<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION NO. 333-38329
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPECTRA-PHYSICS LASERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3674 77-0264342
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1335 TERRA BELLA AVENUE
BUILDING 7
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 961-2550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
PATRICK L. EDSELL
SPECTRA-PHYSICS LASERS, INC.
1335 TERRA BELLA AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 961-2550
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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CARMEN J. ROMANO, ESQUIRE JEFFREY D. SAPER, ESQUIRE
JOHN D. LAROCCA, ESQUIRE J. ROBERT SUFFOLETTA, ESQUIRE
DECHERT PRICE & RHOADS WILSON SONSINI GOODRICH & ROSATI
4000 BELL ATLANTIC TOWER, 1717 ARCH STREET PROFESSIONAL CORPORATION
PHILADELPHIA, PENNSYLVANIA 19103-2793 650 PAGE MILL ROAD
(215) 994-4000 PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable on or after the effective date of this Registration
Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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===================================================================================================================
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER SHARE PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per share......... 2,760,000 $12.00 $33,120,000 $377
===================================================================================================================
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(1) Includes 360,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
(3) The amount of the registration fee has been determined after giving effect
to the $9,660 paid with the initial filing of the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
2,400,000 SHARES
[LOGO] SPECTRA-PHYSICS
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
Spectra-Physics Lasers, Inc. ("Spectra-Physics" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied to list the Common Stock on the Nasdaq National Market under the
symbol "SPLI."
Prior to this offering, Spectra-Physics AB, a Swedish corporation
("Spectra-Physics AB"), indirectly owned 100% of the outstanding shares of the
Company's Common Stock, and upon completion of this offering Spectra-Physics AB
will indirectly own 82.4% of the Company's Common Stock (80.6% if the
Underwriters' overallotment option is exercised in full) and will continue to
control the Company. See "Principal Stockholder" and "Certain Relationships and
Transactions -- Relationship with Spectra-Physics AB."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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============================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................. $ $ $
Total(3)................... $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
360,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities, Inc. on or about ,
1997.
------------------------
NATIONSBANC MONTGOMERY SECURITIES, INC.
COWEN & COMPANY
, 1997
<PAGE> 3
[LOGO] SPECTRA-PHYSICS
Customer Focus, Vision,
Technology Leadership, Commitment
[Photographs illustrating fiber coupled semiconductor laser, SLPSS laser
subsystem, semiconductor-based laser system and laser zone texturing system.]
Spectra-Physics is a leader in the design, development, manufacture, and
distribution of laser systems for a broad range of markets. The Company's
semiconductor-based products range from semiconductor lasers, the basic engine,
through semiconductor laser pumped solid state lasers to end user systems.
Through technological innovation, Spectra-Physics is leading the transition to
high power semiconductor-based lasers from conventional lasers such as gas,
liquid and lamp pumped lasers. Vertical integration into strategic technologies
enables Spectra-Physics to control critical aspects of products quality,
significantly improve time-to-market, reduce costs and identify new
applications. Spectra-Physics works closely with its customers to develop its
products and is focused on providing innovative solutions to customers needs.
[Photographs illustrating compact disks, semiconductor wafers and laser
devices.]
Printing. The printing industry is the third largest manufacturing business in
the world. In recent years, the commercial printing industry has increasingly
shifted to thermal-based materials which require high power semiconductor
lasers in the exposure process, replacing silver halide-based film. The Company
believes that the incremental use of thermal-based materials for commercial
printing will increase the demand for high power semiconductor-based lasers.
Materials Processing. Micromachining, marking, stereolithography and
semiconductor manufacturing processing, inspection and repair are growing
applications for SLPSS lasers. Spectra-Physics is a market leader in developing
high power SLPSS lasers for these application with a broad line of pulsed and
CW lasers. As these applications require increased laser performance,
Spectra-Physics is committed to providing its customers with lasers that meet
these requirements.
[Photographs illustrating scientific laser system and laser disk texturing
system.]
Scientific Laser Systems
Scientific research has always been a source of new technologies and techniques
that lead to broad applications and new markets. For example, the image shown
above is a 3-D reconstruction of a plant cell undergoing meiotic cell division,
created using two-photon microscopy. Over the past 36 years, Spectra-Physics has
created a number of innovative new laser sources for scientific applications.
One of these, the Millenia, a high power SLPSS laser, has become one of the most
popular and successful SLPSS lasers in the history of the R&D market.
Zone Texturing. The data storage industry is rapidly adopting laser-based
processing in a number of applications. One of these is laser zone texturing,
where laser-generated bumps replace a mechanically textured surface on a
magnetic hard disk. The result is a doubling of storage capacity in most cases.
Spectra-Physics' high power SLPSS lasers are the industry standard in this
application. Spectra-Physics has also created a laser-based disk texturing
system for the data storage industry.
[Illustrated time line including the following:]
SPECTRA-PHYSICS: A HISTORY OF EXCELLENCE
1961
Spectra-Physics, the first commercial laser company, is founded less than
a year after the invention of the laser.
1962-1971
The early years. Spectra-Physics releases the world's first gas
laser and the world's first ion laser. These types of lasers dominate the laser
market for the next 15 years.
1976
Spectra-Physics' high power helium neon lasers help enable the creation
of high speed noncontact printing.
1981
Spectra-Physics' development of a sealed cavity air cooled ion laser
significantly advances the digital prepress market.
1986
Spectra-Physics introduces the first SLPSS laser, setting the standard
for reliability and ease of use.
1989
Spectra-Physics creates the first high power SLPSS laser that efficiently
uses high power semiconductor lasers.
1992
Spectra-Physics forms a subsidiary which focuses on high power and lower cost
semiconductor lasers.
1992
Spectra-Physics introduces FCbar semiconductor laser pump technology, which
enables cost effective high power laser systems.
1993
Spectra-Physics enables the rapid development of the direct-to-press market
with its fiber coupled high power semiconductor lasers.
1995
Lasers using FCbar semiconductor pump sources become the industry standard for
SLPSS lasers, rapidly replacing alternatives technologies.
1996
Spectra-Physics introduces Millennia, the first high power continuous wave green
laser. It becomes one of the most successful SLPSS laser products for the R&D
market.
1997
Spectra-Physics more than triples the output power from a single semiconductor
laser device.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information including "Risk Factors" and Financial Statements and the Notes
thereto appearing elsewhere in this Prospectus. The shares of Common Stock
offered hereby involve a high degree of risk. This Prospectus contains, in
addition to historical information, forward looking statements that involve
certain risks and uncertainties. The Company's actual results may differ
substantially from the results discussed in the forward looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the sections entitled "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as those discussed elsewhere in this Prospectus. Unless the
context otherwise requires, all references to the "Company" mean Spectra-Physics
Lasers, Inc. and its subsidiaries, after giving effect to the Reorganization
described under "Certain Relationships and Transactions -- Relationship with
Spectra-Physics AB." For an explanation of certain terms used in this
Prospectus, refer to the Glossary at page G-1.
THE COMPANY
The Company is a leader in the design, development, manufacture and
distribution of lasers and laser systems for a broad range of markets. The
Company has been a pioneer in the laser industry and has developed a proprietary
and patented portfolio of laser, optic and related manufacturing technologies.
The Company offers two broad product lines: high power semiconductor-based
lasers and laser-based systems, and conventional lasers and laser-related
products. The Company's high power semiconductor-based products range from
semiconductor lasers, the basic engine, through semiconductor laser pumped
lasers to end user systems. Through technological innovation, the Company is
leading the transition to high power semiconductor-based lasers from
conventional lasers such as gas, liquid and lamp pumped lasers. The Company has
been at the forefront of high power semiconductor-based laser technology for the
last 14 years and is leveraging its technical strengths to develop high power
semiconductor-based lasers, which are more efficient, reliable, cost-effective
and compact than existing lasers. These lasers are enabling many new
applications and replacing conventional lasers in existing applications in
industrial, OEM and research and development markets. According to Strategies
Unlimited, a market research firm, the use of high power semiconductor-based
lasers is expected to increase approximately 30% to 40% annually over the next
several years.
The Company is also a leading supplier of conventional lasers and
laser-related products to industrial and research and development customers.
These lasers, while based upon older technology, have unique performance
characteristics that make them the only current solution for certain demanding
technical applications. According to Laser Focus World, the market for
conventional lasers is expected to grow from $1.1 billion in 1996 to $1.3
billion in 1997. The Company's conventional products include ultrafast systems,
amplifier systems, optical parametric oscillators, air and water cooled ion
lasers, high energy flash lamp pumped YAG lasers, optics and optical systems.
The Company's strong market position and technology leadership in these
conventional laser applications enhance its opportunity to expand its high
growth semiconductor-based laser business by generating funds, capitalizing on
strong customer relationships and leveraging its technological expertise.
The Company works closely with its customers to develop its products and is
focused on providing innovative solutions to customer needs. To control critical
aspects of product quality, significantly improve time-to-market, reduce costs
and identify new applications, the Company has vertically integrated into
strategic technologies. The Company sells its products to a wide range of
customers for use in a variety of applications such as commercial printing,
materials processing, medical, research and development, optical data storage
and semiconductor manufacturing, inspection and repair. The Company's customers
include 3D Systems, Becton Dickinson, DaiNippon Screen, Electro-Scientific
Industries, Haemonetics, IBM, KLA/Tencor, Komag, Presstek, Rofin-Sinar, Seagate
and Western Digital.
The Company believes that it is uniquely positioned to capitalize on the
significant market opportunities for high power semiconductor-based lasers and
end-user systems. Key elements of the Company's strategy include: (i)
capitalizing on its leadership in semiconductor-based laser technology; (ii)
developing new applications and markets; (iii) introducing systems products;
(iv) continuing support of conventional laser technology; and (v) leveraging the
benefits of vertical integration.
The Company's principal executive offices are located at 1335 Terra Bella
Avenue, Building 7, Mountain View, California 94043, and its telephone number is
(650) 961-2550.
3
<PAGE> 5
RELATIONSHIP WITH SPECTRA-PHYSICS AB
The Company is currently a wholly-owned indirect subsidiary of
Spectra-Physics AB, a multinational corporation based in Sweden. Upon completion
of the offering, Spectra-Physics AB will own beneficially approximately 82.4% of
the Company's outstanding Common Stock (approximately 80.6% if the Underwriters'
over-allotment option is exercised in full). See "Principal Stockholder."
Prior to the Reorganization described below, the Company, Opto Power
Corporation ("Opto Power") and Spectra-Physics Laser Data Systems, Inc. ("Laser
Data"), together with various foreign subsidiaries of Spectra-Physics AB that
conducted sales and technical support operations on their behalf, were operated
as a functional group called the Lasers and Optics Group (collectively, the
"Lasers and Optics Group"). In preparation for the offering, the Lasers and
Optics Group was reorganized (the "Reorganization") in October 1997 so that the
assets and liabilities (including contractual rights and obligations) of the
Lasers and Optics Group are now held directly or indirectly by the Company. In
connection with the Reorganization, the Company has entered into or will enter
into certain agreements with Spectra-Physics AB or its subsidiaries relating to
certain aspects of the ongoing relationships between them, such as
administrative support services and distribution, facilities leasing, trademark
and patent license arrangements. Prior to the closing of the offering, the
Company will also enter into a registration rights agreement with
Spectra-Physics Holdings USA, Inc. ("Spectra-Physics USA"), a wholly-owned
subsidiary of Spectra-Physics AB. See "Certain Relationships and
Transactions -- Relationship with Spectra-Physics AB" and "Certain Relationships
and Transactions -- Post-Reorganization Agreements."
THE OFFERING
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Common Stock offered by the Company.......... 2,400,000 shares
Common Stock to be outstanding after the
offering(1)................................ 15,770,948 shares
Use of Proceeds.............................. For general corporate purposes, including
working capital and capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol....... "SPLI"
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- ---------------
(1) Excludes 2,158,645 shares of Common Stock issuable upon exercise of stock
options to be granted by the Company at the time of the offering at an
exercise price equal to the initial public offering price pursuant to the
1997 Spectra-Physics Lasers, Inc. Stock Option Plan (the "1997 Plan"), and
includes 370,948 shares of Common Stock (assuming an initial public offering
price of $11.00 per share) to be issued pursuant to the Company's Option
Cancellation and Restricted Stock Plan Agreements (the "Restricted Stock
Plan Agreements") upon completion of the offering. See "Management -- 1997
Spectra-Physics Lasers, Inc. Stock Option Plan" and
"Management -- Restricted Stock Plan."
------------------------
Except as otherwise indicated, all information contained in this Prospectus
(i) assumes no exercise of the Underwriters' over-allotment option, (ii) gives
effect to the issuance of 370,948 shares of Common Stock (assuming an initial
public offering price of $11.00 per share) pursuant to the Restricted Stock Plan
Agreements as partial consideration for the cancellation of certain Opto Power
stock options and (iii) gives effect to the recapitalization of each share of
the Company's previously issued common stock into 130,000 shares of Common
Stock.
------------------------
FC bar and Millennia are registered trademarks of the Company.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,(1)
---------------------------------------------------------------- ------------------------------------------------
1992 1993 1994 1995 1996 1996 1996 1996 1997 1997
------- ------- ------- -------- -------- ------------ ------- ------------ -------- ------------
ACTUAL PRO FORMA(2) ACTUAL PRO FORMA(2) ACTUAL PRO FORMA(2)
-------- ------------ ------- ------------ -------- ------------
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STATEMENT OF
OPERATIONS
DATA:
Net sales... $80,163 $88,997 $95,123 $112,527 $135,434 $135,434 $90,415 $ 90,415 $113,061 $113,061
Gross
margin.... 27,874 27,997 32,641 39,487 47,114 47,114 30,831 30,831 41,883 41,883
Operating
income
(loss).... (4,568) (10,697) 41 1,843 (772) 4,228 (3,257) 493 (8,686) 5,814
Net income
(loss)(3)... (7,864) (13,098) (5,201) (2,019) (4,248) 6,126 (5,382) 2,308 30,232 41,492
Pro forma
net income
(loss) per
share(3)... $ (0.33) $ 0.46 $ 2.33 $ 3.10
Shares used
in
computing
pro forma
net income
(loss) per
share(4)... 13,000 13,371 13,000 13,371
OTHER DATA:
Operating
income
(loss)
before
infrequent
or unusual
items(5)... $(4,568) $(9,555) $ 41 $ 3,706 $ 6,143 $ 6,143 $ 1,505 $ 1,505 $ 7,471 $ 7,471
</TABLE>
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AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1997(1)
------------------------------------------------- ---------------------------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(2) AS ADJUSTED(6)
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BALANCE SHEET DATA:
Working capital..................... $25,858 $26,977 $26,452 $ 30,273 $ 27,531 $29,471 $ 46,139 $ 69,042
Total assets........................ 69,038 66,307 65,915 80,691 86,848 103,934 108,576 131,479
Long term obligations............... 43,920 57,852 58,775 69,067 71,584 73,289 1,665 1,665
Parent equity (deficit)............. 5,424 (10,823) (14,348) (16,480) (21,223) (18,741) 71,446 94,349
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(1) The Company's fiscal year ends on December 31. The Company's fiscal quarters
end on the Friday closest to the end of the calendar month. For presentation
purposes, the financial information reflects the calendar month and date.
(2) The pro forma data gives effect to the: (a) conversion to equity of amounts
due by the Company to Spectra-Physics AB and affiliates for loans, advances
and accrued interest; (b) removal of interest expense related to such loans
and advances; (c) contribution to equity of the Company by Spectra-Physics
AB and affiliates in October 1997 of certain net assets related to foreign
holding companies of Spectra-Physics AB and cash to settle certain net
liabilities of the holding companies; (d) cancellation of certain employee
stock options for cash and equity (including related shares of common stock)
and the contribution to equity by Spectra-Physics AB and affiliates of the
cash used for such cancellation; and (e) related impact of income taxes.
(3) Net income for the nine months ended September 30, 1997 includes $17,010,000
of net proceeds from a legal settlement and $23,272,000 from the recognition
of income tax benefits.
(4) See Note 2 of the Notes to the Consolidated Financial Statements for an
explanation of shares used in computing pro forma net income (loss) per
share
(5) Other data is presented as supplemental information and should not be
construed as a substitute, or better, indicator of, results of operations
than operating income (loss) or net income (loss) determined in accordance
with generally accepted accounting principles. This data represents
historical operating income (loss) adjusted for the following: (a)
restructuring expenses of $1,142,000 in 1993; (b) legal expenses associated
with a lawsuit which was settled in the second quarter of 1997 of $863,000
in 1995 and $1,915,000 in 1996 and $1,012,000 and $1,657,000 in the nine
months ended September 30, 1996 and 1997, respectively; and (c) compensation
expense associated with stock options of $1,000,000 in 1995 and $5,000,000
in 1996 and $3,750,000 and $14,500,000 in the nine months ended September
30, 1996 and 1997, respectively. As a result of the legal settlement, the
Company received net proceeds of $17,010,000 that was included in other
income in the nine months ended September 30, 1997. In October 1997, the
stock options were canceled for a combination of cash and the Company's
future obligation to issue capital stock of the Company upon completion of
the offering. As a result of the agreement to cancel the stock options for a
combination of cash and capital stock of the Company, the Company reversed
approximately $1.4 million of excess accrued expenses in the fourth quarter
of 1997. While such legal and compensation expenses are not expected to be
incurred in the future, there can be no assurance that similar items might
not occur. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(6) Adjusted to give effect to the pro forma adjustments described in Note 2
above and the sale of 2,400,000 shares of Common Stock offered hereby (at an
assumed initial public offering price of $11.00 per share) and the
application of the estimated net proceeds therefrom after deducting
underwriting discounts and estimated offering expenses payable by the
Company.
5
<PAGE> 7
RISK FACTORS
This Prospectus contains forward looking statements which involve a number
of risks and uncertainties. Actual results could differ materially from those
discussed in the forward looking statements. Factors that could cause actual
results to differ materially include, without limitation, the risk factors
discussed below as well as the risks discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and
elsewhere in this Prospectus. In addition to the other information contained in
this Prospectus, the following Risk Factors should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered hereby.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's operating results have fluctuated significantly in the past
and are expected to fluctuate in the future on a quarterly and annual basis as a
result of a number of factors, many of which are beyond the Company's control.
Results in any period could be affected by changes in market demand, competitive
market conditions, market acceptance of new or existing products, fluctuations
in foreign exchange rates, the cost and availability of components, the
Company's ability to manufacture and ship products, the mix of the Company's
customer base and sales channels, the mix of products sold, the Company's
ability to expand its sales and marketing organization effectively, the
Company's ability to attract and retain key technical and managerial employees
and general economic conditions. Due to the foregoing factors, the Company's
operating results in one or more future periods are expected to be subject to
significant fluctuations. In the event such fluctuations result in the Company's
financial performance being below the expectations of public market analysts and
investors, the price of the Company's Common Stock would likely decline, perhaps
substantially.
Sales to individual customers are often related to a customer's specific
requirements, the timing of which is subject to change. From time to time, the
Company has experienced accelerations and slowdowns in shipments to customers,
causing changes in the sales level of a given quarter relative to both the
preceding and subsequent quarters. A significant portion of the Company's sales
are to customers in the research and development market. Sales into this market
have historically varied from quarter-to-quarter due to seasonal fluctuations
and governmental spending patterns. In addition, announcements by the Company or
its competitors of new products or technologies could cause customers to defer
purchases of the Company's existing products. In the event that anticipated
orders from customers fail to materialize, or delivery schedules are deferred or
canceled as a result of the above factors or other unanticipated factors, the
Company's business, operating results and financial condition would be
materially adversely affected. As a result, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indicative of future performance.
The Company has experienced a trend in its sales whereby its fiscal fourth
quarter net sales represent a disproportionate share of the Company's annual net
sales and whereby the Company's first quarter net sales decline significantly
compared to the fourth quarter of the prior fiscal year. The Company believes
these sales patterns result in part because of Spectra-Physics AB's emphasis on
annual (as opposed to quarterly) results and in part from the Company's
incentive compensation plan which compensates employees based on annual results.
The Company recognizes that the non-linear pattern of its shipments leads to
inefficiencies in asset and employee utilization. The Company is taking steps to
mitigate this sales trend, but this pattern is likely to continue in the near
term.
Despite the fluctuations in its quarterly sales patterns, the Company's
operating expenses are incurred on an approximately ratable basis. As a result,
if expected sales are deferred for any reason, the Company's business, operating
results and financial condition could be materially adversely affected.
The Company's gross margin is affected by a number of factors, including
product mix, product pricing, cost of components, the proportion of third party
products incorporated into the Company's systems, foreign exchange rates and
manufacturing costs. For example, since semiconductor-based lasers and laser
systems generally have higher gross margins than conventional lasers, absent
other factors, a shift in sales toward semiconductor-based lasers and systems
would lead to a gross margin improvement for the Company. On the
6
<PAGE> 8
other hand, if market conditions in the highly competitive conventional laser
market forced the Company to lower unit prices, the Company would suffer a
decline in gross margin unless the Company were able to timely offset the price
reduction by a reduction in production costs or by sales of other products with
higher gross margins. Either of these events could have a material effect on the
Company's business, operating results and financial condition.
The Company's backlog on a given date consists of written purchase orders
for products which are scheduled to be shipped within the following twelve
months. Orders in backlog are firm, but are generally subject to cancellation or
rescheduling without penalty. Decisions by customers to reduce inventory levels
could lead to reductions in purchases from the Company and could have a material
adverse effect on the Company's business, operating results and financial
condition.
