client trust
account. Upon tender of all of the Series A Certificates for redemption and
receipt of written direction from each Purchaser (or such Purchaser's
representative), Escrow Agent will cause the applicable Redemption Price to be
wired to each Purchaser according to wire instructions provided by each such
Purchaser to Escrow Agent and the
- ---------------
(*)Southbrook previously converted 2,000 shares.
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<PAGE>
Redemption will be deemed completed. If Escrow Agent does not receive the
Redemption Amount by July 31, 1998, a majority in interest of the Purchasers
shall have the right to terminate this Agreement by notice to the Company and to
Escrow Agent and in such case Escrow Agent will return the Redemption Amount to
the Company and the Series A Certificates to the Purchasers. If Escrow Agent
has received the Redemption Amount, but one or more of the Purchasers has not
tendered its Series A Certificate to the Company by July 31, 1998, the Company
shall have the right to either except the tendered Series A Shares for
redemption or terminate this Agreement by notice to the Escrow Agent and the
Purchasers.
4. COMPLETION OF EXCHANGE. Unless otherwise directed by the Company or a
Purchaser, Escrow Agent will continue to hold the Series A Certificates pending
exchange of the remaining Series A Shares for Series B Shares. Within one
business day of the closing of the Varian Sale, the Company shall deliver to
Escrow Agent certificates representing the Series B Shares to be held in escrow
pending the completion of the Exchange. The exchange of the Non-Redeemed
Series A Shares for the newly issued Series B Shares shall be deemed completed
concurrently with the declaration of effectiveness of the Post-Effective
Amendment (as defined below) with the Securities and Exchange Commission (the
"SEC") without further action on the part of any party and Escrow Agent is
authorized to deliver the applicable certificates representing the Series B
Shares to each Purchaser and to cancel each Series A Certificate immediately
after the Post-Effective Amendment is declared effective; PROVIDED, HOWEVER,
that if the SEC objects to the conditioning of the Exchange upon the
effectiveness of the Post-Effective Amendment, then the Company shall amend the
Post-Effective Amendment filing to provide that the Exchange shall take place
upon the filing of such amended Post-Effective Amendment and the Exchange shall
be deemed completed immediately prior to the filing of such Amended
Post-Effective Amendment and Escrow Agent will be authorized to deliver the
applicable certificates representing the Series B Shares to each Purchaser and
to cancel each Series A Certificate immediately after such filing.
5. SEC FILING. The Company agrees that, not later than the third
business day after the later to occur of (i) the closing of the Varian Sale and
(ii) the date on which the Company is notified that the Secretary of State of
the State of California has accepted for filing the Series B Certificate of
Determination (the "Filing Date"), it will file a post-effective amendment (the
"Post-Effective Amendment") to the Company's existing effective Registration
Statement (as defined in the Registration Rights Agreement as defined below)
with the SEC which would provide that the Registration Statement covers resales
of the Common Stock issuable upon conversion of the Series B Shares. The
Purchasers will be provided with drafts and given a reasonable opportunity to
comment upon the Post-Effective Amendment. The provisions of the Registration
Rights Agreement, dated as of February 2, 1998 (the "Registration Rights
Agreement"), among the Company and the Purchasers shall remain in effect, except
that (i) the references therein to the Registration Statement with respect to
the Series A Shares shall be deemed to refer to such Registration Statement as
amended by the Post-Effective Amendment and which is applicable to the resale of
the Common Stock issuable upon conversion of the Series B Shares, (ii) all
references to the "Series B Shares" therein shall not be applicable and all
references to the "Series B Warrants"
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<PAGE>
therein shall be deemed deleted and (iii) for purposes of the Post-Effective
Amendment, the requirement to register 200% of the maximum number of shares of
Common Stock into which the Series B Shares are convertible as set forth in
Clause (1) of the definition of "Registrable Securities" in the Registration
Rights Agreement shall be waived and the Company shall instead be required,
pursuant to such Clause (1) of such definition, to register 100% of the maximum
number of shares of Common Stock into which the Series B Shares are convertible.
The Purchasers acknowledge and agree that use of the prospectus under the
Registration Statement for the resale of Common Stock shall be suspended from
the date hereof until the Post-Effective Amendment is declared effective by the
SEC and that no penalty in respect thereof shall be applicable, notwithstanding
any term of the Purchaser Agreement or the Registration Rights Agreement. The
Company will use its reasonable best efforts to have the Post-Effective
Amendment declared effective as soon as possible after filing. If the Company
has not taken action to cause the Post-Effective Amendment to become effective
within 5 days of receiving notice from the SEC that the Post Effective Amendment
will not be reviewed or that any such review is complete, or if the Company
fails to respond to comments from the SEC within 10 days of receiving such
comments, then a majority in interest of the Purchasers shall have the right to
terminate this Agreement with respect to the Exchange and the Non-Redeemed
Series A Shares shall remain outstanding, and the Purchasers shall again be
permitted to utilize the prospectus existing with respect to the Series A Shares
as in effect prior to the filing of the Post-Effective Amendment.