CONTROL BY PRINCIPAL STOCKHOLDER
Prior to this offering, Spectra-Physics AB, through wholly-owned
subsidiaries, was the sole stockholder of the Company. Upon completion of the
offering, Spectra-Physics AB will beneficially own approximately 82.4% of the
outstanding shares of Common Stock of the Company (approximately 80.6% if the
Underwriters' over-allotment option is exercised in full). As a result,
Spectra-Physics AB will be able to control the outcome of matters requiring
stockholder approval, including the election of directors, and will have the
ability to control the business and affairs of the Company. So long as
Spectra-Physics AB continues to beneficially own a significant amount of the
Company's outstanding Common Stock, only a limited percentage of the Common
Stock will be traded in the public market.
In connection with the Reorganization, the Company has entered into or
expects to enter into certain agreements with Spectra-Physics AB or its
affiliates relating to certain aspects of the ongoing relationships between
them, such as tax sharing, administrative support service, office space rental
and trademark and patent license arrangements. Accordingly, the Company will
depend in part on its continuing relationship with Spectra-Physics AB. See
"Principal Stockholder" and "Certain Relationships and
Transactions -- Relationship with Spectra-Physics AB."
RISKS ASSOCIATED WITH SOLE SUPPLIERS AND LIMITED SOURCES
A number of components necessary for the manufacture and operation of many
of the Company's products such as crystals, ceramic components and Q switches
are obtained from sole suppliers or a limited group of suppliers. The Company
has experienced shortages of such supplies in the past. The Company does not
maintain any long-term supply agreements with any of its suppliers. The
Company's reliance on sole or a limited group of suppliers involves several
risks, including a potential inability to obtain an adequate supply of required
components and reduced control over pricing. The disruption or termination of
any of these sources could have a material adverse effect on the Company's
business, operating results and financial condition. Any inability to obtain
adequate deliveries or any other circumstance that would require the Company to
seek alternative sources of supply or to manufacture such components internally
could significantly delay the Company's ability to ship its products, which
could damage relationships with current and prospective customers and could have
a material adverse effect on the Company's business, operating results and
financial condition.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends to a significant degree on the efforts
of the Company's senior management team. The Company's operations may be
adversely affected if one or more members of senior management were to leave the
Company. The Company is also dependent upon its ability to attract and retain
qualified employees, particularly highly skilled design, process and test
engineers involved in the manufacture of existing products and the development
of new products and processes. The competition for such personnel is intense,
and the loss of key employees or the failure to attract qualified new employees
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Technology" and "Management."
7
<PAGE> 9
MANUFACTURING RISKS
The manufacture of certain of the laser and optic components, products and
systems sold by the Company is a highly complex and precise process. As a result
of the technical complexity of the Company's products, changes in the Company's
or its suppliers' manufacturing processes, or the inadvertent use of defective
or contaminated materials by the Company or its suppliers, could result in a
material adverse effect on the Company's ability to achieve acceptable
manufacturing yields and product reliability. To the extent the Company does not
achieve such yields or product reliability, its business, operating results,
financial condition and customer relationships would be adversely affected. See
"Business -- Manufacturing Operations."
The Company relies exclusively on its own production capability to
manufacture certain strategic components, optics and optical systems,
semiconductor lasers, lasers and laser-based systems. Because the Company
manufactures, packages and tests these components, products and systems at its
own facilities, and such components, products and systems are not readily
available from other sources, any interruption in manufacturing resulting from
shortages of parts or equipment, fire, earthquake, natural disaster, equipment
failures or otherwise would have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business -- Manufacturing Operations."
DEPENDENCE ON KEY MARKETS AND SUCCESSFUL IDENTIFICATION OF NEW MARKETS
The Company's current products serve many applications in the commercial
printing, materials processing, medical, research and development, optical data
storage and semiconductor manufacturing, inspection and repair markets. No
assurances can be given that these markets will continue to generate significant
or consistent demand for the Company's products. Existing markets could be
significantly diminished by new technologies or products that replace or render
obsolete the Company's technologies and products. The Company is dependent on
successfully identifying new markets for its products. There can be no assurance
that the Company will be able to successfully identify new high-growth markets
in the future. Moreover, there can be no assurance that new markets will develop
for the Company's or its customers' products, or that the Company's technology
or pricing will enable such markets to develop. See "Business -- Products."
DEPENDENCE ON KEY CUSTOMERS
The Company's customers are generally not contractually obligated to
purchase any specified quantity of products in any particular period, and
product sales to major customers have varied widely from quarter to quarter and
year to year. There can be no assurance that the Company's current customers
will continue to place orders with the Company, that orders by existing
customers will continue at the levels of previous periods or that the Company
will be able to obtain orders from new customers. Loss of, or a material
reduction in orders by, one or more of the Company's major customers would have
a material adverse effect on the Company's business, operating results and
financial condition. Even if relationships with existing major customers
continue, such customers' requirements for the Company's products will depend on
the success of their product development, marketing, sales and other business
efforts. The Company's or its customer's products could be replaced or made
obsolete by other technologies or products, potentially leading to an adverse
impact on the Company's business, operating results and financial condition. See
"Business -- Products."
RISKS OF MANAGING FUTURE GROWTH
Any significant growth in the Company's sales or any significant expansion
in the scope of its operations would likely strain the Company's management,
financial, manufacturing and other resources and may require the Company to
implement and improve a variety of operating, financial and other systems,
procedures and controls. While the Company plans significant expansion of its
manufacturing, sales, accounting and other information systems to meet these
challenges, there can be no assurance that these efforts will succeed, or that
any existing or new systems, procedures or controls will be adequate to support
the Company's operations or that its systems, procedures and controls will be
designed, implemented or improved in a cost effective and
8
<PAGE> 10
timely manner. Any failure to implement, improve and expand such systems,
procedures and controls in a timely and efficient manner could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Manufacturing Operations" and
"Business -- Facilities."
RAPID AND FUNDAMENTAL TECHNOLOGICAL CHANGE
The laser and optics industry is characterized by extensive research and
development expenditures and rapid technological change. The development by
current or future competitors of new or improved products, processes or
technologies may make the Company's current or proposed products obsolete or
less competitive. Although the Company devotes significant resources to further
develop and enhance its existing products, including its semiconductor-based
lasers, there can be no assurance that new or alternative technologies will not
make the Company's products obsolete or less competitive. The Company's future
business, operating results and financial condition will depend on its ability
to enhance its existing products, develop new products that address the
particular needs of its customers and respond to technological advances and
emerging industry standards and practices. See "-- Dependence on Key Markets and
Successful Identification of New Markets."
COMPETITION
The Company's various markets are highly competitive. The Company's overall
competitive position depends on a number of factors including the price, quality
and performance of its products, the level of customer service, the development
of new technology and the Company's ability to participate in emerging markets.
The Company faces competition from three primary sources: current direct
competitors, potential competitors and suppliers of new technologies. The
Company offers a range of components, subsystems, products and systems and has a
number of competitors worldwide in various segments of its markets. In its HPSL
markets, direct competitors include SDL, Inc., Siemens and Thompson-CSF. In its
SLPSS laser markets, major competitors include Coherent, Inc. and Lightwave
Electronics Inc. In the laser disk texturing market, the Company's major
competitor is IBM Corporation. In its other product markets, the Company's major
competitors include Coherent Inc., Continuum (a division of Hoya) and Uniphase
Corporation. None of the Company's competitors competes in all of the product
areas and industries currently served by the Company. However, as existing or
new markets continue to grow, the Company expects that new competitors will
emerge and present competitors will seek to increase their market share.
New technologies may emerge to compete with the Company's products. For
example, Polaroid has recently developed a fiber laser working in conjunction
with SDL. This technology, which is also being developed by the Company, will
compete in some markets with SLPSS lasers. In most of the Company's product
lines, both the Company and its competitors are working to develop new
technologies, or improvements and modifications to existing technologies, which
will render present products obsolete. There can be no assurance that the
Company's development efforts will be successful. In addition, there can be no
assurance that markets will develop for any such future products, or that any
such products will be competitive with other technologies or products that may
be developed by others. Some of the Company's competitors have significantly
greater financial, technical, manufacturing, marketing, sales and other
resources than the Company. In addition, some of these competitors may be able
to respond more quickly to new or emerging technologies, evolving industry
trends and changes in customer requirements and to devote greater resources to
the development, promotion and sale of their products than the Company. There
can be no assurance that the Company's current or potential competitors will not
develop or acquire products comparable or superior to those developed by the
Company, combine or merge to form larger, more significant competitors, or adapt
more quickly than the Company to new technologies, evolving industry trends and
changing customer requirements. Increased competition has resulted and is
expected, in the future, to result in price reductions, reduced margins or loss
of market share, any of which could materially and adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures faced by the Company will
not have a material adverse effect on its business, operating results and
financial condition. The Company expects that both direct and indirect
competition will increase in the future. Additional competition
9
<PAGE> 11
could adversely affect the Company's business, operating results and financial
condition through price reductions or loss of market share. See
"Business -- Competition."
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISK OF PATENT INFRINGEMENT CLAIMS
The Company's future success and competitive position is dependent upon its
proprietary technology, and the Company relies on patent, trade secret,
trademark and copyright law to protect its intellectual property. There can be
no assurance that the patents owned or licensed by the Company will not be
invalidated, circumvented, challenged or licensed to others, that the rights
granted thereunder will provide competitive advantages to the Company or that
any of the Company's pending or future patent applications will be issued within
the scope of the claims sought by the Company, if at all. Furthermore, there can
be no assurance that others will not develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology or
design around the patents owned by the Company. In addition, effective
copyright, patent and trade secret protection may be unavailable, limited or not
applied for in certain foreign countries. Certain of the Company's technology is
licensed on a non-exclusive basis from third parties which may license such
technology to others, including competitors of the Company. There can be no
assurance that the steps taken by the Company to protect its technology will
prevent misappropriation of such technology.
The laser and optics industry is characterized by frequent litigation
regarding patent and other intellectual property rights. Litigation has been
necessary and may be necessary in the future to enforce the Company's patents
and other intellectual property rights, to protect the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. Such litigation has in the
past resulted in substantial costs and diversion of resources and any future
actions could have a material adverse effect on the Company's business,
operating results and financial condition. In particular, the Company has been
involved in litigation with two of its principal competitors, SDL and Uniphase
Corporation. The SDL litigation, which was settled in 1997, was initiated by the
Company in 1995 to enforce its rights under a technology agreement with SDL. The
Uniphase litigation was initiated by the Company in 1991 to enforce the
Company's rights under one of its patents. The Uniphase litigation was settled
in 1994.
From time to time the Company has received and expects in the future to
receive notices of claims of infringement of other parties' proprietary rights.
There can be no assurance that infringement claims (or claims for
indemnification resulting from infringement claims) will not be asserted against
the Company or will not result in an injunction against the sale of allegedly
infringing products or otherwise materially adversely affect the Company's
business, operating results and financial condition. See "Business --
Technology."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales accounted for approximately 60%, 60%, 52% and 44%, of
the Company's net sales in 1994, 1995 and 1996, and the first nine months of
1997, respectively. International sales carry a number of inherent risks,
including exposure to currency fluctuations, potentially adverse tax
consequences, reduced protection for intellectual property rights in some
countries, the impact of recessionary environments in economies outside the
United States, generally longer receivable collection periods, changes in
political and regulatory environments, tariffs and other potential trade
barriers. In addition, certain of the Company's international sales are subject
to export licensing and approvals by U.S. governmental agencies. Although to
date the Company has experienced no significant difficulty in obtaining such
licenses or approvals, the failure to obtain such licenses or approvals or
comply with such regulations in the future could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business -- Sales and Marketing" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
10
<PAGE> 12
POTENTIAL ADVERSE IMPACT OF ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
The Company's facilities and operations are subject to a wide variety of
foreign, federal, state and local environmental laws, regulations and
ordinances, including those related to air emissions, wastewater discharges and
chemical and hazardous waste management and disposal ("Environmental Laws"). The
Company's operations also are governed by laws relating to workplace safety and
worker health, primarily the Occupational Safety and Health Act ("Employee
Safety Laws"). Further, compliance with Environmental Laws also may require the
acquisition of permits or other authorizations for certain activities and
compliance with various standards or procedural requirements. Although the
Company believes that its operations are in compliance in all material respects
with current requirements under Environmental Laws and Employee Safety Laws, the
nature of the Company's operations exposes it to the risk of liabilities or
claims with respect to such matters.
Certain of these Environmental Laws, including the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("CERCLA") and similar
state laws (collectively, "Superfund Laws"), hold owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products ("Hazardous
Substances"). Such Superfund Laws also provide for responses to and liability
for releases of certain Hazardous Substances into the environment. The nature of
the Company's operations and the long history of industrial uses at some of its
current or former facilities expose the Company to risk of liabilities or claims
under Superfund Laws. The Company has received three notifications from state or
federal environmental regulatory agencies stating that the Company may be
potentially responsible under Superfund Laws for the release of Hazardous
Substances generated by its former operations at three locations. The Company
responded to the inquiries by asserting that it was not responsible for response
activities at any of these sites. Since the Company provided its responses, the
environmental regulatory agencies have not pursued the Company as a potentially
responsible party at two of the sites and the Company received a letter from the
environmental agency stating that it does not consider the Company as a
potentially responsible party at this time at the third site.
Since 1984, the Company's facilities in Mountain View, California
("Mountain View Site") have been undergoing investigation and remediation in
response to past releases of industrial solvents to the soil and groundwater. In
addition, the impacted groundwater has migrated to what is referred to as the
North Bayshore Area. As a result of these past releases, the Mountain View Site
and other neighboring sites are listed on the National Priorities List ("NPL" or
the "Superfund List") under CERCLA. The Company is subject to orders issued by
the California Regional Water Quality Control Board ("Orders") that require the
Company to perform remediation on- and off-site and investigate other
potentially responsible parties. Pursuant to the Orders and other orders issued
to other responsible parties, the Company and other responsible parties are
jointly performing and funding remediation which includes soil treatment and
on-site and off-site groundwater extraction, treatment and monitoring. All of
the required soil and groundwater remediation and monitoring systems currently
required by the Order are in place, and consequently the initial capital
expenses for such systems have been incurred. In October 1997, the Company was
served with a complaint that had been filed in the Superior Court of the State
of California seeking an unspecified amount of damages for personal injuries and
property damage incurred by residents of a single location alleged to have
resulted from the Company's and others' negligent and/or intentional handling of
toxic chemicals (Rosario Balcita et al. v. Teledyne Semiconductor,
Spectra-Physics Lasers, et al.). While the Company believes it has meritorious
defenses to the claims asserted in this lawsuit and intends to vigorously defend
itself in this case, the amount of loss, if any, that may result upon resolution
of this complaint is not currently estimable nor have any amounts been accrued
in the Company's financial statements. Accordingly, there can be no assurance
that the complaint will be resolved without adverse impact to the Company's
financial position or results of operations. There can be no assurances that
other parties will not come forward and claim personal injury or property
damage.
Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing Environmental Laws (or liability for
known environmental liabilities or claims) and Employee Safety Laws should not
have a material adverse effect on the Company's business, operating results and
11
<PAGE> 13
financial condition. However, future events, such as changes in existing laws
and regulations or their interpretation, or the discovery of heretofore unknown
contamination, may give rise to additional compliance costs or liabilities that
could have a material adverse effect on the Company's business, operating
results and financial condition. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of regulatory
agencies or stricter or different interpretations of existing laws, may require
additional expenditures by the Company that may be material. See
"Business -- Environmental Matters."
POTENTIAL SALES OF STOCK BY SPECTRA-PHYSICS USA; SHARES ELIGIBLE FOR FUTURE SALE
Future sales by Spectra-Physics USA of the Company's Common Stock could
adversely affect the prevailing market price of the Common Stock. The Company
and Spectra-Physics USA have agreed not to offer, sell or otherwise dispose of
any shares of Common Stock except with respect to the Company's existing
employee benefit plans, without the prior written consent of NationsBanc
Montgomery Securities, Inc., for a period of 180 days after the date of this
Prospectus (the "Lockup Period"). Following the Lockup Period, Spectra-Physics
USA will be permitted to sell in the public market specified amounts of Common
Stock without registration pursuant to Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"). In addition, prior to the closing of
the offering, the Company will enter into a registration rights agreement with
Spectra-Physics USA that will obligate the Company to register under the
Securities Act the shares of Common Stock owned by Spectra-Physics USA upon its
demand. See "Principal Stockholder," "Shares Eligible for Future Sale" and
"Certain Relationships and Transactions."
The Company is expected to reserve 2,252,993 shares of Common Stock
(assuming the Underwriters' overallotment option is not exercised) for issuance
upon the exercise of options under the 1997 Plan. At the time of the offering,
the Company intends to grant under the 1997 Plan options to purchase 2,158,645
shares of Common Stock. Following the offering, the Company intends to register
the shares of Common Stock issued or reserved for issuance pursuant to the 1997
Plan under the Securities Act pursuant to a Registration Statement on Form S-8.
See "Management -- 1997 Spectra-Physics Lasers, Inc. Stock Option Plan" and
"Shares Eligible for Future Sale." Upon completion of the offering, the Company
intends to issue 370,948 shares of Common Stock (assuming an initial public
offering price of $11.00 per share) to certain employees pursuant to the
Restricted Stock Agreements as partial consideration for the cancellation of
certain Opto Power stock options. These shares will be subject to certain
contractual restrictions on transfer. The Company intends to register these
shares for resale pursuant to a Registration Statement on Form S-8. See
"Management -- Restricted Stock Plan."
No predictions can be made as to the effect, if any, that sales in the
public market of shares or the availability of additional shares for future sale
will have on the market price of the Common Stock. The market price of the
Common Stock could be adversely affected by future sales of Common Stock or the
perception that such sales may occur.
CERTAIN ANTI-TAKEOVER MATTERS; POSSIBLE ISSUANCE OF PREFERRED STOCK
Certain provisions of Delaware law, the Company's Certificate of
Incorporation and the Company's Bylaws could delay or make more difficult a
merger, tender offer or proxy contest involving the Company. The Company is
subject to Section 203 of the Delaware General Corporation Law ("DGCL") which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any of a broad range of business combinations with any "interested stockholder"
for a period of three years following the date that such stockholder became an
interested stockholder. Under the Company's Certificate of Incorporation and
Bylaws, the directors may enlarge the size of the Board and fill any vacancies
on the Board. The Company's Bylaws provide that nominations for directors may
not be made by stockholders at any annual meeting unless the stockholder
intending to make a nomination notifies the Company of its intention a specified
period in advance and furnishes certain information, and require advance notice
of business to be brought by a stockholder before the annual meeting. The shares
of the Company's Preferred Stock may be issued in the future without further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine. The rights
of holders of Common Stock will be subject to, and may be adversely affected by,
the rights of any holders of Preferred Stock that may be issued in the future.
The issuance of Preferred Stock and the application of Section 203 of the DGCL
and certain other
12
<PAGE> 14
provisions of the Company's Certificate of Incorporation and Bylaws could have
the effect of discouraging, delaying or preventing a change of control of the
Company. See "Description of Capital Stock -- Preferred Stock," "Description of
Capital Stock -- Delaware Anti-Takeover Law" and "Description of Capital
Stock -- Anti-Takeover Matters."
ABSENCE OF PRIOR PUBLIC MARKET; VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public trading market for the
Common Stock. Although the Company has applied to list the Common Stock for
quotation on the Nasdaq National Market, there can be no assurance that a
regular trading market for the Common Stock will develop upon completion of the
offering or that, if developed, it will be sustained. The initial public
offering price of the Common Stock has been determined by negotiations between
the Company and representatives of the Underwriters and may not be indicative of
the price at which the Common Stock will trade after completion of the offering.
Consequently, there can be no assurance that the market price for the Common
Stock will not fall below the initial public offering price. In addition, there
has been significant volatility in the market price of technology companies that
often has been unrelated to the operating performance of such companies.
Technology companies may also be affected by such factors as quarterly
fluctuations in a company's business, operating results and financial condition,
the introduction of new products by a company or its competitors or business
conditions in the markets in which a company operates. These fluctuations may
adversely affect the price of and market for the Common Stock. See
"Underwriting."
NO ANTICIPATED DIVIDENDS
Following completion of the offering, the Company intends to retain its
earnings, if any, for use in its operations. The Company does not expect to
declare dividends on its Common Stock in the foreseeable future. See "Dividend
Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the book
value per share of the Common Stock. Investors participating in this offering
will incur immediate and substantial dilution. To the extent outstanding options
to purchase Common Stock are exercised, there will be further dilution. See
"Dilution."
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<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the offering, after deducting the
underwriting discount and estimated offering expenses, will be approximately
$22.9 million (approximately $26.6 million if the Underwriters' overallotment
option is exercised in full) assuming an initial public offering price of $11.00
per share.
The primary purposes of this offering are to create a public market for the
Company's Common Stock and raise capital for the Company. The Company intends to
use the net proceeds from the offering for general corporate purposes, including
working capital and capital expenditures. A portion of the net proceeds may also
be used for the acquisition of businesses, products and technologies that are
complementary to those of the Company. The Company has no present commitments
with respect to any such material transaction. The Company has not yet
identified the specific amount of proceeds to be expended for the foregoing
purposes. Accordingly, management will have significant discretion in the
application of a substantial portion of the net proceeds from this offering.
Pending application of the net proceeds of the offering, the Company intends to
invest the net proceeds in short-term, interest-bearing investment grade
securities.
DIVIDEND POLICY
The payment of dividends, if any, in the future is within the discretion of
the Board of Directors and will depend on the Company's earnings, capital
requirements and financial condition. Following completion of the offering, it
is the intention of the Board of Directors to retain all earnings, if any, for
use in the Company's business operations and, accordingly, the Board of
Directors does not expect to declare any dividends in the foreseeable future.
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<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997 (i) on an actual basis (ii) on a pro forma basis and (iii) on
an as adjusted basis. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans and advances from Spectra-Physics AB and
affiliates (including accrued interest)..... $ 73,758 $ -- $ --
Stockholders' equity:
Common Stock, $.01 par value per share;
authorized 60,000,000; shares issued and
outstanding: Pro forma -- 13,370,948; As
Adjusted -- 15,770,948(3)................ -- -- 158
Additional paid-in capital.................. -- -- 94,191
Parent equity (deficit)(4).................. (18,741) 71,446 --
------- -------
Total stockholders' equity.................. (18,741) 71,446 94,349
------- -------
Total capitalization..................... $ 55,017 $ 71,446 $ 94,349
======= =======
</TABLE>
- ---------------
(1) Pro forma to give effect to the (a) conversion to equity of amounts due by
the Company to Spectra-Physics AB and affiliates for loans, advances, and
accrued interest; (b) contribution to equity of the Company by
Spectra-Physics AB and affiliates in October 1997 of certain net assets
related to foreign holding companies of Spectra-Physics AB and cash to
settle certain net liabilities of the holding companies; and (c)
cancellation of certain employee stock options for cash and equity
(including related shares of common stock) and the contribution to equity by
Spectra-Physics AB and affiliates of the cash used for such cancellation.
(2) Adjusted to give effect to the sale by the Company of the shares of Common
Stock offered hereby (at an assumed initial public offering price of $11.00
per share), after deducting the estimated underwriting discounts and
estimated offering expenses.
(3) Excludes 2,158,645 shares of Common Stock issuable upon exercise of stock
options to be granted by the Company at the time of the offering pursuant to
the 1997 Plan, and includes 370,948 shares of Common Stock (assuming an
initial public offering price of $11.00 per share) issuable pursuant to the
Restricted Stock Plan Agreements. See "Management -- 1997 Spectra-Physics
Lasers, Inc. Stock Option Plan" and "Management -- Restricted Stock Plan."
(4) Represents Spectra-Physics AB's investment in the Company on a historical
basis.
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<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was $70.4 million or $5.25 per share of Common Stock. "Pro forma net
tangible book value per share" represents the amount of total tangible assets of
the Company less total liabilities divided by the number of shares of Common
Stock outstanding. After giving effect to the sale of 2,400,000 shares of Common
Stock offered by the Company hereby at the assumed initial public offering price
of $11.00 per share (after deducting the underwriting discount and estimated
offering expenses), the pro forma net tangible book value of the Company as of
September 30, 1997 would have been approximately $93.1 million or $5.90 per
share. This represents an immediate increase in net tangible book value of $0.65
per share to Spectra-Physics AB and an immediate dilution of $5.10 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $11.00
Pro forma net tangible book value per share before this offering.... $5.25
Increase in net tangible book value per share attributable to new
investors......................................................... .65
------
Pro forma net tangible book value per share after this offering..... 5.90
------
Dilution per share to new investors................................. $ 5.10
======
</TABLE>
The following table summarizes as of September 30, 1997 the differences
between Spectra-Physics AB and new investors with respect to the number of
shares of Common Stock purchased from the Company, the total consideration paid
and the average price per share paid:
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED (IN THOUSANDS) AVERAGE
---------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Spectra-Physics AB............... 13,000,000 82.4% $67,366 68.8% $ 5.18
New investors.................... 2,770,948 17.6 30,480 31.2 $ 11.00
------- --- -------- ---
Total.................. 15,770,948 100.0% $97,846 100.0%
======= === ======== ===
</TABLE>
The foregoing table assumes no exercise of the Underwriters' overallotment
option or of outstanding options to purchase Common Stock. The computation of
the total consideration paid by Spectra-Physics AB gives effect to the
conversion to equity of amounts due by the Company to Spectra-Physics AB and
affiliates for loans, advances and accrued interest in October 1997 and the
capital contribution by Spectra-Physics AB to fund the cash payments to the Opto
Power option holders in cancellation of their options. The shares purchased and
computation of total consideration paid by new investors includes 370,948 shares
of Common Stock at an assumed initial public offering price of $11.00 per share
to be issued pursuant to the Company's Option Cancellation and Restricted Stock
Plan Agreements upon completion of the offering. As of the date of the
Prospectus, the Company expects to grant stock options to purchase an aggregate
of 2,158,645 shares of Common Stock with an exercise price equal to the initial
public offering price. See "Management -- 1997 Spectra-Physics Lasers, Inc.
Stock Option Plan."
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company is
qualified by reference to and should be read in conjunction with the
consolidated financial statements of the Company, including the notes thereto,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein. The statement of operations data for the
years ended December 31, 1994, 1995, and 1996, and the nine months ended
September 30, 1997, and the balance sheet data as of December 31, 1995 and 1996,
and September 30, 1997, are derived from the consolidated financial statements
that have been audited by Coopers & Lybrand L.L.P., independent accountants, and
are included elsewhere in this Prospectus. The statement of operations data for
the years ended December 31, 1992 and 1993, and the balance sheet data as of
December 31, 1992, 1993 and 1994, are derived from the unaudited consolidated
financial statements not included herein. The unaudited statement of operations
data for the nine months ended September 30, 1996, is derived from the
consolidated financial statements included elsewhere in this Prospectus. The
unaudited financial statements have been prepared on the same basis as the
audited financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's operating results for such periods. The
operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,(1)
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- ------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales.......................................... $80,163 $ 88,997 $95,123 $112,527 $135,434 $90,415 $113,061
Cost of products sold.............................. 52,289 61,000 62,482 73,040 88,320 59,584 71,178
------ -------- ------- -------- -------- ------- --------
Gross margin..................................... 27,874 27,997 32,641 39,487 47,114 30,831 41,883
Operating expenses:
Research and development......................... 6,009 9,646 7,788 7,933 12,005 8,571 10,857
Selling, general and administrative.............. 26,433 27,906 24,812 27,848 28,966 20,755 23,555
Restructuring(2)................................. -- 1,142 -- -- -- -- --
Other(3)......................................... -- -- -- 1,863 6,915 4,762 16,157
------ -------- ------- -------- -------- ------- --------
Total operating expenses....................... 32,442 38,694 32,600 37,644 47,886 34,088 50,569
------ -------- ------- -------- -------- ------- --------
Operating income (loss)........................ (4,568) (10,697) 41 1,843 (772) (3,257) (8,686)
Other income (expense):
Interest expense................................. (1,822) (2,782) (3,492) (4,590) (5,374) (3,940) (3,930)
Foreign currency gain (loss)..................... (316) (579) (1,439) 1,046 2,532 1,832 2,566
Legal settlements(5)............................. -- 1,714 -- -- -- -- 17,010
------ -------- ------- -------- -------- ------- --------
Total other income (expense)................... (2,138) (1,647) (4,931) (3,544) (2,842) (2,108) 15,646
------ -------- ------- -------- -------- ------- --------
Income (loss) before income taxes.............. (6,706) (12,344) (4,890) (1,701) (3,614) (5,365) 6,960
Income tax expense (benefit)....................... 1,158 754 311 318 634 17 (23,272)
------ -------- ------- -------- -------- ------- --------
Net income (loss).............................. $(7,864) $(13,098) $(5,201) $ (2,019) $ (4,248) $(5,382) $ 30,232
====== ======== ======= ======== ======== ======= ========
Pro forma net income (loss) per share(4)....... $ (0.33) $ 2.33
======== ========
Shares used in computing pro forma net income
(loss) per share............................. 13,000 13,000
======== ========
OTHER DATA:
Operating income (loss) before infrequent or
unusual items(6)............................... $(4,568) $ (9,555) $ 41 $ 3,706 $ 6,143 $ 1,505 $ 7,471
====== ======== ======= ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------- AS OF SEPTEMBER 30,
1992 1993 1994 1995 1996 1997(1)
------- -------- -------- -------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $25,858 26,977 $ 26,452 $ 30,273 $ 27,531 $ 29,471
Total assets..................................... 69,038 66,307 65,915 80,691 86,848 103,934
Long term obligations............................ 43,920 57,852 58,775 69,067 71,584 73,289
Parent equity (deficit).......................... 5,424 (10,823) (14,348) (16,480) (21,223) (18,741)
</TABLE>
17
<PAGE> 19
- ---------------
(1) The Company's fiscal year ends on December 31. The Company's fiscal quarters
end on the Friday closest to the end of the calendar month. For presentation
purposes, the financial information reflects the calendar month end date.
(2) In 1993, the Company recorded $1,142,000 of restructuring expenses
associated with a reduction in force and costs to exit certain excess
facilities, including the write-off of related property, plant and
equipment.
(3) Includes $863,000 in 1995 and $1,915,000 in 1996, and $1,012,000 and
$1,657,000 in the nine months ended September 30, 1996 and 1997,
respectively, of legal expenses associated with a lawsuit which was settled
as described in Note 5 below; and $1,000,000 in 1995 and $5,000,000 in 1996
and $3,750,000 and $14,500,000 in the nine months ended September 30, 1996
and 1997, respectively, of compensation expense associated with stock
options which were canceled in October 1997 for a combination of cash and
the Company's future obligation to issue capital stock of the Company upon
completion of the offering. As a result of the agreement to cancel the stock
options for a combination of cash and capital stock of the Company, the
Company reversed approximately $1.4 million of excess accrued expenses in
the fourth quarter of 1997.
(4) See Note 2 of the Notes to the Consolidated Financial Statements for an
explanation of shares used in computing pro forma net income (loss) per
share.
(5) In 1993, the Company received net proceeds of $1,714,000 from its insurance
company for claims regarding certain environmental matters. See
"Business -- Environmental Matters." In May 1997, the Company received net
proceeds of $17,010,000 in settlement of a lawsuit.
(6) Other data is presented as supplemental information and should not be
construed as a substitute, or better, indicator of, results of operations
than operating income (loss) or net income (loss) determined in accordance
with generally accepted accounting principles. This data represents actual
operating income (loss) adjusted for the following: (a) restructuring
expenses of $1,142,000 in 1993; (b) legal expenses associated with a lawsuit
of $863,000 in 1995 and $1,915,000 in 1996 and $1,012,000 and $1,657,000 in
the nine months ended September 30, 1996 and 1997, respectively; and (c)
compensation expense associated with stock options of $1,000,000 in 1995 and
$5,000,000 in 1996 and $3,750,000 and $14,500,000 in the nine months ended
September 30, 1996 and 1997, respectively. While such items are not expected
to be incurred in the future, there can be no assurances that similar items
might not occur. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leader in the design, development, manufacture and
distribution of lasers and laser systems for a broad range of markets. Prior to
the Reorganization in October 1997, the Company, Opto Power and Laser Data,
together with various foreign subsidiaries of Spectra-Physics AB that conducted
sales and technical support operations on their behalf, were operated as a
functional group called the Lasers and Optics Group. As a result of the
Reorganization, the assets and liabilities (including contractual rights and
obligations) of the aforementioned entities are now held directly or indirectly
by the Company. The consolidated financial statements presented reflect the
financial position, results of operations and cash flows of the Company as if it
were a separate entity for each period presented. The Company's historical
results have varied significantly from period to period due to the inclusion of
charges related to legal expenses associated with a lawsuit and compensation
expenses associated with certain stock options. These charges are not expected
to be incurred in the future. However, there can be no assurance that similar
items might not occur.
The Company derives its revenue primarily from the sale of
semiconductor-based and conventional lasers and laser systems. Conventional
lasers are generally sold into the research and development market. This market
is typically characterized by the sale of single units and systems with prices
that range from approximately $3,000 to $500,000. Sales in this market have
historically varied from quarter to quarter due to seasonal fluctuations and
governmental spending patterns. Semiconductor-based lasers and laser systems are
sold into the research and development market and the OEM/industrial market. The
OEM/industrial market is characterized by unit sales, with varying prices, in
volumes of as much as several thousand units. Over the last three years, a
growing proportion of the Company's total net sales and most of its sales growth
have been from semiconductor-based lasers. Net sales for products are recognized
upon shipment.
The Company has experienced a trend in its sales whereby its fiscal fourth
quarter net sales represent a disproportionate share of the Company's annual net
sales and whereby the Company's first quarter net sales decline significantly
compared to the fourth quarter of the prior fiscal year. The Company believes
these sales patterns result in part because of Spectra-Physics AB's emphasis on
annual (as opposed to quarterly) results and in part from the Company's
incentive compensation plan which compensates employees based on annual results.
The Company recognizes that the non-linear pattern of its shipments leads to
inefficiencies in asset and employee utilization. The Company is taking steps to
mitigate this sales trend, but this pattern is likely to continue in the near
term.
The Company's gross margin is affected by a number of factors, including
product mix, product pricing, cost of components, the proportion of third party
products incorporated into the Company's systems, foreign currency exchange
rates and manufacturing costs. For example, since semiconductor-based lasers and
laser systems generally have higher gross margins than conventional lasers,
absent other factors, a shift in sales toward semiconductor-based lasers and
systems would lead to a gross margin improvement for the Company. On the other
hand, if market conditions in the highly competitive conventional laser market
forced the Company to lower unit prices, the Company would suffer a decline in
gross margin unless the Company were able to timely offset the price reduction
by a reduction in production costs or by sales of other products with higher
gross margins. Either of these events could have a material effect on the
Company's business, operating results and financial condition.
The Company spends a significant amount of resources on research and
development. In recent years, the Company has focused much of these resources on
semiconductor-based lasers and laser systems. The Company expects to continue to
spend substantial resources in developing products for semiconductor-based
lasers and laser systems while making focused research and development
expenditures to maintain its leadership position in conventional lasers.
A significant proportion of the Company's sales are to international
customers and are denominated in currencies other than the U.S. dollar. The
Company also has sales and support operations located in certain European
countries and in Japan which operate in local currencies. As a result, while the
Company attempts
19
<PAGE> 21
to hedge its economic risk of foreign currency fluctuations, the Company is
exposed to fluctuations in foreign currency exchange rates that have had in the
past, and are expected to have in the future, a significant impact on the
Company's results of operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
results of operations as a percentage of net sales:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold.............................. 65.7 64.9 65.2 65.9 63.0
----- ----- ----- ----- -----
Gross margin..................................... 34.3 35.1 34.8 34.1 37.0
----- ----- ----- ----- -----
Operating expenses:
Research and development......................... 8.2 7.0 8.9 9.5 9.6
Selling, general and administrative.............. 26.1 24.7 21.4 23.0 20.8
Other............................................ -- 1.7 5.1 5.3 14.3
----- ----- ----- ----- -----
Total operating expenses...................... 34.3 33.4 35.4 37.8 44.7
----- ----- ----- ----- -----
Operating income (loss)....................... -- 1.7 (0.6) (3.7) (7.7)
Other income (expense):
Interest expense................................. (3.7) (4.1) (4.0) (4.4) (3.5)
Foreign currency gain (loss)..................... (1.5) 0.9 1.9 2.0 2.3
Legal settlement................................. -- -- -- -- 15.0
----- ----- ----- ----- -----
Total other income (expense).................. (5.2) (3.2) (2.1) (2.4) 13.8
----- ----- ----- ----- -----
Income (loss) before income taxes............. (5.2) (1.5) (2.7) (6.1) 6.1
Income tax expense (benefit)....................... 0.3 0.3 0.5 0.1 (20.6)
----- ----- ----- ----- -----
Net income (loss)............................. (5.5)% (1.8)% (3.2)% (6.0)% 26.7%
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net sales
Net sales were $113.1 million in the nine months ended September 30, 1997
and $90.4 million in the nine months ended September 30, 1996, representing an
increase of 25.0%. Net sales in the nine months ended September 30, 1997,
calculated using foreign exchange rates for the nine months ended September 30,
1996, increased 30.5%. The growth in sales was principally due to increased
volumes of semiconductor-based lasers and laser systems as the market
opportunities for these products continued to grow. Net sales were in the
following geographic markets (based on the location of the Company's sales
subsidiary):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Europe.......................................... $19,136 $ 20,261
Japan........................................... 21,849 23,220
United States and export........................ 49,430 69,580
------- --------
$90,415 $113,061
======= ========
</TABLE>
For the nine months ended September 30, 1997 compared to the nine months
ended September 30, 1996, net sales at actual currency exchange rates increased:
5.9% for Europe; 6.3% for Japan; and 40.8% for the U.S. Net sales for the nine
months ended September 30, 1997, calculated using foreign exchange rates for the
nine months ended September 30, 1996, increased: 17.5% for Europe; 18.7% for
Japan; and 40.8% for the U.S. The
20
<PAGE> 22
significant increase in net sales in the U.S. for these periods reflects the
early adoption of semiconductor-based lasers and laser systems in the U.S.
compared to Europe and Japan.
Cost of products sold and gross margin
Cost of products sold includes all manufacturing materials and labor and a
proportionate share of overhead costs, as well as costs of shipping, tooling,
royalties, third party products incorporated in the Company's products and
provisions for excess and obsolete inventories and warranty. Cost of products
sold varies by product mix, product pricing, cost of components, the proportion
of third party products incorporated in systems manufactured by the Company, and
manufacturing costs.
Gross margin was $41.9 million in the nine months ended September 30, 1997
and $30.8 million in the nine months ended September 30, 1996, representing an
increase of 35.8%. As a percentage of net sales, gross margin was 37.0% and
34.1% in 1997 and 1996, respectively. The principal reasons for the improvement
in gross margin as a percentage of net sales was the increase in sales of
semiconductor-based lasers and laser systems at higher margins than conventional
lasers and higher overall sales which allowed for increased absorption of fixed
factory overhead expenses.
Operating expenses
Operating expenses totaled $50.6 million in the nine months ended September
30, 1997 and $34.1 million in the nine months ended September 30, 1996,
representing an increase of 48.3%. As a percentage of net sales, operating
expenses were 44.7% and 37.8% in 1997 and 1996, respectively. Included in other
operating expenses were legal expenses associated with a lawsuit which was
settled in the second quarter of 1997 of $1.7 million in 1997 and $1.0 million
in 1996, and compensation expense associated with stock options held by
employees of a subsidiary of the Company of $14.5 million in 1997 and $3.8
million in 1996. As a result of the lawsuit settlement, the Company received net
proceeds of $17.0 million that was included in other income in the nine months
ended September 30, 1997. In October 1997, the stock options were canceled for a
combination of cash and the Company's future obligation to pay additional cash
or, upon the completion of the offering, issue capital stock of the Company.
Accordingly, the Company will not incur compensation expense relating to these
options in the future. As a result of the agreement to cancel the stock options
for a combination of cash and capital stock of the Company, the Company reversed
approximately $1.4 million of excess accrued expenses in the fourth quarter of
1997. Excluding such legal and compensation expenses, operating expenses
increased 17.3% and were 30.4% of net sales in 1997 and 32.5% of net sales in
1996.
Research and development expenses represent expenses associated with
Company funded research and new product development, and efforts designed to
improve the performance of existing products and manufacturing processes.
Customer funded product development engineering for certain OEM customers and
the U.S. government, which to date has been minimal, is recorded as a reduction
of research and development expenses. Research and development expenses are
charged to operations as incurred.
Research and development expenses totaled $10.9 million in the nine months
ended September 30, 1997 and $8.6 million in the nine months ended September 30,
1996, representing an increase of 26.7%. As a percentage of net sales, research
and development expenses were 9.6% and 9.5% in 1997 and 1996, respectively. The
increased spending was primarily focused on semiconductor-based lasers and laser
systems and laser disk texturing systems.
Selling, general and administrative expenses include the expenses of the
Company's sales and support subsidiaries in the United Kingdom, France, Germany,
the Netherlands and Japan as well as the Company's North American sales and
support organization, and other administrative expenses such as legal,
accounting, corporate offices and an allocation of expenses from Spectra-Physics
AB and affiliates for services provided to the Company.
Selling, general and administrative expenses totaled $23.6 million in the
nine months ended September 30, 1997 and $20.8 million in the nine months ended
September 30, 1996, representing an increase of 13.5%. As a percentage of net
sales, selling, general and administrative expenses were 20.8% and 23.0% in
21
<PAGE> 23
1997 and 1996, respectively. The principal reasons for the increase in selling,
general and administrative expenses in dollar terms were increased salaries and
benefits, including performance and incentive bonuses and increased sales and
marketing efforts aimed at the semiconductor-based lasers and laser systems
markets, offset in part by the impact of the strengthening of the U.S. dollar
compared to non-U.S. dollar currencies. Historically, the Company recorded
employee bonuses in the fourth quarter of each fiscal year as it was not deemed
probable that such bonuses would be earned until the fourth quarter. In
September 1997, it was determined that it was probable that bonuses would be
earned; accordingly, the Company accrued the amount of bonus earned to date.
Interest expense
Interest expense totaled $3.9 million in each of the nine months ended
September 30, 1997 and 1996. Interest expense was incurred on loans and advances
from Spectra-Physics AB and affiliates. Interest expense was also imputed on
certain non-interest bearing advances from Spectra-Physics AB and affiliates.
The amount of such imputed interest was $0.6 million in 1997 and $0.8 million in
1996. In connection with the Reorganization, Spectra-Physics AB and affiliates
converted all loans and advances to the Company to equity. Accordingly,
beginning October 1, 1997, the Company will no longer incur interest expense on
such loans and advances.
Foreign currency gain (loss)
All of the Company's manufacturing is performed in the United States.
However, the Company has significant sales outside the United States denominated
in currencies other than the U.S. dollar. Also, the Company's sales and support
subsidiaries pay local operating expenses in local currencies. As a result, the
Company's operations are exposed to fluctuations in foreign currency exchange
rates and these fluctuations have been, and are expected to continue to be,
material.