6. TRANSFER AGENT INSTRUCTIONS. Contemporaneously with the issuance of
the Series B Shares, the Company shall deliver transfer agent instructions to
the transfer agent of the Company's Common Stock comparable to those delivered
in connection with the Series A Shares. The Series B shares and the Common
Stock issuable upon conversion thereof shall have restrictions on transfer and
shall bear legends which are the same as those applicable to the Series A
Shares.
7. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants as follows:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of California and has the power and
authority to own, lease and operate its properties and carry on its business as
now conducted.
(b) The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby (i) are
within the power of Company and (ii) have been duly authorized by all necessary
actions on the part of Company. Upon issuance, the Series B Shares and the
Common Stock issuable upon conversion thereof will be validly issued, fully paid
and non-assessable.
(c) This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of Company, enforceable
against Company in accordance with its terms, except as limited by bankruptcy,
insolvency or other laws of general
-4-
<PAGE>
application relating to or affecting the enforcement of creditors' rights
generally and general principles of equity.
(d) The execution and delivery by Company of this Agreement and the
performance and consummation of the transactions contemplated thereby do not and
will not (i) violate the Articles of Incorporation or Bylaws of the Company or
any material judgment, order, writ, decree, statute, rule or regulation
applicable to Company; (ii) violate any provision of, or result in the breach or
the acceleration of, or entitle any other person to accelerate (whether after
the giving of notice or lapse of time or both), any material mortgage,
indenture, agreement, instrument or contract to which the Company is a party or
by which it is bound; or (iii) result in the creation or imposition of any Lien
upon any property, asset or revenue of Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization or approval applicable to Company, its business or operations, or
any of its assets or properties.
(e) No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental authority or other person is
required in connection with the execution and delivery of this Agreement and the
performance and consummation of the transactions contemplated thereby, other
than the acceptance of the Series B Certificate of Determination with the
California Secretary of State, the filing of the Post-Effective Amendment with
and the declaration of effectiveness thereof by the SEC and any filings that may
be required with the Nasdaq Stock Market.
(f) The Company has paid no commission or other remuneration directly or
indirectly to any person for soliciting the Exchange.
(g) Neither the Company, nor any of its affiliates, nor any person acting
on its or their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would require registration of the Series B Shares under the Securities Act
of 1933, as amended.
8. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
severally represents and warrants as follows:
(a) Such Purchaser is a corporation duly incorporated or a limited
partnership duly formed, validly existing and in good standing under the laws of
its jurisdiction of incorporation or formation with the requisite power and
authority to enter into and perform the transactions contemplated hereby.
(b) The execution, delivery and performance by such Purchaser of this
Agreement and the consummation of the transactions contemplated hereby (i) are
within the power of such Purchaser and (ii) have been duly authorized by all
necessary actions on the part of such Purchaser.
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<PAGE>
(c) This Agreement has been duly executed and delivered by such Purchaser
and constitutes a legal, valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to or affecting the enforcement of creditors' rights generally and general
principles of equity.
(d) Each Purchaser acknowledges that it has reviewed or had the
opportunity to review all of the Company's filings with the SEC required under
the Securities Exchange Act of 1934, as amended, including without limitation
the Proxy Statement for Annual Meeting of Shareholders, dated as of June 29,
1998, which relates to, among other things, the Varian Sale.
9. ESCROW AGENT. In its capacity as Escrow Agent, WSGR shall act only
upon the written direction of the Company and/or each of the Purchasers (or
their representative), as described herein, and shall be fully protected in
relying on the correctness of all written instructions, notices, certificates
and documents which the Escrow Agent believes to be genuine and in complying
with the instructions therein. Escrow Agent shall in no event be liable for any
act taken or omitted hereunder for any reason, except as a result of its gross
negligence or willful misconduct. The Escrow Agent's duties and
responsibilities shall be limited to those expressly set forth in this
Agreement. In the event that Escrow Agent becomes involved in any dispute by
reason hereof, it is hereby authorized to deposit with the clerk of a court of
competent jurisdiction any funds or certificates held by it and its shall be
fully relieved and discharged of any further duties hereunder. The Escrow Agent
shall be a third party beneficiary of this Agreement.
10. APPOINTMENT OF REPRESENTATIVE. Each of the Purchasers appoints Robert
L. Miller as its representative for purposes of directing Escrow Agent to take
actions contemplated under this Agreement.
11. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of laws thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-6-
<PAGE>
IN WITNESS WHEREOF, the undersigned executed this Agreement as of the date
first written above.
GENUS, INC.
By: /s/ William W. R. Elder
------------------------------------------
Name: William W.R. Elder
Title: Chairman and Chief Executive Officer
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
By: /s/ Robert L. Miller
------------------------------------------
Name:
Title:
WESTOVER INVESTMENTS L.P.
By: /s/ Lawrence H. Lebowitz
------------------------------------------
Name: Lawrence H. Lebowitz
Title: Authorized Signatory
MONTROSE INVESTMENTS, LTD.
By: /s/ Lawrence H. Lebowitz
------------------------------------------
Name: Lawrence H. Lebowitz
Title: Authorized Signatory
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: /s/ Mitchell Kaye
------------------------------------------
Name:
Title:
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
By: /s/ Mitchell Kaye
------------------------------------------
Name:
Title:
-7-
<PAGE>
EXHIBIT 99.1
SUNNYVALE, Calif.--(BUSINESS WIRE)--July 29, 1998--Genus, Inc. (OTC,
NASDAQ:GGNS) today announced that the sale of its ion technology product group
to Varian Associates, Inc. has been completed.
Proceeds from this sale are valued at approximately $25 million with additional
payments if certain revenue targets are achieved during the next six months. As
part of this transaction, Varian will assume the lease of Genus' implant
manufacturing facility located in Newburyport, Mass.
"With the completion of the sale to Varian, Genus' business strategy will focus
solely on thin film deposition," commented William W.R. Elder, Genus chairman
and CEO. "The capital raised through this sale will be used to accelerate
ongoing advancements in the Company's product offerings. In addition, these
proceeds will be used to pay existing obligations, including the retirement of
short-term bank debt.
"The Company believes its stronger financial position will help it to weather
the industry downturn while funding the development of several new films. These
films will offer Genus the potential of entering new emerging markets and
broadening its customer base. We believe that Genus' redefined thin films
product strategy and technology roadmap will enhance the Company's thin film
market presence while allowing us to better serve our existing customers with
superior enabling thin film technologies."
Founded in 1982, Genus, Inc. designs, manufactures and markets thin films and
thin film deposition equipment used in the fabrication of advanced semiconductor
devices. The Company's customers include semiconductor manufacturers located
throughout the United States, Europe and the Pacific Rim including Korea, Japan
and Taiwan.
Headquartered in California, Genus' offices are located at 1139 Karlstad Drive,
Sunnyvale, CA 94089; telephone 408/747-7120; fax 408/747-7199. For the most
up-to-date company, product and financial information, visit Genus' web site at
http://www.genus.com.
This release contains forward-looking statements dependent on a number of risks
and uncertainties, including, but not limited to, retrenchment in the
semiconductor industry, general conditions in the Company's industry sector, and
the additional risks and uncertainties detailed under "Management's Discussion
and Analysis of Results of Operations and Financial Condition" contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1998.
<PAGE>
EXHIBIT 99.2
Sunnyvale, Calif., August 3, 1998 -- Genus, Inc. (OTC, NASDAQ: GGNS), today
announced that it reached an agreement to buy back a significant portion of the
$5 million of Series A Convertible Preferred Stock that was issued in February
to a group of investors as part of a private placement agreement. This
initiative allowed the Company to redeem $3.5 million of the outstanding
Series A shares for cash and to exchange the remaining Series A shares for
Series B Convertible Preferred Stock which has a fixed conversion price of
$1.25.
"The recent sale of our ion implant assets to Varian Associates, Inc. gave
us the additional cash resources needed to make this happen," commented William
W.R. Elder, Genus chairman and CEO. "We believe that this action is in the best
interest of Genus' shareholders as it will minimize dilution."
Founded in 1982, Genus, Inc. designs, manufactures and markets thin films
and thin film deposition equipment used in the fabrication of advanced
semiconductor devices. The Company's customers include semiconductor
manufacturers located throughout the United States, Europe and the Pacific Rim
including Korea, Japan and Taiwan. Headquartered in California, Genus' offices
are located at 1139 Karlstad Drive, Sunnyvale, CA 94089; telephone (408)
747-7120; fax (408) 747-7199. For the most up-to-date company, product and
financial information, visit Genus' new web site at http://www.genus.com.
This release contains forward looking statements dependent on a number of
risks and uncertainties, including, but not limited, retrenchment in the
semiconductor industry, general conditions in the Company's industry sector, and
the additional risks and uncertainties detailed under "Management's Discussion
and Analysis of Results of Operations and Financial Condition" contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, and the Company's quarterly report on Form 10-Q for the quarter ended
March 31, 1998.