In 1991, the Company adopted a foreign currency hedging program that was
designed to offset the economic impact of foreign currency exchange fluctuations
on budgeted cash flows derived from non-U.S. dollar denominated sales. From 1991
to 1995, the Company hedged a portion of its full year budgeted non-U.S. dollar
sales in January of each year by selling forward contracts against each of the
month's estimated foreign sales in the budget year. Under this program, there
were no outstanding forward contracts as of December 31, 1992, 1993 and 1994.
The counterparty for all forward contracts from 1991 to October 1997 was
Spectra-Physics AB.
In late 1995, the Company changed its hedging program by hedging a portion
of its anticipated non-U.S. dollar denominated cash flows on a twelve-month
rolling basis. Accordingly, at the end of each period, there was approximately
twelve months of foreign exchange contracts open to deliver a specified amount
of foreign currency at a specified rate. As allowed under generally accepted
accounting principles ("GAAP") in Sweden, the Company had deferred the
unrealized gain or loss resulting from the impact of currency exchange rate
movements on open contracts until the underlying transaction was completed.
However, since these contracts were not, as required under U.S. GAAP, designated
as hedges of firm, identifiable foreign currency commitments, the proper U.S.
accounting treatment for these contracts was to recognize unrealized gain or
loss resulting from the impact of currency exchange rate movements on open
contracts in each period reported. Accordingly in the accompanying financial
statements such gains and losses were recorded as other income or expense. Also
included in other income and expense were realized gains and losses on the
settlement of foreign exchange contracts and realized and unrealized gains and
losses on the transactions denominated in currencies other than the U.S. dollar
for U.S. based operations.
In October 1997, the Company changed the way it hedges its foreign currency
exposures. It closed all of its 1998 outstanding foreign exchange contracts with
Spectra-Physics AB by buying offsetting currency contracts. Settlement costs for
closing these contracts early were approximately $0.3 million. Due to
unfavorable currency exchange rate movements between September 30, 1997 and the
settlement date only $0.8 million of the $1.1 million gain recognized on these
contracts in the nine months ended September 30, 1997 will be realized. Both of
these amounts will be recorded in the fourth quarter of 1997.
22
<PAGE> 24
In place of the current hedging program, the Company will hedge its foreign
exchange exposure by entering into transactions with independent financial
institutions. The Company will not hold or issue financial instruments for
trading purposes nor will it hold or issue leveraged derivative financial
instruments. The objective of the Company's new foreign exchange risk management
policy is to preserve the U.S. dollar value of its non-U.S. dollar cash flows.
These cash flows arise primarily from the sale of the Company's products in
currencies other than U.S. dollar, most of which are made through the Company's
subsidiaries in Japan and Europe. The Company will use forward exchange
contracts and simple purchased foreign currency option contracts to hedge,
respectively, firm commitments and probable anticipated transactions that expose
the Company to enterprise risk. Gains and losses on forward exchange contracts
that are designated as hedges of a firm order from a customer outside the United
States will be deferred and included in the measurement of the underlying
transaction. Gains on purchased foreign currency options with little or no
intrinsic value designated as hedges of probable anticipated foreign sales
transactions expected to occur within the next three to six months whose
significant characteristics and terms are known will also be deferred and
recognized at the time of the closing of the anticipated transactions.
Foreign currency gains totaled $2.6 million in the nine months ended
September 30, 1997 and $1.8 million in the nine months ended September 30, 1996.
Income tax expense (benefit)
Income taxes have been provided in the historical financial statements as
if the Company were a separate taxable entity. From 1992 to June 1997, income
tax expense reflected foreign taxes only due to the expectation by the Company
at that time of continuing losses in the U.S. Deferred tax assets were
established relating to: (i) net operating loss carryforwards, which included
interest expense from Spectra-Physics AB and affiliates; (ii) accrued
compensation associated with employee stock options; (iii) inventory valuation
reserves; and (iv) other accruals. These deferred tax assets were offset in
total by a valuation allowance due to the expectation of continued losses in the
U.S.
During the quarter ended September 30, 1997, the Company decreased the tax
valuation allowance and recognized a tax benefit relating to the above items
(net of foreign taxes) totaling $23.3 million. The decrease of the valuation
allowance and the recognition of the tax benefit in the quarter was based on
management's expectations regarding future taxable income for the Company.
Management's expectations included the consideration of the conversion of loans
and advances from Spectra-Physics AB and affiliates to equity in October 1997
which will eliminate related interest charges in the future.
For income tax return purposes, from 1991 through September 1997, the
Company was part of a U.S. consolidated group pursuant to a tax sharing
agreement among Spectra-Physics AB affiliated companies. Under this tax sharing
agreement, the deferred tax assets relating to the Company's net operating loss
carryovers referred to above have already been used to offset the taxable income
of other members of the tax filing group with no benefit to the Company. Since
the deferred tax assets related to the net operating loss carryforwards have
been used by affiliated companies, and therefore are not available for use by
the Company, the deferred tax asset arising from the loss carryforwards
(amounting to $10.2 million) have been recorded as a dividend to Spectra-Physics
AB. The deferred tax assets relating to accrued compensation associated with
employee stock options, the inventory valuation reserve and other accruals are
recognized as deferred tax assets in the accompanying financial statements.
Effective October 1997, the Company and affiliates of Spectra-Physics AB have
entered into a tax sharing arrangement which generally requires the Company to
determine its U.S. tax liability as a separate consolidated group.
The Company expects its future effective tax rate to approximate statutory
rates.
23
<PAGE> 25
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net sales
Net sales were $135.4 million in 1996, $112.5 million in 1995 and $95.1
million in 1994, representing an increase of 20.4% from 1995 to 1996 and 18.3%
from 1994 to 1995. Net sales for 1996, calculated using foreign currency
exchange rates for 1995, and for 1995, calculated using foreign currency
exchange rates for 1994, increased 25.6% from 1995 to 1996, and 12.8% from 1994
to 1995. The growth in sales in actual terms was principally due to increased
volumes of semiconductor-based lasers and laser systems, particularly the
Millennia, a product introduced in the first quarter of 1996, as the market for
these products expanded due to customers' acceptance of these products. Net
sales were in the following geographic markets (based on the location of the
Company's sales subsidiary):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Europe.............................. $26,044 $ 28,223 $ 30,449
Japan............................... 23,627 30,479 30,517
United States and export............ 45,452 53,825 74,468
------- -------- --------
$95,123 $112,527 $135,434
======= ======== ========
</TABLE>
Net sales at actual currency exchange rates increased: 7.9% from 1995 to
1996 and 8.4% from 1994 to 1995 for Europe; 29.0% from 1994 to 1995 for Japan;
and 38.4% from 1995 to 1996 and 18.4% from 1994 to 1995 for the U.S. Net sales
at actual currency exchange rates in Japan were flat from 1995 to 1996. Net
sales for 1996, calculated using foreign currency exchange rates for 1995, and
for 1995, calculated using foreign currency exchange rates for 1994, increased:
11.8% from 1995 to 1996 for Europe; 15.7% from 1995 to 1996 and 18.8% from 1994
to 1995 for Japan; and 38.4% from 1995 to 1996 and 18.4% from 1994 to 1995 for
the U.S. Net sales for 1995, calculated using foreign currency exchange rates
for 1994, declined 2.4% for Europe. The significant increases in net sales in
the U.S. for these periods reflect the early adoption of semiconductor-based
lasers and laser systems in the U.S. compared to Europe and Japan.
Cost of products sold and gross margin
Gross margin was $47.1 million in 1996, $39.5 million in 1995 and $32.6
million in 1994, representing an increase of 19.3% from 1995 to 1996 and 21.0%
from 1994 to 1995. As a percentage of net sales, gross margin was 34.8%, 35.1%
and 34.3% in 1996, 1995 and 1994, respectively. The slight decline in gross
margin as a percentage of net sales in 1996 compared to 1995 was due principally
to a higher proportion in 1996 of sales of third party products which are
incorporated in the Company's systems and on which the Company typically earns
lower margins. Also, there was a negative effect on gross margins from the
strengthening of the U.S. dollar compared to non-U.S. dollar currencies,
particularly the Japanese Yen. The principal reason for the improvement in gross
margin as a percentage of net sales in 1995 compared to 1994 was the increase in
sales that allowed the absorption of fixed manufacturing overhead expenses over
a larger unit base. Further, the Company realized an overall benefit on its
gross margin from the weakening of the U.S. dollar compared to non-U.S. dollar
currencies. This benefit was realized as the Company's product costs are
generally U.S. dollar denominated.
Operating expenses
Operating expenses totaled $47.9 million in 1996, $37.6 million in 1995 and
$32.6 million in 1994, representing an increase of 27.2% from 1995 to 1996 and
15.5% from 1994 to 1995. As a percentage of net sales, operating expenses were
35.4%, 33.4%, and 34.3% in 1996, 1995, and 1994, respectively. Included in other
operating expenses were legal expenses associated with a lawsuit which was
settled in the second quarter of 1997 of $1.9 million in 1996 and $0.9 million
in 1995, and compensation expense associated with stock options held by
employees of a subsidiary of the Company of $5.0 million in 1996 and $1.0
million in 1995. In October 1997, the stock options were canceled for a
combination of cash and the Company's future obligation to pay additional cash
or, upon the completion of the offering, issue capital stock of the Company.
24
<PAGE> 26
Excluding such legal and compensation expenses, operating expenses increased
14.5% from 1995 to 1996 and 9.8% from 1994 to 1995 and were 30.3% and 31.7% of
net sales in 1996 and 1995, respectively.
Research and development expenses totaled $12.0 million in 1996, $7.9
million in 1995 and $7.8 million in 1994, representing an increase of 51.3% from
1995 to 1996 and 1.9% from 1994 to 1995. As a percentage of net sales, research
and development expenses were 8.9%, 7.0% and 8.2% in 1996, 1995 and 1994,
respectively. The increase in research and development expenses in 1996 compared
to 1995 was principally focused on semiconductor-based lasers and laser systems
and laser disk texturing systems.
Selling, general and administrative expenses totaled $29.0 million in 1996,
$27.8 million in 1995 and $24.8 million in 1994, representing an increase of
4.0% from 1995 to 1996 and 12.2% from 1994 to 1995. As a percentage of net
sales, selling, general and administrative expenses were 21.4%, 24.7%, and 26.1%
in 1996, 1995 and 1994, respectively. The principal reasons for the increase in
selling, general and administrative expenses in dollar terms in 1996 compared to
1995 were increased salaries and benefits and increased sales and marketing
efforts associated with the Company's laser disk texturing systems offset, in
part, by the strengthening of the U.S. dollar compared to the Japanese Yen. The
principal reasons for the increase in selling, general and administrative
expenses in dollar terms in 1995 compared to 1994 were (i) increased salaries
and benefits, including performance bonuses, (ii) increased sales and marketing
efforts for the semiconductor-based lasers and laser systems and (iii) the
weakening of the U.S. dollar compared to non-U.S. dollar currencies.
Interest expense
Interest expense totaled $5.4 million in 1996, $4.6 million in 1995 and
$3.5 million in 1994, representing an increase of 17.1% from 1995 to 1996 and
31.4% from 1994 to 1995. Interest expense was incurred on loans and advances
from Spectra-Physics AB and affiliates. Interest expense was also imputed on the
certain non-interest bearing advances from Spectra-Physics AB and affiliates.
The amount of such imputed interest was $1.0 million in 1996, $1.1 million in
1995 and $0.7 million in 1994. In connection with the Reorganization,
Spectra-Physics AB and affiliates converted all loans and advances to the
Company to equity. Accordingly, beginning October 1, 1997, the Company will no
longer incur interest expense on such loans and advances.
Foreign currency gain (loss)
Foreign currency gain (loss) were net gains of $2.5 million in 1996 and
$1.0 million in 1995 and a net loss of $1.4 million in 1994.
Income tax expense (benefit)
Income tax expense was $0.6 million in 1996 and $0.3 million in each of
1995 and 1994. The income tax expense in each period represented foreign taxes
currently payable at each of the applicable country's statutory rate.
25
<PAGE> 27
QUARTERLY RESULTS OF OPERATIONS
The tables below set forth quarterly consolidated operating data of the
Company, including such data as a percentage of net sales, for the eleven
quarters ended September 30, 1997. This quarterly information is unaudited, but
in management's opinion reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the periods presented when read in conjunction with the audited financial
statements of the Company and notes thereto. The operating results for any
quarter are not necessarily indicative of results for any future periods.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
1995 1996
------------------------------------- ------------------------------------- 1997
SEPT. SEPT. -----------------
MAR. 31 JUNE 30 30 DEC. 31 MAR. 31 JUNE 30 30 DEC. 31 MAR. 31 JUNE 30
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES..................... $24,948 $26,565 $24,295 $36,719 $27,283 $30,723 $32,409 $45,019 $35,080 $38,368
Cost of products sold......... 15,967 17,436 15,370 24,267 17,947 19,920 21,717 28,736 22,535 23,750
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.............. 8,981 9,129 8,925 12,452 9,336 10,803 10,692 16,283 12,545 14,618
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development.... 1,934 2,014 1,869 2,116 2,283 3,010 3,278 3,434 3,318 3,524
Selling, general and
administrative............ 6,505 6,626 6,716 8,001 6,806 7,102 6,847 8,211 7,274 7,514
Other....................... 308 386 538 631 1,431 1,790 1,541 2,153 6,490 4,833
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................ 8,747 9,026 9,123 10,748 10,520 11,902 11,666 13,798 17,082 15,871
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)... 234 103 (198) 1,704 (1,184) (1,099) (974) 2,485 (4,537) (1,253)
Other income (expense), net:
Interest expense............ (1,148) (1,048) (1,149) (1,245) (1,324) (1,297) (1,319) (1,434) (1,423) (1,343)
Foreign currency gains
(loss).................... (633) (368) 870 1,177 1,094 502 236 700 2,123 (868)
Legal settlement............ -- -- -- -- -- -- -- -- -- 17,010
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total other income
(expense)............... (1,781) (1,416) (279) (68) (230) (795) (1,083) (734) 700 14,799
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes............ (1,547) (1,313) (477) 1,636 (1,414) (1,894) (2,057) 1,751 (3,837) 13,546
Income tax expense
(benefit)................... 60 (114) (133) 505 (61) 54 24 617 126 76
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)......... $(1,607) $(1,199) $ (344) $ 1,131 $(1,353) $(1,948) $(2,081) $ 1,134 $(3,963) $13,470
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
OTHER DATA:
Operating income (loss) before
infrequent or unusual
items....................... $ 542 $ 489 $ 340 $ 2,335 $ 247 $ 691 $ 567 $ 4,638 $ 1,953 $ 3,580
<CAPTION>
SEPT. 30
--------
<S> <<C>
NET SALES..................... $ 39,613
Cost of products sold......... 24,893
--------
Gross margin.............. 14,720
--------
Operating expenses:
Research and development.... 4,015
Selling, general and
administrative............ 8,767
Other....................... 4,834
--------
Total operating
expenses................ 17,616
--------
Operating income (loss)... (2,896)
Other income (expense), net:
Interest expense............ (1,164)
Foreign currency gains
(loss).................... 1,311
Legal settlement............ --
--------
Total other income
(expense)............... 147
--------
Income (loss) before
income taxes............ (2,749)
Income tax expense
(benefit)................... (23,474)
--------
Net income (loss)......... $ 20,725
========
OTHER DATA:
Operating income (loss) before
infrequent or unusual
items....................... $ 1,938
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------------
1995 1996 1997
-------------------------------------- -------------------------------------- -----------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
------- ------- -------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET SALES..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold......... 64.0 65.6 63.3 66.1 65.8 64.8 67.0 63.8 64.2 61.9
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross margin................ 36.0 34.4 36.7 33.9 34.2 35.2 33.0 36.2 35.8 38.1
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Research and development.... 7.8 7.6 7.7 5.8 8.4 9.8 10.1 7.6 9.5 9.2
Selling, general and
administrative............ 26.1 24.9 27.6 21.8 24.9 23.1 21.1 18.2 20.7 19.6
Other....................... 1.2 1.5 2.2 1.7 5.2 5.8 4.8 4.8 18.5 12.6
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses................ 35.1 34.0 37.5 29.3 38.5 38.7 36.0 30.6 48.7 41.4
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss)... 0.9 0.4 (0.8) 4.6 (4.3) (3.5) (3.0) 5.6 (12.9) (3.3)
Other income (expense), net:
Interest expense............ (4.6) (3.9) (4.7) (3.4) (4.9) (4.2) (4.1) (3.2) (4.1) (3.5)
Foreign currency gains
(loss).................... (2.5) (1.4) 3.6 3.2 4.0 1.6 0.8 1.6 6.1 (2.3)
Legal settlement............ -- -- -- -- -- -- -- -- -- 44.3
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total other income
(expense)............... (7.1) (5.3) (1.1) (0.2) (0.9) (2.6) (3.3) (1.6) 2.0 38.5
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes............ (6.2) (4.9) (1.9) 4.5 (5.2) (6.1) (6.3) 4.0 (10.9) 35.2
Income tax expense
(benefit)................... 0.2 (0.4) (0.5) 1.4 (0.2) 0.2 0.1 1.4 0.3 0.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)......... (6.4)% (4.5)% (1.4)% 3.1% (5.0)% (6.3)% (6.4)% 2.6% (11.2)% 35.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
OTHER DATA:
Operating income (loss) before
infrequent or unusual
items....................... 2.2% 1.8% 1.4% 6.4% 1.0% 2.2% 1.8% 10.3% 5.6% 9.3%
<CAPTION>
SEPT. 30
--------
<S> <<C>
NET SALES..................... 100.0%
Cost of products sold......... 62.8
-----
Gross margin................ 37.2
-----
Operating expenses:
Research and development.... 10.1
Selling, general and
administrative............ 22.1
Other....................... 12.2
-----
Total operating
expenses................ 44.4
-----
Operating income (loss)... (7.2)
Other income (expense), net:
Interest expense............ (2.9)
Foreign currency gains
(loss).................... 3.3
Legal settlement............ --
-----
Total other income
(expense)............... 0.4
-----
Income (loss) before
income taxes............ (6.8)
Income tax expense
(benefit)................... (59.3)
-----
Net income (loss)......... 52.3%
=====
OTHER DATA:
Operating income (loss) before
infrequent or unusual
items....................... 4.9%
</TABLE>
26
<PAGE> 28
Other data presented in the Quarterly Results of Operations table above are
presented as supplemental information and should not be construed as a
substitute, or better, indicator of, results of operations than operating income
(loss) or net income (loss) determined in accordance with GAAP. This data
represents actual operating income (loss) adjusted for legal expenses associated
with a lawsuit and compensation expense associated with stock options, which
expenses are included in other operating expenses. While such items are not
expected to be incurred in the future, there can be no assurances that similar
items might not occur.
The Company has experienced a trend in its sales whereby its fiscal fourth
quarter net sales represent a disproportionate share of the Company's annual net
sales and whereby the Company's first quarter net sales decline significantly
compared to the fourth quarter of the prior fiscal year. The Company believes
these sales patterns result in part because of Spectra-Physics AB's emphasis on
annual (as opposed to quarterly) results and in part from the Company's
incentive compensation plan which compensated employees based on annual results.
The Company recognizes that the non-linear pattern of its shipments leads to
inefficiencies in asset and employee utilization. The Company is taking steps to
mitigate this sales trend, but this pattern is likely to continue in the near
term.
The Company's operating results have fluctuated significantly in the past
and are expected to fluctuate in the future on a quarterly and annual basis as a
result of a number of factors, many of which are beyond the Company's control.
Results in any period could be affected by changes in market demand, competitive
market conditions, market acceptance of new or existing products, fluctuations
in foreign exchange rates, the cost and availability of components, the
Company's ability to manufacture and ship products, the mix of the Company's
customer base and sales channels, the mix of products sold, the Company's
ability to expand its sales and marketing organization effectively, the
Company's ability to attract and retain key technical and managerial employees
and general economic conditions. Due to the foregoing factors, the Company's
operating results in one or more future periods are expected to be subject to
significant fluctuations. In the event such fluctuations result in the Company's
financial performance being below the expectations of public market analysts and
investors, the price of the Company's Common Stock would likely decline, perhaps
substantially.
LIQUIDITY AND CAPITAL RESOURCES
Through the third quarter of 1997, the Company had satisfied its liquidity
requirements through cash provided by Spectra-Physics AB and affiliates in the
form of loans and advances. As of October 1, 1997, all outstanding loans and
advances from Spectra-Physics AB and affiliates were converted to equity. At
September 30, 1997, the Company had working capital of $29.5 million, including
cash of $1.3 million, compared to working capital at December 31, 1996 of $27.5
million, including cash of $2.5 million, and working capital at December 31,
1995 of $30.3 million, including cash of $1.0 million.
Cash provided by operating activities was $30.2 million in the nine months
ended September 30, 1997 and $4.3 million in the year ended December 31, 1996.
Cash used in operating activities was $1.3 million in the nine months ended
September 30, 1996 and $2.6 million and $1.5 million in the years ended December
31, 1995 and 1994, respectively. Substantially all the net cash used in or
provided by operating activities in the nine months ended September 30, 1997 and
1996, and the years ended December 31, 1996 and 1995, represented the net income
(loss) for the period adjusted for depreciation and amortization, increases in
deferred tax assets and increases in accrued and other liabilities, particularly
compensation for stock options, offset in the nine months ended September 30,
1996 by payments on accounts payable and in the years ended December 31, 1996
and 1995, by increases in accounts receivable. Substantially all the net cash
used in operating activities in the year ended December 31, 1994 represented the
net loss adjusted for depreciation and amortization and non-cash sales recorded
in exchange for equipment.
Cash used in investing activities, mostly purchases of property, plant and
equipment, was $5.8 million and $3.6 million in the nine months ended September
30, 1997 and 1996, respectively, and $5.0 million, $8.1 million and $1.7 million
in the years ended December 31, 1996, 1995 and 1994, respectively.
27
<PAGE> 29
Cash used in financing activities was $25.7 million in the nine months
ended September 30, 1997. Cash provided by financing activities was $5.5
million, $2.1 million, $11.0 million and $3.1 million in the nine months ended
September 30, 1996 and in the years ended December 31, 1996, 1995 and 1994,
respectively. All of the cash provided by or used in financing activities
represented loans and advances or payments on loans and advances from
Spectra-Physics AB and affiliates.
The above activities resulted in a decrease in cash of $1.2 million in the
nine months ended September 30, 1997 and $0.2 million in the year ended December
31, 1994 and an increase in cash of $0.6 million in the nine months ended
September 30, 1996 and $1.5 million and $0.3 million in the years ended December
31, 1996 and 1995, respectively.
In October 1997, the Company entered into certain agreements with employees
of its Opto Power subsidiary who hold stock options to purchase common stock of
the subsidiary. Under the agreements, the option holders agreed to terminate the
options in exchange for a combination of an initial cash payment and the
Company's future obligation to pay cash or, upon completion of the offering,
issue capital stock of the Company. Such initial cash payments totalled
approximately $14.7 million and were funded by a capital contribution by
Spectra-Physics AB and affiliates.
In October 1997, the Company obtained a $10.0 million uncommitted,
unsecured credit facility with a bank. Borrowings against this facility are
guaranteed by an affiliate of Spectra-Physics AB. Upon the consummation of this
offering, the guarantee will be removed and the Company expects that the amount
of the facility will be increased to $20.0 million.
The Company believes that the net proceeds from the sale of the Common
Stock offered hereby together with cash flows from operations, existing cash
balances and borrowings available under its credit facility will be sufficient
to meet cash needs for at least the next twelve months.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," and in March 1997 issued SFAS No. 129, "Disclosures of Information About
Capital Structure," both of which are required to be adopted by the Company in
the year ended December 31, 1998. These statements specify the computation,
presentation and disclosure requirements for earnings per share and the capital
structure of a company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes the requirements for disclosure
of comprehensive income. Comprehensive income generally represents all changes
in stockholders' equity except those resulting from investments or contributions
from stockholders. SFAS No. 130 is effective for the Company in 1998. SFAS No.
131 requires publicly-held companies to report financial and other information
about key sales-producing segments of the entity for which such information is
available and utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit and loss,
certain sales and expense items and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements would be
provided. SFAS No. 131 is effective for the Company in 1998.
The Company has determined that the impact of adopting each of the recently
issued accounting standards will not be material to its financial position or
results of operations.
28
<PAGE> 30
BUSINESS
The Company is a leader in the design, development, manufacture and
distribution of lasers and laser systems for a broad range of markets. The
Company has been a pioneer in the laser industry and has developed a proprietary
and patented portfolio of laser, optic and related manufacturing technologies.
The Company offers two broad product lines: high power semiconductor-based
lasers and laser-based systems and conventional lasers and laser-related
products. The Company's high power semiconductor-based products range from
semiconductor lasers, the basic engine, through semiconductor laser pumped
lasers to end user systems. Through technological innovation, the Company is
leading the transition to high power semiconductor-based lasers from
conventional lasers such as gas, liquid and lamp pumped lasers. The Company has
been at the forefront of high power semiconductor-based laser technology for the
last 14 years and is leveraging its technical strengths to develop high power
semiconductor-based lasers, which are more efficient, reliable, cost-effective
and compact than existing lasers. These lasers are enabling many new
applications and replacing conventional lasers in existing applications in
industrial, OEM and research and development markets. According to Strategies
Unlimited, a market research firm, the use of high power semiconductor-based
lasers is expected to increase approximately 30% to 40% annually over the next
several years.
The Company is also a leading supplier of conventional lasers and
laser-related products to industrial and research and development customers.
These lasers, while based upon older technology, have unique performance
characteristics that make them the only current solution for certain demanding
technical applications. According to Laser Focus World, the market for
conventional lasers is expected to grow from $1.1 billion in 1996 to $1.3
billion in 1997. The Company's conventional products include ultrafast systems,
amplifier systems, optical parametric oscillators, air and water cooled ion
lasers, high energy flash lamp pumped YAG lasers, optics and optical systems.
The Company's strong market position and technology leadership in these
conventional laser applications enhances its opportunity to expand its high
growth semiconductor-based laser business by generating funds, capitalizing on
strong customer relationships and leveraging its technological expertise.
The Company works closely with its customers to develop its products and is
focused on providing innovative solutions to customer needs. To control critical
aspects of product quality, significantly improve time-to-market, reduce costs
and identify new applications, the Company has vertically integrated into
strategic technologies. The Company sells its products to a wide range of
customers for use in a variety of applications such as commercial printing,
materials processing, medical, research and development, optical data storage
and semiconductor manufacturing, inspection and repair. The Company's customers
include 3D Systems, Becton Dickinson, DaiNippon Screen, Electro-Scientific
Industries, Haemonetics, IBM, KLA/Tencor, Komag, Presstek, Rofin-Sinar, Seagate
and Western Digital.
INDUSTRY BACKGROUND
A laser uses energy from a power source to stimulate a particular type of
material, which creates and emits photons (i.e., light). The light emitted by
lasers is more intense and has higher purity than the light emitted by
conventional light sources. These characteristics enable applications in several
broad markets such as telecommunications, medical and semiconductor
manufacturing. The principal factors that distinguish different types of lasers
and determine the particular laser suitable for a specific application are
wavelength (color) output power, repetition rate, cost and operating life.
During the early years of laser development in the 1960s and 1970s, lasers
were relatively expensive and large, and had low reliability and performance
characteristics. Consequently, lasers were used primarily for scientific
research and limited industrial applications where there were few alternatives
to lasers. Since then, improvements in laser technology have resulted in lower
cost, smaller, more reliable and more efficient lasers. As a result, the use of
lasers for industrial and other commercial applications has increased
significantly. Today, lasers are used in a wide range of applications and
various markets including biotechnology, consumer electronics, industrial
process control, materials processing, measurement, medical, printing, research
and development, semiconductor manufacturing and telecommunications. According
to Laser Focus World, the worldwide market for lasers grew from approximately
$1.6 billion in 1993 to an estimated $3.3 billion in 1997, which represents a
compound annual growth rate of 20%.
29
<PAGE> 31
Lasers can be generally classified into four basic types: gas, liquid, lamp
pumped and semiconductor-based. A significant portion of the installed base of
lasers is comprised of gas, liquid and lamp pumped lasers. The principal markets
for these conventional lasers have been materials processing, medical and
scientific applications. According to Laser Focus World, the market for
conventional lasers was approximately $1.1 billion in 1996, and is expected to
increase to approximately $1.3 billion in 1997. Despite continuous advances in
technology, significant shortcomings still exist with most conventional lasers.
Most gas lasers are large, expensive, inefficient and fragile, many liquid
lasers use carcinogenic dyes and have limited performance ranges, and lamp
pumped lasers are limited by their dependence on inefficient and unreliable
incandescent lamps. These lasers, while based upon older technology, have unique
performance characteristics that make them the only current solution for certain
demanding technical applications.
Semiconductor-based lasers are a relatively new and innovative technology.
A semiconductor-based laser creates light from the flow of an electric current
through a specially designed semiconductor device. Semiconductor-based lasers
include both high and low powered devices as well as semiconductor laser pumped
solid state lasers.
The laser industry has been characterized by a high degree of technological
innovation. Today, the laser industry is undergoing a fundamental technology
transition to semiconductor-based lasers from conventional lasers. This
transition is being driven by a number of advantages of semiconductor-based
lasers including:
- Lower Operating Cost. The annual costs for power and water to operate a
10 W SLPSS laser is less than 5% of the cost to operate a gas laser. For
example, the annual cost in California for power and water to operate a
10 W SLPSS laser for 2,000 hours is $300, compared to more than $17,000
for a 10 W gas laser.
- Smaller Size. Semiconductor-based lasers are much smaller than
conventional lasers of comparable power. For example, a 10 W
semiconductor-based laser is one-tenth the size of a 10 W gas laser, and
semiconductor laser diodes can be as small as a grain of salt.
- Higher Reliability. Semiconductor pumped solid state lasers have
lifetimes exceeding 10,000 hours, compared to 500 hours for a lamp pumped
laser.
- Greater Efficiency. Semiconductor lasers convert electrical power to
light much more efficiently, converting greater than 40% of input power
compared to 0.02% for a gas laser.
As a result of the foregoing advantages, semiconductor-based lasers are
replacing conventional laser technologies in existing applications as well as
enabling many new applications. However, semiconductor-based lasers currently
cannot address applications that require very high power output and laser light
of certain wavelengths. Conventional lasers are the only solution for these
technically demanding applications due to their unique performance
characteristics.
The semiconductor-based laser market generally can be divided into two
categories: low power (less than 0.5 W), such as lasers used in CD players and
laser printers, and high power (0.5 W or greater). To date, the greatest
penetration of semiconductor-based lasers has been in applications that require
low power. As high power semiconductor-based laser technology continues to
advance, the use of high power semiconductor-based lasers is expected to
increase approximately 30% to 40% annually over the next several years according
to Strategies Unlimited, a market research firm.
Customers for high power semiconductor-based lasers are seeking improved
performance and reliability, reduced cost and a greater number of product
offerings. Faced with these challenges and increasing time-to-market pressures,
customers are increasingly relying upon third party technology providers for
further innovations in lasers, optics and other related technologies. Meeting
these requirements is extremely complex and requires significant expertise,
breadth of technology and engineering resources and a substantial financial
commitment.
30
<PAGE> 32
STRATEGY
The Company has been a leading supplier of lasers and laser systems for
over 30 years and has been developing high power semiconductor-based lasers for
the last 14 years. The Company has a significant proprietary and patented
portfolio of lasers, optics and other related laser and manufacturing
technologies. As a result, the Company believes that it is uniquely positioned
to capitalize on the significant market opportunities for high power
semiconductor-based lasers and end-user systems. Key elements of the Company's
strategy include the following:
Capitalize on Leadership in Semiconductor-based Laser Technology. To
enhance its leadership position, the Company is continuing to focus substantial
resources on semiconductor-based laser technology, enabling the Company to
continue developing new products for existing and emerging markets. For example,
the Company recently commenced shipments of the world's highest power single
emitter semiconductor laser and the world's highest power commercially available
semiconductor laser bar. The Company also recently began shipping a 40 kHz, 355
nm UV laser for the stereolithography market.
Develop New Applications and Markets. The Company leverages its technology
and close working relationships with its key customers to develop innovative
solutions to complex customer requirements. In response to specific customer
needs, the Company has developed systems incorporating laser technology in
applications such as hard disk texturing and floptical disk manufacturing, and
is working with customers to develop systems incorporating laser technology in
enhanced magnetic resonance imaging, fiber laser pumping, diamond machining and
PC board drilling.
Introduce Systems Products. The Company's expertise in semiconductor-based
laser and optics technology has enabled it to successfully introduce and market
systems products in the disk drive industry. The Company's LZT-500 and LZT-1000
systems, which the Company commenced shipping in April 1997, use a
Spectra-Physics SLPSS laser and optical beam train together with custom hardware
and software to laser zone texture hard disks. Laser disk texturing systems
enable an increase in the storage capacity of a hard disk. The Company is
focused on developing other laser data storage systems based on its laser and
optics technology.
Continue Supporting Conventional Laser Technology. The Company intends to
maintain a leadership position in the supply of conventional laser systems
through continued targeted research and development investments. The Company
also intends to seek new applications for certain conventional technologies such
as the application of ultra-fast technology to inspect and test semiconductor
wafers.
Leverage Benefits of Vertical Integration. The Company has vertically
integrated into strategic laser technologies, components and manufacturing
processes such as optics and semiconductor wafers, and expects to continue such
strategic vertical integration in the future. This vertical integration enables
the Company to control the quality of strategic components, significantly
improve time-to-market for new products and technologies and more easily
identify new applications.
MARKETS
The Company produces a broad range of lasers, laser systems, optics,
optical systems and end user systems for the industrial, OEM and research and
development markets. The primary applications for the Company's products in
these markets are as follows:
- Printing/Graphics. Historically, the commercial printing market has
used silver halide-based film. In recent years, the commercial printing
industry has increasingly shifted to thermal-based materials which require
high power semiconductor-based lasers in the film exposure process. The
Company believes that the incremental use of thermal-based materials for
commercial printing will increase the demand for high power
semiconductor-based lasers. The Company's high power semiconductor-based
lasers are being used in conjunction with thermal-based film development by
a number of major film suppliers.
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- Materials Processing. Materials processing encompasses a wide range
of industrial processes that require the delivery of precisely controlled
heat or light. Major segments of this market include:
Hard Disk Texturing. In hard disk drive manufacturing, disks must
be roughened or "textured" to prevent the head from fusing to the smooth
surface of the disk causing the hard drive to "crash." Traditional
texturing involves the mechanical application of a diamond paste to the
entire disk surface. Laser-based texturing -- in which a laser is used
to create tiny bumps on the disk surface -- is rapidly replacing
mechanical texturing. A laser produces faster, cleaner, less wasteful
and more consistent texturing over a smaller area of the disk, enabling
more of the disk to be used for storage and in most cases doubling the
disk's storage capacity.
Stereolithography. Stereolithography is the computer generation of
three-dimensional objects from CAD/CAM system input which typically is
used for producing models, manufacturing prototypes, masters and
patterns. Stereolithography involves exposing a proprietary photopolymer
with ultraviolet light which "cures" the polymer creating a solid model
in hours. Traditional hand crafting or machining methods can take weeks
or even months to achieve the same result. Because of the advantages of
SLPSS lasers, they have replaced conventional lasers in
stereolithography applications requiring high power. The Company
recently commenced shipments of a 40 kHz, 355 nm UV laser for the
stereolithography market.
Semiconductor Manufacturing, Inspection and Repair. Lasers are used
to adjust the electrical characteristics of resistors, to inspect
semiconductor wafers for defects and to repair semiconductor devices
such as DRAMs and SRAMs. Because of their high reliability and ease of
use, SLPSS lasers are widely used in these applications.
Marking. Marking applications include plastics marking (e.g.,
marking the keys on a computer keyboard) and the marking of finished
electronic components (e.g., marking very small semiconductor packages
in final stages of semiconductor manufacturing). SLPSS lasers are
replacing conventional flash lamp pumped YAG lasers in these and other
direct-write marking applications where the performance characteristics
of SLPSS lasers are required.
- Research and Development. Research and development has historically
been a major market for conventional laser technology, such as water cooled
gas lasers, high energy flash lamp pumped YAG lasers and ultrafast systems
with an installed base of tens of thousands of lasers. As new SLPSS lasers
that can replicate the performance of conventional lasers are developed,
they are rapidly replacing conventional lasers in this market. For example,
in 1996 the Company commenced shipments of a 5 W CW green SLPSS laser
called the Millennia to research and development customers. To date, over
350 Millennia lasers have been sold, many of which are being used by
research and development customers to replace their existing water cooled
ion lasers. Current applications for SLPSS lasers in the research and
development market include pump lasers for ultrafast systems, confocal
microscopy systems and seed lasers in amplifier systems.
- Medical. Semiconductor-based lasers are increasingly used in
therapeutic, surgical, dental and diagnostic medical applications.
Therapeutic applications include a variety of skin treatments, such as hair
removal, and thermal treatments using endoscopic delivery to internal
organs such as the prostate. Surgical applications are expanding rapidly
and now include general purpose endoscopic contact and non-contact surgical
tools. Several diagnostic techniques, including magnetic resonance imaging,
also employ semiconductor lasers. In this market, the Company provides
semiconductor-based lasers to medical device OEMs.
- Other. Part of the Company's strategy is to continue to identify
applications for its technology in other markets. For example, the Company
is working with Lucent Technologies to develop fiber lasers for the
telecommunications market. Recently, the two companies announced that a
fiber laser jointly developed by them achieved record output power levels.
The Company's SLPSS lasers are also used for PC board drilling and
flat-panel display repair. Additionally, the Company manufactures and sells
conventional lasers for use in light shows and other entertainment market
applications.
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PRODUCTS
The Company produces a broad range of lasers, laser systems, optics,
optical systems and end user systems. The Company's semiconductor-based laser
products include HPSLs, SLPSS lasers and other SLPSS-based systems. Conventional
products include gas lasers, flash lamp pumped YAG lasers, OPOs, amplifiers,
accessories, optics and optical systems, and related services.
The following chart illustrates the Company's principal products and their
applications.
<TABLE>
<CAPTION>
PRODUCT
-------------------------------------------
LASER APPLICATION HPSL SLPSS SYSTEMS CONVENTIONAL
- ----------------------------------------------------- ---- ----- ------- ------------
<S> <C> <C> <C> <C>
PRINTING/GRAPHICS.................................... M M M
MATERIALS PROCESSING
-- Hard Disk Texturing............................. M M
-- Stereolithography............................... M M
-- Semiconductor and Micromachining................ M M M
-- Marking......................................... M M M
RESEARCH AND DEVELOPMENT............................. M M M M
MEDICAL.............................................. M M M
OTHER
-- Telecommunications.............................. M M
-- Entertainment................................... M M M
</TABLE>
High Power Semiconductor Lasers. HPSLs are extremely efficient converters
of electrical power to light and are also highly efficient in focusing generated
light into small spots. While many applications require small spots of very
intense heat, many others, such as pumping crystals and illumination, depend on
the semiconductor laser's ability to create large amounts of nearly
monochromatic photons. These lasers are compact, enabling more cost effective
solutions to a large number of problems. Because the light from
semiconductor-based lasers is emitted in a pattern very different from other
lasers (more like a fan of light rather than a "beam"), the Company has
developed technology to couple the light into an optical fiber to enhance the
"beam" quality or more conveniently deliver the light to the desired location.
The Company manufactures a range of HPSL products with wavelengths from 785
nm to 980 nm and output powers from less than one Watt to two dimensional arrays
which produce hundreds of Watts. These products are available in various forms,
from bare diodes on heat sinks, to fiber-coupled single emitters and bars, to
two dimensional arrays, to fully integrated modules and
microprocessor-controlled units containing power supplies and active coolers.
Semiconductor Laser Pumped Solid State Lasers. SLPSS lasers use
semiconductor lasers to pump a crystal to produce laser beams with special
characteristics in terms of mode quality, power stability, optical noise,
monochromaticity or energy storage. Like HPSLs, SLPSS lasers are smaller, more
efficient, more reliable and less costly to operate than the conventional laser
technologies they are replacing.
The Company produces SLPSS lasers to satisfy a broad range of customer
requirements. Depending on customer needs, an SLPSS laser can combine various
features including a modular power supply and laser head designs, various
crystals, fiber coupling, and different repetition rates, pulse widths and
wavelengths. The Company's SLPSS lasers contain several design features that
distinguish them from competing products. Examples of such features include: air
cooled laser heads that do not require a separate water supply; semiconductor
lasers in the power supply rather than in the head which allow the lasers to be
replaced in the field without disturbing system alignment; and lasers designed
with significant overhead which increases reliability and product life. The
Company has also developed a complete line of intelligent power supplies to
satisfy demanding customer requirements. All of these power supplies support
remote mounting of the fiber-coupled HPSL to enhance field serviceability.
Laser Disk Texturing Products. The Company's laser disk texturing products
offer significant advantages over conventional mechanical processing. The
Company's LZT-1000 has two main components: a laser
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texturing component, in which a semiconductor-based laser creates tiny bumps on
the surface of the disks, and a material handling component, in which a robot
inserts and removes the disks from the laser texturing fixture. The Company's
LZT-500 includes only the laser texturing component which enables the customer
to integrate the laser texturing system into its own proprietary material
handling process. Both of the Company's laser disk texturing systems can process
up to 300 disks per hour.
Conventional Products. The Company is a leading supplier of conventional
lasers to industrial and research and development customers. These lasers, while
based upon older technology, have unique performance characteristics that make
them the only current solution for certain demanding technical applications.
According to Laser Focus World, the market for conventional lasers is expected
to grow from $1.1 billion to $1.3 billion in 1997. The Company's strong market
position and technology leadership in these conventional laser applications
enhances its opportunity to expand its high growth semiconductor-based laser
business by generating funds, capitalizing on strong customer relationships and
leveraging its technological expertise. The Company manufactures and sells a
broad range of conventional laser products including:
- Air-cooled gas lasers ranging from 5 to 75 mW (9 models)
- Water-cooled gas lasers ranging from 4 to 30 W (7 models)
- Flash lamp pumped YAG lasers ranging from 500 mJ to 3 J as well as 4
harmonic wavelengths (11 models)
- Ultrafast lasers with pulse widths as low as 50 femtoseconds (5 models)
- OPOs covering wavelengths from 220 nm to 2600 nm (4 basic models with
numerous options)
- Amplifiers covering a wide range of powers, wavelengths, pulse widths and
repetition rates (2 basic models with numerous options)
- Optics and optical systems with super-smooth surfaces (1 angstrom or
less), damage thresholds of up to 1000 watts per square millimeter of
continuous power and very low scatter optics
TECHNOLOGY
General. The word "laser" is an acronym for "light amplification by
stimulated emission of radiation." A laser consists of (i) an active lasing
medium that gives off its own light (radiation) when excited; (ii) an optical
resonator with a partially reflective output mirror at one end and a fully
reflective rear mirror at the other that permits the light to bounce back and
forth between the mirrors through the lasing medium; and (iii) an external
energy source used to excite the lasing medium. The energy source can be light
from special lamps, light from another laser, an electric current or a chemical
reaction. The lasing medium can be a gas (such as helium and neon, argon or
carbon dioxide), a liquid (such as an organic dye), a semiconductor material
(such as aluminum gallium arsenide) or a crystal (such as ruby, YAG or titanium
sapphire). A laser works by causing the energy source to excite (pump) the
lasing medium, converting the energy from the source into an emission consisting
of particles of light (photons). These photons stimulate the release of more
photons as they are reflected back and forth between the two mirrors that make
up the laser's resonator. The resulting build-up in the number of photons is
emitted in the form of a laser beam through the output port or "window" created
by the partially reflective mirror. By changing the energy and the lasing
medium, different wavelengths and types of laser light can be produced. Heat
generated by the excitation of the lasing medium is dissipated through a cooling
mechanism, which varies according to the type of laser technology; lasers can be
cooled by water, air or, in the case of semiconductor-based lasers, heat sinks
attached to the semiconductor lasers.
Laser light has three fundamental properties that distinguish it from
conventional "spontaneous emission" light sources: monochromaticity,
directionality and coherence. Monochromaticity refers to the purity of color or
spectral bandwidth of emitted light; directionality describes the degree of
collimation or parallelism of the light rays; and coherence refers to the phase
relationship of the light waves as they are propagated. Laser light features
each of these properties to a high degree, and laser design revolves around
modulating and combining the three properties to serve the requirements of
specific applications. For example,
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monochromatic laser light can be used to probe the structure of atoms, control
complex chemical reactions or produce realistic three dimensional holograms.
Highly directional and coherent laser light can be focused to much smaller spot
sizes than any ordinary light source which enables a wide range of applications
including printing, marking and inspection and measurement. Lasers can be
continuous wave, pulsed or modelocked with varying repetition rates; they can
have different bandwidths (more or less monochromatic) and different line
widths; and they come in different powers from microJoules to thousands of
Watts. Different laser designs result in various output characteristics in terms
of power, pulse width, repetition rate and wavelength depending on the needs of
the application.
Spectra-Physics Technology. Formed in 1961 as the first commercial laser
company, the Company has a long history of introducing innovative technologies
and laser products. Some of the innovative laser products successfully
introduced by the Company include: commercial argon gas lasers (1964), high
power helium neon lasers (1976), sealed cavity air cooled gas lasers (1981),
HPSLs (1983), fiber-coupled SLPSS lasers (1986), titanium-sapphire ultrafast
lasers (1990), FC bar semiconductor technology (1992), high power CW SLPSS green
lasers (1996) and the highest power (40 W) commercially available HPSLs (1997).
Recent examples of the Company's technological leadership in
semiconductor-based lasers and systems include its discovery of QMAD, a patented
technique for shortening the fundamental output wavelength from an SLPSS laser
that enables the Company to produce green lasers with powers up to 12 W. The
high efficiency QMAD technique has also enabled the Company to produce green
SLPSS lasers with lower powers for price sensitive OEM markets. The Company also
recently developed and commercialized high power semiconductor bars that produce
over 40 W of power -- twice as much as was commercially available previously. In
addition, the Company recently developed and commercialized a 40 kHz, 355 nm UV
SLPSS laser producing more than 300 mW of power. These new SLPSS lasers are
displacing large frame gas lasers in the stereolithography market.
The Company is also a technology leader in laser disk texturing systems.
The Company's disk texturing systems incorporate diffraction limited optics
capable of producing bumps less than 4 mm in diameter, an autofocus servo for
maintaining long term consistency of P2 nm in bump height and have the highest
throughput per dollar of system cost and the lowest cost per square foot of
clean room space.
The Company also has state-of-the-art technology in its conventional
products. For example, the Company's Tsunami offers the highest power, broadest
tunability and widest pulse width coverage of any commercial ultrafast system.
The Company has also recently introduced a new series of flash lamp pumped YAG
lasers, the PRO, which has the highest beam pointing and energy stability of any
commercial YAG laser system.
SALES AND MARKETING
The Company's sales and service strategy is to have one primary channel to
the customer on a worldwide basis. This is accomplished through a separate
distribution organization responsible for selling and servicing products
directly in several countries and through over 30 independent distributors in
the rest of the world. Today, the Company has direct sales units in North
America, Japan, Germany, France, the Netherlands and the United Kingdom. The
Company began establishing international direct sales offices in the mid-1970s.
Distributors are managed by the Company's export unit which is based in Mountain
View, California and has an office in Darmstadt, Germany.
The Company's direct sales units employ approximately 145 people performing
sales, service engineering, customer support and administrative functions. They
are responsible for the complete order fulfillment cycle, from quotation through
order placement to delivery. The sales organization is also responsible for
bringing the appropriate marketing and technical resources to bear on a
customer's requirements and ensuring the customer receives high-quality support.
The Company's sales strategy also involves establishing long-term
relationships with its customers. For industrial and OEM customers, this
relationship starts at the early design-in of the Company's lasers and laser
systems into customer applications. The Company supports its customers with
on-site field service, technical
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service engineers and training programs and telephone support from its direct
sales units. Each sales unit maintains an inventory of critical components and
certain replacement systems and sub-systems to help minimize customer downtime.
The Company in general warrants its products for twelve to twenty-four months
depending on the product line. Certain manufacturing intensive industries such
as the hard disk manufacturing industry require high levels of support to
minimize costly downtime. The Company provides direct service to its hard disk
drive customers which are principally located in California, Japan, Taiwan and
Southeast Asia.
The Company's marketing activities include: analyzing and understanding
future product requirements of the Company's target markets and translating
those requirements into product specifications and cost targets by working
closely with customers and key technologists in industry and academia; providing
applications engineering support as part of the sales process to industrial and
OEM customers; and product promotion, which includes participating in trade
shows and conferences and advertising through trade journals, new product
announcements and direct mailings.
Backlog consists of written purchase orders for products which are
scheduled to be shipped within the following twelve months. As of September 30,
1997, the Company's backlog was approximately $60.1 million, compared with
approximately $41.0 million at September 30, 1996. Orders in backlog are firm,
but are subject to cancellation or rescheduling by the customer without penalty.
Because of the possible changes in product delivery schedules and cancellation
of product orders and because the Company's sales will often not reflect orders
shipped in the same quarter that they are booked, the Company's backlog at any
particular date is not necessarily indicative of actual sales for any succeeding
period.
CUSTOMERS
Through its global distribution and service network the Company provides a
range of laser solutions to its major markets. The Company's major customers
include: 3D Systems, Becton Dickinson, DaiNippon Screen, Electro-Scientific
Industries, Haemonetics, IBM, KLA/Tencor, Komag, Presstek, Rofin-Sinar, Seagate
and Western Digital. During 1996 and the first nine months of fiscal 1997, 55%
and 62% of the Company's sales were in North America and export, 22% and 18%
were in Europe and 23% and 20% were in Japan, respectively. No single customer
accounted for more than 10% of the Company's sales for 1996 or for the
nine-month period ended September 30, 1997.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are divided into two main
areas: advanced research in selected fields such as optics fabrication and
coating, HPSLs and SLPSS lasers; and product engineering which focuses on
designing and developing products for known, quantified markets with clearly
defined performance goals and cost targets. The primary focus of these research
and development efforts is high power semiconductor-based lasers and laser
systems. The Company often develops new products at the customer's design-in
stage in order to maximize the functionality of the product for the customer.
The Company's products are designed for manufacturability and serviceability. In
addition, high parts commonality is a goal that has been achieved on a number of
product lines through the use of common power supplies and laser head platforms.
In 1994, 1995 and 1996 and the nine months ended September 30, 1997, the
Company expended approximately $7.8 million, $7.9 million, $12.0 million and
$10.9 million, respectively, on internally funded research and development. In
1996 and 1997, such expenditures included significant investments in the
development of the Company's laser disk texturing system. The Company expects to
continue to spend substantial amounts on research and development activities.
The Company's ability to successfully compete will be substantially dependent on
its ability to design, develop and introduce new products on a timely basis.
As of September 30, 1997, the Company had approximately 107 employees
engaged in advanced research and product development and engineering, of whom
approximately 67 are professional engineers or have master's or doctor's degrees
(including 22 Ph.D.s) The Company's research and development activities are
carried out in Mountain View, California for SLPSS lasers, optical coatings,
laser disk texturing and
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conventional products, in Oroville, California for optical systems and optics
fabrication and in Tucson, Arizona for HPSLs. The Company maintains close
working relationships with several leading industrial, government and university
research laboratories around the world. Such relationships include funding of
third party research, joint development programs and licensing of patents
developed by such organizations. The Company also participates in certain U.S.
government funded programs such as Technology Reinvestment Program (TRP), when
the programs' objectives are consistent with the Company's technology road map.
MANUFACTURING OPERATIONS
The Company's manufacturing activities include semiconductor laser
manufacturing, plasma tube manufacturing, optics fabrication and coating, fine
mechanics manufacturing and assembly integration and test. One of the Company's
core business philosophies is to concentrate its manufacturing efforts on
strategic activities and to outsource production of other components. This
philosophy forms the basis for the Company's vertical integration into
semiconductor wafer fabrication, semiconductor lasers, optics fabrication and
coating and very fine mechanical parts. The Company believes each of these
operations is essential to the rapid development of new products and to
maintaining a high level of product quality.
The Company focuses substantial efforts on maintaining and enhancing the
efficiency and quality of its manufacturing operations. The Company uses kanban,
just-in-time and product flow line techniques to reduce manufacturing cycle
times and inventory levels and to enable it to offer on-time delivery and high
quality products to its customers.
The Company has manufacturing operations in Mountain View and Oroville,
California and Tucson, Arizona. The Company's four manufacturing operations in
Mountain View include research optics manufacturing, plasma tube manufacturing,
laser manufacturing and laser disk texturing manufacturing. The Company's
manufacturing operations in Tucson include semiconductor laser manufacturing and
integrated unit assembly. The Company has manufacturing operations in Oroville
that include optics fabrication and coating, optical system manufacturing and
metal component fabrication. The Company's principal manufacturing operations
are:
- Semiconductor Laser Manufacturing. The Company's semiconductor laser
manufacturing operation is vertically integrated and has capabilities in
wafer fabrication, wafer processing, bar processing, device packaging, test
and burn-in and fiber-coupling. The Company has three large scale epitaxial
deposition units, two of which are capable of handling 30 two inch diameter
wafers and one of which handles 15 two inch diameter wafers.
- Plasma Tube Manufacturing. The Company makes three types of plasma
tubes: glass, metal beryllium oxide and metal ceramic. These tubes are used
as the photon source for its gas lasers.
- Optics Fabrication and Coating. The Company fabricates and coats
most of the optics used in its lasers. These operations are conducted in a
state-of-the-art facility constructed to Class 10,000 clean room standards
with portions of the building maintained at either Class 1000 or Class 100
levels as required.
- Fine Mechanics Manufacturing. The fine mechanics operation primarily
produces aluminum and stainless steel components with relatively high
feature content and surface finish requirements for use in the Company's
laser and optical systems.
- Research Optics Manufacturing. The Company's film coating facility
is designed for the development of new coating technology and the
production of very large optics up to three feet in diameter.
- Assembly, Integration and Test. As part of the manufacturing
process, the Company assembles, integrates and tests its systems, including
laser, laser disk texturing, optical and power supply systems.
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ENVIRONMENTAL MATTERS
The Company's facilities and operations are subject to a wide variety of
Environmental Laws and Employee Safety Laws. Further, compliance with
Environmental Laws also may require the acquisition of permits or other
authorizations for certain activities and compliance with various standards or
procedural requirements. Although the Company believes that its operations are
in compliance in all material respects with current requirements under
Environmental Laws and Employee Safety Laws, the nature of the Company's
operations exposes it to the risk of liabilities or claims with respect to such
matters.
Certain of these Environmental Laws, including Superfund Laws, hold owners
or operators of land or businesses liable for their own and for previous owners'
or operators' releases of Hazardous Substances. Such Superfund Laws also provide
for responses to and liability for releases of certain Hazardous Substances into
the environment. The nature of the Company's operations and the long history of
industrial uses at some of its current or former facilities expose the Company
to risk of liabilities or claims under Superfund Laws. The Company has received
three notifications from state or federal environmental regulatory agencies
stating that the Company may be potentially responsible under Superfund Laws for
the release of Hazardous Substances generated by its former operations at three
locations. The Company responded to the inquiries by asserting that it was not
responsible for response activities at any of these sites. Since the Company
provided its responses, the environmental regulatory agencies have not pursued
the Company as a potentially responsible party at two of the sites and the
Company received a letter from the environmental agency stating that it does not
consider the Company as a potentially responsible party at this time at the
third site.
Since 1984, the Company's facilities in Mountain View, California
("Mountain View Site") have been undergoing investigation and remediation in
response to past releases of industrial solvents to the soil and groundwater. In
addition, the impacted groundwater has migrated to what is referred to as the
North Bayshore Area. As a result of these past releases, the Mountain View Site
and other neighboring sites are listed on the NPL or the Superfund List under
CERCLA. The Company is subject to Orders that require the Company to perform
remediation on- and off-site and investigate other potentially responsible
parties. Pursuant to the Orders and other orders issued to other responsible
parties, the Company and other responsible parties are jointly performing and
funding remediation which includes soil treatment and on-site and off-site
groundwater extraction, treatment and monitoring. All of the required soil and
groundwater remediation and monitoring systems currently required by the Order
are in place, and consequently the initial capital expenses for such systems
have been incurred. In October 1997, the Company was served with a complaint
that had been filed in the Superior Court of the State of California seeking an
unspecified amount of damages for personal injuries and property damage incurred
by residents of a single location alleged to have resulted from the Company's
and others' negligent and/or intentional handling of toxic chemicals (Rosario
Balcita et al. v. Teledyne Semiconductor, Spectra-Physics Lasers, et al.). While
the Company believes it has meritorious defenses to the claims asserted in this
lawsuit and intends to vigorously defend itself in this case, the amount of
loss, if any, that may result upon resolution of this complaint is not currently
estimable nor have any amounts been accrued in the financial statements.
Accordingly, there can be no assurance that the complaint will be resolved
without adverse impact to the Company's financial position or results of
operations. There can be no assurances that other parties will not come forward
and claim personal injury or property damage.
Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing Environmental Laws (or liability for
known environmental liabilities or claims) and Employee Safety Laws should not
have a material adverse effect on the Company's business, operating results and
financial condition. However, future events, such as changes in existing laws
and regulations or their interpretation, or the discovery of heretofore unknown
contamination, may give rise to additional compliance costs or liabilities that
could have a material adverse effect on the Company's business, operating
results and financial condition. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of regulatory
agencies or stricter or different interpretations of existing laws, may require
additional expenditures by the Company that may be material.
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INTELLECTUAL PROPERTY
The Company has over 150 active patents and over 65 additional patent
applications pending. The Company also has a royalty-free license to all of
SDL's patents applied for or issued prior to June 25, 1993.
The Company's future success and competitive position is dependent upon its
proprietary technology, and the Company relies on patent, trade secret,
trademark and copyright law to protect its intellectual property. There can be
no assurance that any of the patents owned or licensed by the Company will not
be invalidated, circumvented, challenged or licensed to others, that the rights
granted thereunder will provide competitive advantages to the Company or that
any of the Company's pending or future patent applications will be issued within
the scope of the claims sought by the Company, if at all. Furthermore, there can
be no assurance that others will not develop technologies that are similar or
superior to the Company's technology, duplicate the Company's technology or
design around the patents owned by the Company. In addition, effective
copyright, patent and trade secret protection may be unavailable, limited or not
applied for in certain foreign countries. Certain of the Company's technology is
licensed on a non-exclusive basis from third parties which may license such
technology to others, including competitors of the Company. There can be no
assurance that the steps taken by the Company to protect its technology will
prevent misappropriation of such technology.
The laser and optics industry is characterized by frequent litigation
regarding patent and other intellectual property rights. Litigation has been
necessary and may be necessary in the future to enforce the Company's patents
and other intellectual property rights, to protect the Company's trade secrets,
to determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. Such litigation has in the
past resulted in substantial costs and diversion of resources and any future
actions could have a material adverse effect on the Company's business,
operating results and financial condition. From time to time the Company has
received and expects in the future to receive notices of claims of infringement
of other parties' proprietary rights. There can be no assurance that
infringement claims (or claims for indemnification resulting from infringement
claims) will not be asserted against the Company or will not result in an
injunction against the sale of allegedly infringing products or otherwise
materially adversely affect the Company's business, operating results and
financial condition. The Company actively seeks to patent its inventions. The
Company frequently reviews its inventions and attempts to determine which ones
will provide substantial differentiation between the Company's products and
those of competitors. In certain cases, the Company may also choose to keep an
invention or a process a trade secret. Trade secrets are routinely employed in
the Company's semiconductor laser, optics and plasma tube manufacturing
operations. The Company generally enters into non-disclosure agreements with its
employees and consultants to protect its proprietary technology.
COMPETITION
The Company's various markets are highly competitive. The Company's overall
competitive position depends on a number of factors including the price, quality
and performance of its products, the level of customer service, the development
of new technology and the Company's ability to participate in emerging markets.
The Company faces competition from three primary sources: current direct
competitors, potential competitors and suppliers of new technologies. The
Company offers a range of components, subsystems, products and systems and has a
number of competitors worldwide in various segments of its markets. In its HPSL
markets, direct competitors include SDL, Inc., Siemens and Thompson-CSF. In its
SLPSS laser markets, major competitors include Coherent, Inc. and Lightwave
Electronics Inc. In the laser disk texturing market, the Company's major
competitor is IBM Corporation. In its other product markets, the Company's major
competitors include Coherent, Inc., Continuum (a division of Hoya) and Uniphase
Corporation. None of the Company's competitors competes in all of the product
areas and industries currently served by the Company. However, as existing or
new markets continue to grow, the Company expects that new competitors will
emerge and present competitors will seek to increase their market share.
New technologies may emerge to compete with the Company's products. For
example, Polaroid has recently developed a fiber laser working in conjunction
with SDL. This technology, which is also being developed by the Company, will
compete in some markets with SLPSS lasers. In most of the Company's
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product lines, both the Company and its competitors are working to develop new
technologies, or improvements and modifications to existing technologies, which
will render present products obsolete. There can be no assurance that the
Company's development efforts will be successful. In addition, there can be no
assurance that markets will develop for any such future products, or that any
such products will be competitive with other technologies or products that may
be developed by others. Some of the Company's competitors have significantly
greater financial, technical, manufacturing, marketing, sales and other
resources than the Company. In addition, some of these competitors may be able
to respond more quickly to new or emerging technologies, evolving industry
trends and changes in customer requirements and to devote greater resources to
the development, promotion and sale of their products than the Company. There
can be no assurance that the Company's current or potential competitors will not
develop or acquire products comparable or superior to those developed by the
Company, combine or merge to form larger, more significant competitors, or adapt
more quickly than the Company to new technologies, evolving industry trends and
changing customer requirements. Increased competition has resulted and is
expected in the future to result in price reductions, reduced margins or loss of
market share, any of which could materially and adversely affect the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current or future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect on its business, operating results and financial
condition. The Company expects that both direct and indirect competition will
increase in the future. Additional competition could adversely affect the
Company's business, operating results and financial condition through price
reductions or loss of market share. See "Risk Factors -- Competition."
EMPLOYEES
At September 30, 1997, the Company had 768 full time employees, including
107 in research, development and engineering, 146 in sales, service and
marketing, 431 in operations and 84 in general management, administration and
finance. The Company intends to hire additional personnel in each of these
areas. The Company also had approximately 60 temporary workers and consultants
at September 30, 1997. The Company's future success will depend in part on its
ability to attract, train, retain and motivate highly qualified employees, who
are in great demand. There can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company's employees
are not represented by any collective bargaining organization, and the Company
has never experienced a general work stoppage, slowdown or strike. The Company
considers its employee relations to be good.
FACILITIES
The Company conducts its business from office and manufacturing facilities
at six locations in Mountain View, California, two facilities in Oroville,
California and one facility in Tucson, Arizona. In the aggregate, the Company
occupies approximately 46,100 square feet of owned space and 129,500 square feet
of leased space in Mountain View, 51,350 square feet of leased space in Oroville
and 29,300 square feet of owned space in Tucson. The Company's lease agreements
have expiration dates ranging from 1998 to 2006. The Company leases sales and
service offices in Tokyo and Osaka, Japan, Darmstadt, Germany, Z.A. de
Courtaboeuf, France, Eindhoven, the Netherlands and Hemel Hempstead, Great
Britain.
The Company is planning a 10,000 square foot expansion of its facilities in
Oroville, which is scheduled for completion in the first half of 1998.
Additionally, a 48,000 square foot addition to the Tucson facility is currently
being planned and is scheduled for completion by the end of 1998. The Company
believes that its existing facilities and these expansions will be adequate for
the Company to meet its needs for the next 12 months. The Company believes that
suitable additional or alternative space will be available, if necessary, in the
future on commercially reasonable terms.
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MANAGEMENT
DIRECTORS AND CERTAIN OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the directors
and certain officers and key employees of the Company as of the date of this
Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Patrick L. Edsell........ 49 Chairman, President and Chief Executive Officer of
Spectra-Physics Lasers, Inc.
Leif A. Alexandersson.... 44 Vice President, Distribution of Spectra-Physics Lasers,
Inc.
George M. Balogh......... 46 Vice President and General Manager, Commercial Systems
Group of Spectra-Physics Lasers, Inc.
Charles E. Chandler...... 44 Vice President and General Manager, OEM Business Unit of
Spectra-Physics Lasers, Inc.
Ken E. Johnson........... 38 Vice President, Human Resources of Spectra-Physics Lasers,
Inc.
Thomas J. Scannell....... 46 Vice President, Finance of Spectra-Physics Lasers, Inc.
Shinan S. Sheng.......... 47 Vice President and General Manager, Industrial and
Scientific Lasers Business Unit of Spectra-Physics Lasers,
Inc.
Mark S. Sobey............ 37 President of Spectra-Physics Laser Data Systems, Inc.
John M. Tracy............ 54 President of Opto Power Corporation
Lawrence C. Karlson...... 54 Director
Lennart F. Rappe......... 53 Director
Lars Spongberg........... 51 Director
</TABLE>
Patrick L. Edsell has been Chairman, Chief Executive Officer and President
of Spectra-Physics Lasers, Inc. since the Reorganization. Prior to the
Reorganization, he served as the President of the Lasers and Optics Group since
September 1990. From October 1986 until September 1990, Mr. Edsell was Vice
President, Finance and Chief Financial Officer of Spectra-Physics AB and its
predecessor Pharos AB.
Leif A. Alexandersson has been Vice President, Distribution of
Spectra-Physics Lasers, Inc. since the Reorganization. Prior to the
Reorganization, Mr. Alexandersson served as the Vice President, Distribution of
the Lasers and Optics Group since March 1993. He joined the Lasers and Optics
Group in March 1992 as the Vice President for European Distribution. Mr.
Alexandersson was President of Geotronics of North America, a construction
instruments company and an affiliate of Spectra-Physics AB, from 1988 to 1992.
George M. Balogh has been Vice President and General Manager of the
Commercial Systems Group of Spectra-Physics Lasers, Inc. since the
Reorganization. Prior to the Reorganization, Mr. Balogh served as Vice President
and General Manager of the Commercial Systems Group for the Lasers and Optics
Group since June 1991. He joined the Lasers and Optics Group in 1988 as
Operations Manager.
Charles E. Chandler has been the Vice President and General Manager of the
OEM Business Unit of Spectra-Physics Lasers, Inc. since the Reorganization.
Prior to the Reorganization, Mr. Chandler served as the Vice President and
General Manager of the OEM Business Unit for the Lasers and Optics Group since
January 1996. He joined the Lasers and Optics Group in July 1988 as
Manufacturing Manager and served as OEM Engineering Manager for the three years
prior to October 1995.
Ken E. Johnson has been the Vice President, Human Resources for
Spectra-Physics Lasers, Inc. since the Reorganization. Prior to the
Reorganization, he served as the Vice President, Human Resources of the Lasers
and Optics Group since October 1995. He joined the Lasers and Optics Group in
July 1989 and served as Senior Human Resources Representative, Manager,
Compensation and Benefits and Human Resources Manager prior to 1995.
Thomas J. Scannell has been the Vice President, Finance of Spectra-Physics
Lasers, Inc. since the Reorganization. Prior to the Reorganization, Mr. Scannell
served as the Vice President, Finance of the Lasers
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<PAGE> 43
and Optics Group since July 1996. From 1990 to 1996, he was a Division
Controller and Assistant Corporate Controller at Raychem Inc., a materials
science company.
Shinan S. Sheng has been the Vice President and General Manager of the
Industrial and Scientific Lasers Business Unit of Spectra-Physics Lasers, Inc.
since the Reorganization. Prior to the Reorganization, Dr. Sheng served as the
Vice President and General Manager of the Industrial and Scientific Lasers
Business Unit of the Lasers and Optics Group since April 1995. He joined the
Lasers and Optics Group in 1979 advancing from a laser physicist through a
number of management positions to his current position.
Mark S. Sobey is the President of Spectra-Physics Laser Data Systems, Inc.,
a subsidiary of the Company. Dr. Sobey has held this position since Laser Data
was founded in January 1996. He joined the Laser and Optics Group in 1985
advancing from a salesman in the United Kingdom through several management
positions to his current position.
John M. Tracy is the President of Opto Power Corporation, a subsidiary of
the Company. Dr. Tracy joined the Lasers and Optics Group in September 1992 as
the result of the acquisition of the Advanced Optoelectronics business unit of
Applied Solar Energy Corporation. Opto Power was formed in September 1992,
immediately after the acquisition. Dr. Tracy was Vice President and General
Manager of Advanced Optoelectronics from 1985 to 1992.
Lawrence C. Karlson has been a director of the Company since October 1997.
Since prior to 1992, he has been a private investor in and an advisor to a
number of businesses. He is a member of the board of directors of AmeriSource
Health Corporation, of which he is the non-executive chairman, and CDI
Corporation, each of which is a public corporation. He is also a member of the
board of directors of several private companies.
Lennart F. Rappe has been a director of the Company since 1995. He has
served as Senior Vice President and Chief Financial Officer of Spectra-Physics
AB since 1995. From 1990 to 1995, he was Executive Vice President and Chief
Financial Officer of the Esab Group.
Lars Spongberg has been a director of the Company since October 1997. He
has served as President of Spectra-Physics AB since 1996. From 1995 to 1996, he
was Senior Vice President of Autoliv AB, an automotive parts manufacturer, and
was previously President of AB Handel och Industri (1993-1995), an investment
bank, and Senior Vice President of Svenska Handelsbanken (1987-1993), a
commercial bank. He has been a member of the board of directors of
Spectra-Physics AB since April 1997.
TERMS AND NUMBERS OF DIRECTORS AND OFFICERS
The Board of Directors of the Company currently consists of four directors:
Patrick L. Edsell, Lawrence C. Karlson, Lennart F. Rappe and Lars Spongberg.
Vacancies on the Board of Directors (including vacancies created by an increase
in the number of directors) may only be filled by a majority of the remaining
directors. Each member of the Board of Directors holds office until the next
annual meeting of stockholders and until his or her successor has been duly
elected and qualified. The Company will elect an additional independent director
to the Board of Directors of the Company as soon as possible. See "Risk
Factors -- Control by Principal Stockholder" and "Risk Factors -- Certain
Anti-Takeover Matters; Possible Issuance of Preferred Stock."
Executive officers of the Company are appointed by and serve at the
discretion of the Company's Board of Directors.
CERTAIN COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the offering, the Board of Directors of the Company will
establish an Audit Committee and a Compensation Committee. The Audit Committee's
functions will include (i) recommending annually to the Board of Directors the
appointment of the independent public accountants of the Company, (ii) reviewing
the scope of the prospective annual audit and reviewing the results thereof with
the independent public accountants, (iii) reviewing non-audit services of the
independent public accountants, (iv) reviewing compliance with the accounting
and financial policies of the Company, (v)
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<PAGE> 44
reviewing the adequacy of the financial organization of the Company, (vi)
reviewing the adequacy of the Company's internal accounting control system and
its compliance with federal and state laws relating to accounting practices and
(vii) reviewing transactions with affiliated parties. The Compensation Committee
will review and recommend annual salaries and bonuses for all corporate
officers, review and recommend to the Board of Directors modifications in
employee benefit plans and administer the 1997 Plan.
COMPENSATION OF DIRECTORS
Directors not affiliated with the Company or Spectra-Physics AB will
receive an annual fee of $10,000 for serving on the Board of Directors, a fee of
$1,000 for attending each Board of Directors meeting and a fee of $500 for
attending each committee meeting not held on the same day as a Board meeting.
Directors are reimbursed for expenses incurred in connection with attendance at
meetings of the Board of Directors or committees thereof. Following completion
of the offering, no officer of the Company will receive any additional
compensation for serving as a member of the Board of Directors or any of its
committees. Under the 1997 Plan, each director not affiliated with the Company
or Spectra-Physics AB will receive an initial option grant to purchase 15,000
shares of Common Stock on the date on which the offering is consummated, or if
such person first becomes a director after the offering, upon his or her
election to the Board of Directors, and an annual option grant to purchase 5,000
shares of Common Stock thereafter. Options granted to such non-affiliated
directors will have an exercise price equal to the fair market value of the
Common Stock on the date of grant. See "-- 1997 Spectra-Physics Lasers, Inc.
Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1996, the Company's Board of Directors did not have a compensation
committee or other Board committee performing similar functions. Compensation
decisions were made by Patrick L. Edsell, President of the Company, and Lars
Spongberg, a director of the Company. During such year, no executive officer of
the Company served as a member of the Board of Directors or Compensation
Committee of any non-affiliated entity that has one or more executive officers
serving as a member of the Company's Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth, for the year ended December 31, 1996,
certain information regarding the cash compensation paid by the Company, as well
as certain other compensation paid or accrued for such fiscal year, to the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company (the "Named Executive Officers").
1996 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS(1) COMPENSATION
------------------------------------------------ -------- ------- ------------
<S> <C> <C> <C>
Patrick L. Edsell............................... $234,500 $80,000 $ 44,819(2)(3)
Chairman, President and Chief Executive Officer
Leif A. Alexandersson........................... 185,285 75,982 4,584(4)
Vice President
George M. Balogh................................ 154,739 62,952 12,139(4)
Vice President/General Manager
Shinan S. Sheng................................. 154,627 62,952 3,732(4)
Vice President/General Manager
Mark S. Sobey................................... 149,841 -- 3,312(4)
President - Laser Data
</TABLE>
- ---------------
(1) Consists of cash bonuses earned in 1996 pursuant to the Company's Executive
Incentive Plan but paid in 1997. See "Management -- Executive Incentive
Plan."
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(2) Mr. Edsell receives personal benefits in the form of additional payments for
certain medical, dental, disability and life insurance premiums. The
aggregate amount of such personal benefits, however, does not exceed the
lesser of $50,000 or 10% of the total of the annual salary and bonus
reported for Mr. Edsell.
(3) "All Other Compensation" for Mr. Edsell includes the following: (i) a
$25,000 annual payment for serving as a member of the Board of Directors of
the Company which was awarded in lieu of additional salary, (ii) $5,105 in
401(k) matching contribution made by the Company, (iii) $12,214 annual
payment for a Company purchased automobile and (iv) $2,500 for preparation
of Federal and state income tax returns.
(4) Consists of a 401(k) matching contribution made by the Company on behalf of
such Named Executive Officer and with respect to Mr. Balogh, loan
forgiveness of $8,620.
COMPENSATION PURSUANT TO SPECTRA-PHYSICS AB BENEFIT PLANS
During 1996, the Company's executive officers and certain other employees
participated in various benefit plans maintained by Spectra-Physics AB.
Following the offering, the executive officers and employees of the Company will
not participate in such plans.
Spectra-Physics AB adopted the 1994 Phantom Stock Option Plan pursuant to
which certain of the then executive officers and employees of the Company were
granted an aggregate of 35,000 phantom stock options (the "Phantom Stock
Options"), of which 18,000 Phantom Stock Options were outstanding as of
September 30, 1997. Each Phantom Stock Option entitles the holder the right to
receive a cash payment upon exercise of the Phantom Stock Option equal to the
fair market value of one share of common stock of Spectra-Physics AB less the
reference price of the Phantom Stock Option. Pursuant to the plan and subject to
certain conditions, the fair market value of Spectra-Physics AB's common stock
is defined as the average price of the last 10,000 shares of common stock of
Spectra-Physics AB traded on the Stockholm Stock Exchange. Phantom Stock Options
may be exercised from two to four years from the date of grant.
1997 SPECTRA-PHYSICS LASERS, INC. STOCK OPTION PLAN
Prior to this offering, the Company will adopt the 1997 Spectra-Physics
Lasers, Inc. Stock Option Plan which provides for the granting of non-qualified
stock options ("Options") to certain officers, key employees and non-employee
directors of the Company. The 1997 Plan will be administered by the Compensation
Committee. The aggregate maximum number of shares of Common Stock available for
awards under the 1997 Plan is 2,252,993 shares (2,304,421 shares if the
Underwriters exercise their overallotment option in full), subject to adjustment
to reflect changes in the Company's capitalization. No awards can be made under
the 1997 Plan more than 10 years after the date it is adopted.
The exercise price of the Options will be determined by the Compensation
Committee in its discretion, provided that the exercise price must be at least
100% of the fair market value of a share of Common Stock on the date the Option
is granted. An Option's term shall not exceed ten years from the date of grant.
No Option may be exercised sooner than six months from the date of grant.
Concurrent with the offering, the Board of Directors is expected to have
approved the grant of Options to certain officers, directors and employees of
the Company to purchase an aggregate of 2,158,645 shares of the Common Stock
under the 1997 Plan at the initial public offering price, of which options to
purchase 473,100 shares, 141,930 shares, 141,930 shares and 141,930 shares will
have been granted to Messrs. Edsell, Alexandersson, Balogh and Sheng,
respectively. These options will vest 25% upon the first anniversary of the
grant date and 6.25% at the end of each three-month period thereafter. Subject
to the terms of the 1997 Plan, these Options will be exercisable to the extent
vested beginning two years after the grant date. These Options may not be
exercised following termination of the grantee's employment with the Company,
except that in the event that a grantee's employment terminates due to death,
disability or retirement, options held by such grantee or his estate shall be
exercisable, to the extent vested at the time of termination of employment, for
a period of three (3) months after termination of employment or, if later, the
end of the foregoing two-year period. These Options expire 10 years from the
grant date.
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<PAGE> 46
SPECTRA-PHYSICS LASERS, INC. SAVINGS PLUS PLAN
The Company's Savings Plus Plan (the "401(k) Plan"), as amended, is a
savings and retirement plan intended to satisfy the tax qualification
requirements of Sections 401(a), 401(k) and 401(m) of the Code. Subject to
certain terms and conditions of the 401(k) Plan, substantially all of the
Company's employees are eligible to participate in the 401(k) Plan on the first
day of the month coinciding with or next following such employee's first day of
employment. Eligible employees may contribute to the 401(k) Plan up to 15% of
their compensation on a pre-tax basis and up to 5% of their compensation on an
after-tax basis, subject to certain limitations in the Code.
The Company, in its discretion, may (i) make contributions to the 401(k)
Plan each year that match in whole or in part the pre-tax contributions that
employees make to the 401(k) Plan, (ii) make profit sharing contributions each
year and (iii) allocate those profit sharing contributions to employees in equal
amounts to each employee or in a proportionate amount based on an employee's
compensation for the year in relation to all of the employees' compensation for
that year. All Company and employee contributions to the 401(k) Plan are fully
vested and nonforfeitable at all times. Contributions to the 401(k) Plan are
allocated to individual accounts for each employee, and employees may direct the
investment of their accounts into various investment funds. The trustee of the
401(k) Plan is Fidelity Management Trust Company.
EXECUTIVE INCENTIVE PLAN
The Company's Executive Incentive Plan provides certain officers of the
Company with annual incentive cash bonus awards based on achievement of certain
pre-established quantitative and qualitative goals. The goals of the Executive
Incentive Plan are to reward executives for superior performance and for
exceeding the Company's predetermined financial and business goals. To be
eligible under the Executive Incentive Plan, a participant must be a full-time
regular employee on the date of payment.
EMPLOYEE BONUS PLAN
The Company's Employee Bonus Plan provides all employees of the Company,
other than employees of Laser Data and employees entitled to participate in the
Executive Incentive Plan, with annual incentive cash bonus awards based on
overall Company profitability. The goal of the Employee Bonus Plan is to provide
a financial incentive for employees to achieve the Company's financial goals.
EMPLOYMENT CONTRACTS
The Company is a party to an employment agreement with Patrick L. Edsell
dated January 1, 1991 that provides for the full-time employment of Mr. Edsell
as the Company's President. The agreement had an initial term of three years and
provides for continuing automatic one-year extensions until the agreement is
terminated by either the Company or Mr. Edsell. Mr. Edsell's agreement provides
for an annual salary of $193,000, or such greater amount as may be approved by
the Company's Board of Directors, as well as other benefits. A non-competition
provision requires, for the term of the agreement, that Mr. Edsell not engage
(as a stockholder, with some exceptions, or as an officer, director, employee or
otherwise) in any business that competes directly or indirectly with the
Company. The Company may terminate Mr. Edsell's employment at any time with or
without cause or upon the death or disability of Mr. Edsell. If Mr. Edsell's
employment is terminated by the Company without cause, or as the result of a
change in control after which Mr. Edsell's duties are materially altered, the
agreement requires the Company to make a lump sum payment to Mr. Edsell in an
amount equal to the salary he would have received for the remainder of the
current term (and any renewal term not precluded by a timely termination
notice), as well as to provide health and welfare benefits for the greater of
the remainder of the term or one year. On June 1, 1997, Mr. Edsell and the
Company entered into a letter agreement providing for certain severance and
other benefits. The letter agreement is effective until January 31, 1998 and,
until that date, supersedes the employment agreement described above for those
matters covered by both agreements. Under the letter agreement, if Mr. Edsell is
terminated without cause, the Company shall continue to pay him his monthly
salary (at the time of termination) and provide health and welfare benefits for
two years following the termination, plus an amount equal to twice the
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<PAGE> 47
incentive bonus he would have received had he remained employed. The letter
agreement also provides for bonuses to be paid if Mr. Edsell remains an employee
of the Company on January 1, 1998 (one-and-a-half months' salary), if the Lasers
and Optics Group achieves certain operating results during 1997 (one-and-a-half
months' salary) and if an initial public offering of the Company is completed
(three months' salary) within the period.
In addition to the letter agreement entered into with Mr. Edsell described
above, the Company entered into a letter agreement dated June 1, 1997 with each
of Leif A. Alexandersson, George M. Balogh and Shinan S. Sheng. These letter
agreements are similar to the letter agreement with Mr. Edsell but differ in the
amounts of severance and bonuses payable. If the employee under each of the
respective agreements is terminated without cause, the Company shall continue to
pay that employee's monthly salary (at the time of termination) and provide
health and welfare benefits for one year following the termination, plus an
amount equal to the incentive bonus he would have received had he remained
employed. Each letter agreement also provides for a bonus to be paid if the
employee under each of the respective agreements remains an employee of the
Company on January 1, 1998 (one month's salary), if the Company achieves certain
operating results during 1997 (one month's salary) and if an initial public
offering of the Company is completed (two months' salary). Each letter agreement
shall remain in effect until January 31, 1998.
The Company entered into an employment agreement with Dr. Sobey dated May
19, 1995, which was amended on September 19, 1995, that provides that Dr. Sobey
be employed as president of Laser Data. The agreement provides for an annual
salary of $145,600 or such greater amount as the board of directors of Laser
Data may determine. In lieu of standard Laser Data bonus and profit-sharing
benefits, Dr. Sobey was granted certain Laser Data stock options pursuant to the
agreement. See "-- Certain Options to Purchase Laser Data Common Stock." The
agreement further provides that, except for standard Laser Data bonus and
profit-sharing benefits, Dr. Sobey will receive standard Laser Data employee
benefits. The initial term of the agreement ends October 12, 1999, with
automatic and successive one-year extensions unless either party gives notice of
non-renewal. The agreement may be terminated upon Dr. Sobey's death or
disability, and by either party with or without cause. If Laser Data terminates
the agreement without cause or if Dr. Sobey terminates the agreement as a result
of a constructive termination, Laser Data must pay severance equal to 100% of
Dr. Sobey's annual salary at the time of such termination, plus health insurance
benefits for one year.
RESTRICTED STOCK PLAN
In 1994, Opto Power granted certain Opto Power employees options to
purchase, in the aggregate, up to 20% of Opto Power common stock outstanding on
a fully diluted basis. In October 1997, the option holders agreed to cancel
their Opto Power options for initial cash payments in the aggregate amount of
approximately $14.7 million, payable upon execution of the agreements, and the
Company's future obligation to issue an aggregate of 370,948 shares of Common
Stock (assuming an initial public offering price of $11.00 per share) upon
completion of the offering ("Restricted Stock"). The foregoing cash payments
were funded through a capital contribution to the Company by Spectra-Physics
USA. The Restricted Stock may not be sold or otherwise transferred except as
follows: 25% of the shares originally received may be transferred beginning six
months following consummation of the offering, and an additional 25% of the
shares becomes transferable every six months thereafter.
CERTAIN OPTIONS TO PURCHASE LASER DATA COMMON STOCK
Laser Data has granted certain of its employees options ("Laser Data
Options") to purchase, in the aggregate, up to 20% of Laser Data common stock
then outstanding on a fully diluted basis. Laser Data has granted options to Dr.
Sobey to purchase, in the aggregate, up to 10% of Laser Data common stock then
outstanding on a fully diluted basis. One-half of the Laser Data Options vest
over a period of time beginning on the applicable date of grant and ending
December 31, 1999 and one-half are performance-based options. Laser Data Options
are exercisable, at an exercise price of $.05 per share, from the effective date
of an initial public offering of Laser Data common stock until the earlier of
the first anniversary of such initial public offering or May 1, 2000. If a sale
of control of Laser Data occurs before May 1, 2000, Laser Data must redeem the
Laser Data Options, to the extent vested, by paying their holders the difference
between the exercise price
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<PAGE> 48
and the per share value received in the sale of control (unless the acquiror in
the sale of control does not wish such options to be cancelled, in which case
they shall not be redeemed). Subject to certain qualifications, if neither an
initial public offering nor a sale of control occurs before May 1, 2000, Laser
Data must redeem the Laser Data Options by paying their holders the difference,
on a per-share basis, between the exercise price and the fair market value of
Laser Data common stock as determined by Laser Data's board of directors,
provided that the holders of a majority of the Laser Data Options may request an
independent appraisal of the board's valuation.
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PRINCIPAL STOCKHOLDER
As of the date of this Prospectus, all of the shares of the Company's
outstanding Common Stock are beneficially owned by Spectra-Physics AB. After
completion of the offering, Spectra-Physics AB will beneficially own 13,000,000
shares or approximately 82.4% of the Company's outstanding Common Stock
(approximately 80.6% if the Underwriters' over-allotment option is exercised in
full). Although none of the Company's directors and executive officers
beneficially own any shares of Common Stock, upon consummation of the offering
they will hold options to purchase Common Stock, none of which are exercisable
within 60 days of the date of this Prospectus. Additionally, upon consummation
of the offering certain employees of the Company will be issued a total of
370,948 shares of Common Stock (assuming an initial public offering price of
$11.00 per share) pursuant to the Restricted Stock Plan Agreements. See
"Management -- 1997 Spectra-Physics Lasers, Inc. Stock Option Plan" and
"Management -- Restricted Stock Plan." The mailing address of Spectra-Physics AB
is Sturegatan 32, 4th Floor, Stockholm, Sweden.
Messrs. Alexandersson, Edsell and Karlson own 2,577 shares, 3,600 shares
and 21,000 shares, respectively, of Spectra-Physics AB common stock, which in
each case represents less than one percent of the issued and outstanding common
stock of Spectra-Physics AB.
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<PAGE> 50
CERTAIN RELATIONSHIPS AND TRANSACTIONS
RELATIONSHIP WITH SPECTRA-PHYSICS AB
Prior to the Reorganization, the Company, Opto Power and Laser
Data -- together with various foreign subsidiaries of Spectra-Physics AB that
conducted sales and technical support operations on their behalf -- operated as
a functional group called the Lasers and Optics Group. In preparation for the
offering, it was necessary to reorganize the Lasers and Optics Group so that the
assets and liabilities (including contractual rights and obligations) of the
Lasers and Optics Group were held directly or indirectly by the Company.
Accordingly, pursuant to various agreements entered into prior to the date
hereof, (i) the assets and liabilities of the Lasers and Optics Group not held
by the Company were transferred to the Company and (ii) the assets and
liabilities of the Company not part of the Lasers and Optics Group were
transferred to Spectra-Physics AB's subsidiaries (other than the Company). In
connection with the Reorganization, intercompany receivables and payables were
eliminated.
POST-REORGANIZATION AGREEMENTS
In connection with the Reorganization, the Company entered into or will
enter into prior to the offering the following arrangements with Spectra-Physics
AB or its subsidiaries.
Reorganization Agreement; Indemnification
The Company and Spectra-Physics USA entered into an agreement pursuant to
which Spectra-Physics USA received, in the form of a distribution from the
Company, all of the Company's assets not related to the Lasers and Optics Group,
including certain contractual rights of the Company. Under the same agreement,
Spectra-Physics USA assumed all the liabilities not related to the Lasers and
Optics Group or otherwise relating to the assets transferred by way of the
distribution from the Company, including certain contractual obligations of the
Company. The agreement requires SpectraPhysics USA to indemnify the Company and
its officers, directors, employees and agents for all claims (past, present and
future) relating to the liabilities assumed by Spectra-Physics USA under the
agreement. Conversely, the agreement requires the Company to indemnify
Spectra-Physics USA and its affiliates (excluding those in the Lasers and Optics
Group), and their respective officers, directors, employees and agents, for all
claims (past, present and future) against them relating to the businesses or
operations of the Lasers and Optics Group.
Permanova Distribution Agreement
The Company has entered into a distribution agreement with Permanova
Lasersystems AB ("Permanova"), an indirect subsidiary of Spectra-Physics AB and
prior to the Reorganization a member of the Lasers and Optics Group, under which
the Company appointed Permanova as its exclusive representative for the
promotion and sale of certain of the Company's products in Denmark, Norway,
Sweden, Finland, Iceland and Greenland. The agreement provides that Permanova
shall use its best efforts to distribute the Company's products in exchange for
discounts or commissions, depending on the type of sales made. The agreement is
effective until October 5, 2002 unless terminated earlier according to its terms
or extended by mutual agreement. Either party may terminate the agreement at any
time upon 90 days written notice.
Tax Allocation and Tax Indemnification Agreement
The Company is a member of an affiliated group of companies that file
consolidated federal income tax returns. Spectra-Physics USA is the parent of
that affiliated group and is responsible for filing the group's consolidated
returns. The Company has entered into a Tax Allocation and Tax Indemnification
Agreement (the "Tax Agreement") with Spectra-Physics USA. Under the Tax
Agreement, the Company will remit to Spectra-Physics USA federal taxes
determined as if the Company and the Company's U.S. subsidiaries were subject to
tax as a separate consolidated group from and after October 4, 1997. Similar
principles will apply to state income taxes where the Company joins in filing
consolidated, combined or unitary state tax returns with Spectra-Physics USA.
The Tax Agreement requires Spectra-Physics USA to indemnify the Company and its
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<PAGE> 51
subsidiaries for any income taxes (and any interest and penalties thereon) of
the Spectra-Physics USA affiliated tax group, except to the extent of any such
amounts required to be paid by the Company under the Tax Agreement.
Though valid between the parties, the Tax Agreement is not binding on the
Internal Revenue Service or other taxing authorities, and it does not eliminate
the right of such authorities to proceed against the Company or any of its
subsidiaries for the collection of any federal or state income taxes with
respect to consolidated federal (and consolidated, combined or unitary state or
local) income tax returns of the Spectra-Physics USA affiliated group (or
members thereof) for periods in which the Company and its subsidiaries are
included.
Tradename and Trademark License Agreement
The Company owns the tradename, trademark and service mark SPECTRA-PHYSICS
and the stylized "S" logotype (collectively, the "Trademarks"), each of which is
registered in the name of the Company with the U.S. Patent and Trademark Office.
Prior to the Reorganization, the Trademarks were used by Spectra-Physics AB and
several of its subsidiaries that were not members of the Lasers and Optics
Group. Pursuant to the Reorganization, the Company, Spectra-Physics AB, Spectra
Precision, Inc., a subsidiary of Spectra-Physics AB ("Precision") and one other
subsidiary of Spectra-Physics AB, entered into a Tradename and Trademark License
Agreement (the "Trademark Agreement") which allows Spectra-Physics AB and its
subsidiaries limited rights to use the Trademarks following the Reorganization.
Under the Trademark Agreement, the Company grants Spectra-Physics AB a
non-exclusive, non-transferable, royalty-free worldwide license to use the
Trademarks as part of Spectra-Physics AB's tradename and corporate name. The
license, which allows Spectra-Physics AB to sublicense its rights to its
subsidiaries, does not allow the Trademarks to be used to identify the source or
origin of the goods or services of Spectra-Physics AB (or those of any
sublicensee), except that it does permit such use by Precision and its
subsidiaries for a limited time following the Reorganization. The Trademark
Agreement has an initial term of fifteen years and renews automatically for
successive one-year terms unless terminated by either party before the end of
the then-current term.
Technology License
Pursuant to the Reorganization, the Company indirectly transferred to
Precision certain patents relating to technology used by Precision in the
development and manufacture of its products. Prior to the offering, Precision
will grant a non-exclusive, non-transferable, royalty-free perpetual license to
the Company to use certain of Precision's patents in connection with the
Company's current and future businesses and operations, except that the Company
may not use these patents to make products used in applications in construction,
land or hydrographic surveying, mining, dynamic positioning or agriculture. In
addition, the Company will grant a non-exclusive, non-transferable, royalty-free
perpetual license to Precision to use certain of the Company's patents in
connection with Precision's sale of products used in applications in
construction, land or hydrographic surveying, mining, dynamic positioning or
agriculture.
Insurance
So long as Spectra-Physics AB continues to directly or indirectly own 50%
or more of the capital stock of the Company, the Company may, at its election,
be included in Spectra-Physics AB's insurance program. The Company will
reimburse Spectra-Physics AB for any cost attributable to such participation in
Spectra-Physics AB's corporate insurance program.
Benefit Plans
So long as Spectra-Physics AB continues to directly or indirectly own 50%
or more of the capital stock of the Company, the Company may, at its election,
be included in certain of Spectra-Physics AB's benefit programs. The Company
will reimburse Spectra-Physics AB for any cost attributable to such
participation in such benefit programs. The Company expects that the assets
comprising the Company's 401(k) Plan will
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<PAGE> 52
continue to be administered separately from defined contribution plans
maintained by other subsidiaries of Spectra-Physics AB.
The Service Agreements
Prior to the Reorganization, certain Spectra-Physics AB subsidiaries
provided to the Company and the Company provided to certain Spectra-Physics AB
subsidiaries, certain administrative support services in connection with their
respective international sales and marketing operations, such as payroll,
accounting and employee benefit services, as well as providing office and
warehouse space. The Company and certain Spectra-Physics AB subsidiaries have
entered into agreements providing for the continued provision of certain of such
services at a cost generally consistent with past charges. The agreements also
provide for the Company to lease from Spectra-Physics AB subsidiaries, and for
Spectra-Physics AB subsidiaries to lease from the Company, the office and
warehouse space each is currently occupying. The leases will, in general, have a
one-year renewable term and will provide for rental payments generally
consistent with past charges.
Registration Rights Agreement
Prior to the closing of the offering, the Company will enter into a
Registration Rights and Holdback Agreement (the "Registration Rights Agreement")
with Spectra-Physics USA granting Spectra-Physics USA certain "demand" and
"piggyback" registration rights.
Under the "demand" provisions of the Registration Rights Agreement,
Spectra-Physics USA has the right to require the Company to register under the
Securities Act any (i) shares of Common Stock of the Company held by
Spectra-Physics USA and (ii) shares of Common Stock of the Company issued or
issuable to Spectra-Physics USA by way of a stock dividend, stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization (collectively, "Registrable Securities"). Under the
"piggyback" provisions of the Registration Rights Agreement, if the Company
proposes at any time to register any of its equity securities under the
Securities Act, Spectra-Physics USA may require the Company to register, under
the same registration statement, shares of Registrable Securities held by
Spectra-Physics USA. Such registration rights are subject to certain
limitations, including with respect to piggyback registration rights the ability
of the managing underwriters to limit or exclude certain Registrable Securities
from an offering.
The Registration Rights Agreement will also include certain lockup and
holdback provisions. During the lockup period (ending 180 days after
consummation of the offering by the Company), Spectra-Physics USA may not effect
any public sale or distribution of Registrable Securities without the Company's
consent, except pursuant to a piggyback registration as described above. The
Company may also require Spectra-Physics USA not to effect any public sale or
distribution of the Company's Common Stock 10 days before and 90 days after any
firm underwritten offering of such Common Stock. Conversely, for equivalent time
periods Spectra-Physics USA may require the Company not to effect any public
sale or distribution of the Company's Common Stock if Spectra-Physics USA enters
into a firm underwritten offering of shares of Registrable Securities.
Accounting for Certain Past Transactions Between the Company and
Spectra-Physics AB
The administrative costs of Spectra-Physics AB which were indirectly
attributable to the Company have not been historically charged to the Company.
They have, however, been allocated to the Company in the Consolidated Financial
Statements included elsewhere in this Prospectus based on actual amounts
incurred by Spectra-Physics AB on behalf of the Company or agreed-upon amounts
or percentages based on number of employees and sales. As shown on the
Consolidated Statement of Operations, "Corporate overhead allocation" consisted
of approximately $283,000, $328,000, $328,000 and $246,000 in 1994, 1995 and
1996, and for the nine months ended September 30, 1997, respectively.
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<PAGE> 53
OTHER
The Company and Mr. Karlson, a director of the Company, are parties to a
consulting agreement dated June 4, 1993 whereby Mr. Karlson provides consulting
and advisory services to the Company on a daily fixed fee basis. Pursuant to the
agreement, Mr. Karlson is also entitled to reimbursement of out-of-pocket
expenses incurred in connection with his provision of consulting services to the
Company. In 1994, 1995 and 1996 and for the nine-month period ended September
30, 1997, the Company incurred fees payable to Mr. Karlson of $48,201, $70,510,
$112,464 and $102,685, respectively, for consulting services rendered to the
Company.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 60,000,000 shares of
Common Stock, par value $.01 per share (the "Common Stock"), and 10,000,000
shares of preferred stock, par value $.01 per share (the "Preferred Stock").
Upon completion of the offering, 15,770,948 shares of Common Stock (assuming an
initial public offering price of $11.00 per share) will be outstanding. No
shares of Preferred Stock are issued or outstanding. The Company expects to
reserve 2,252,993 shares of Common Stock (assuming the Underwriters'
overallotment option is not exercised) for issuance upon the exercise of options
under the 1997 Plan and 370,948 shares of Common Stock (assuming an initial
public offering price of $11.00 per share) for issuance pursuant to the
Restricted Stock Agreements.
The following description of the capital stock of the Company does not
purport to be complete and is qualified in its entirety by reference to the
Company's Certificate of Incorporation, which has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
on which holders of Common Stock are entitled to vote under the DGCL and have no
cumulative voting rights. Holders of Common Stock do not have the preemptive
right to subscribe for shares of Common Stock issued by the Company, nor do they
have any redemptive rights.
Upon liquidation, dissolution or winding up of the Company, holders of
Common Stock of the Company are entitled to a pro rata share of the distribution
of assets remaining after the payment of debts and expenses and after payment of
the liquidation preference accorded to the holders of any Preferred Stock of the
Company which may be issued in the future. Each share of Common Stock has the
same rights, privileges and preferences as every other share of Common Stock.
The holders of the Company's Common Stock are entitled to share ratably in
dividends declared by the Board of Directors out of funds legally available
therefor. The Company does not expect to declare or pay cash dividends to
holders of Common Stock in the foreseeable future.
The Company has applied to list the Common Stock on the Nasdaq National
Market under the symbol "SPLI."
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue 10,000,000 shares of Preferred Stock in one or more
classes or series and to fix the voting powers, designations, preferences, and
relative, participating, optional or other special rights and qualifications,
limitations and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, and the
number of shares constituting any class or series. The ability of the Board of
Directors to issue Preferred Stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire, or discouraging a
third party from acquiring, a majority of the outstanding voting stock of the
Company. The Board of Director's ability to establish the preferences and rights
of the shares of any such class or series of Preferred Stock may also afford
holders of any Preferred Stock preferences, powers and rights (including voting
rights), senior to the rights of holders of Common Stock. The Company has no
present plans to issue any shares of Preferred Stock. See "Risk
Factors -- Certain Anti-Takeover Matters; Possible Issuance of Preferred Stock."
REGISTRATION RIGHTS
In connection with the offering, Spectra-Physics USA is expected to enter
into a Registration Rights Agreement with the Company granting it certain
"demand" and "piggyback" registration rights. See "Certain Relationships and
Transactions -- Relationship with Spectra-Physics AB -- Registration Rights."
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ANTI-TAKEOVER MATTERS
In addition to the blank check Preferred Stock, the Certificate of
Incorporation and Bylaws of the Company contain other provisions that are
commonly considered to have an anti-takeover effect. Under the Company's
Certificate of Incorporation and Bylaws, the directors may enlarge the size of
the Board and fill any vacancies on the Board. The Company's Bylaws provide that
nominations for directors may not be made by stockholders at any annual meeting
unless the stockholder intending to make a nomination notifies the Company of
its intention between 60 and 90 days in advance and furnishes certain
information. See "Risk Factors -- Certain Anti-Takeover Matters; Possible
Issuance of Preferred Stock."
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the DGCL provides, with certain exceptions, that a Delaware
corporation may not engage in certain business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date such person became an interested stockholder
unless (i) the transaction resulting in the acquiring person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and also officers and (b) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (x) the owner of 15% or more of
the outstanding voting stock of the corporation or (y) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock at any time within the three year period immediately prior to the date on
which it is sought to be determined whether such person is an interested
stockholder. A Delaware corporation, pursuant to a provision on its certificate
of incorporation or bylaws, may elect not to be governed by Section 203. The
Company has not made such an election and, as a result, the Company will be
subject to the provisions of Section 203 of the DGCL upon consummation of the
offering. See "Risk Factors -- Certain Anti-Takeover Matters; Possible Issuance
of Preferred Stock."
LIMITATION OF LIABILITY AND INDEMNIFICATION
As permitted by the DGCL, the Company's Certificate of Incorporation
provides that directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director derives an improper personal benefit. In
addition, the Company's Bylaws provide for indemnification of the Company's
officers and directors to the fullest extent permitted under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission ("Commission") such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
The Company intends to obtain directors' and officers' liability insurance
prior to consummation of the offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston Equiserve
Limited Partnership.
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<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after the offering. Sales of substantial
amounts of the Common Stock in the public market following the offering, or the
perception that sales may occur, could adversely affect the market price of the
Common Stock or the ability of the Company to raise capital through a sale of
its equity securities.
Upon completion of the offering, 15,770,948 shares (assuming an initial
public offering price of $11.00 per share) of the Company's Common Stock will be
outstanding. The 2,400,000 shares of Common Stock sold in the offering
(2,760,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act, unless acquired by affiliates of the Company. All remaining
outstanding shares of Common Stock may not be sold unless registered under the
Securities Act or sold in accordance with an exemption therefrom, such as Rule
144 thereunder. Subject to the terms of the Registration Rights Agreement, the
Company has agreed, upon the request of Spectra-Physics USA, to register under
the Securities Act the shares of Common Stock owned by Spectra-Physics USA. See
"Certain Relationships and Transactions -- Relationship with Spectra-Physics
AB."
The Company and Spectra-Physics USA have agreed not to offer, sell or
otherwise dispose of any shares of Common Stock, other than the shares subject
to the Underwriters' over-allotment option and except pursuant to any existing
employee benefit plans for a period of 180 days after the date of this
Prospectus without the prior written consent of NationsBanc Montgomery
Securities, Inc. At the time of the offering, the Company intends to grant under
the 1997 Plan options to purchase 2,158,645 shares of Common Stock of the
Company. Following the closing of the offering, the Company intends to register
the shares of Common Stock issued or reserved for issuance under to the 1997
Plan under the Securities Act pursuant to a Registration Statement on Form S-8.
See "Management -- 1997 Spectra-Physics Lasers, Inc. Stock Option Plan." Upon
completion of the offering, the Company intends to issue 370,948 shares
(assuming an initial public offering price of $11.00 per share) of Common Stock
to certain employees pursuant to Restricted Stock Plan Agreements as partial
consideration for the cancellation of certain Opto Power stock options. These
shares will be subject to certain restrictions on transfer. The Company intends
to register these shares for resale pursuant to a Registration Statement on Form
S-8. See "Management -- Restricted Stock Plan."
In general, Rule 144 will permit an affiliate or a person who has held
restricted shares for more than one year to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock (approximately 157,700 shares after consummation of the
offering) or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale, provided that the Company has either filed
certain periodic reports with the Commission or made publicly available certain
information concerning it and provided that such sales are made in normal
"brokers' transactions" or in transactions directly with a "market maker"
without the solicitation of buy orders by the brokers or such affiliates. A
person who is deemed not to be an affiliate of the Company at any time during
the three months preceding a sale and who has held restricted shares for more
than two years may sell such shares under Rule 144 without regard to the volume
limitations described.
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<PAGE> 57
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities, Inc. and Cowen & Company (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below opposite their respective names at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of such shares, if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
NationsBanc Montgomery Securities, Inc....................................
Cowen & Company...........................................................
---------
Total........................................................... 2,400,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters
initially propose to offer the Common Stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may offer to selected
dealers a concession of not more than $ per share; and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the initial public offering, the offering
price and other selling terms may be changed by the Representatives. The Common
Stock is offered subject to receipt and acceptance by the Underwriters, and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company has granted an option to the Underwriters, exercisable for 30
calendar days after the date of this Prospectus, to purchase up to a maximum of
360,000 additional shares of Common Stock, solely to cover over-allotments. If
the Underwriters exercise this over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 2,400,000 shares of Common
Stock offered hereby. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the 2,400,000 shares of
Common Stock.
The Company and Spectra-Physics USA have agreed not to offer, sell,
contract to sell or dispose of any shares of Common Stock or any securities
convertible into or exchangeable for any shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
NationsBanc Montgomery Securities, Inc., except for securities issued pursuant
to its stock option plans and Common Stock issuable pursuant to the Restricted
Stock Plan Agreements. NationsBanc Montgomery Securities, Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements.
The Underwriting Agreement provides that the Company will indemnify the
several Underwriters and their officers, directors and affiliates against
certain liabilities, including liabilities under the Securities Act.
The Representatives have advised the Company that it does not intend to
confirm sales to discretionary accounts by the Underwriters in excess of 5% of
the total number of shares of Common Stock offered by them.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an
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<PAGE> 58
exception to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover of this Prospectus, the Representatives may
reduce that short position by purchasing Common Stock on the Nasdaq National
Market or otherwise. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
predictions as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price was negotiated between the Company and
the Representatives. Among the factors considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, are the Company's historical performance, estimates of the business
potential and earnings prospects of the Company, an assessment of the Company's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
The Underwriters have reserved for sale at the initial public offering
price, approximately 120,000 shares to employees, directors and affiliates of
the Company as such persons have expressed an interest in purchasing such shares
of Common Stock in the offering. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares offered hereby.
NationsBanc Montgomery Securities, Inc. has performed investment banking
services for the Company from time to time for which it received customary fees.
In connection with such services, the Company agreed to indemnify NationsBanc
Montgomery Securities, Inc. with respect to certain matters.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Dechert Price
& Rhoads, Philadelphia, Pennsylvania, and for the Underwriters by Wilson Sonsini
Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1995 and
1996 and September 30, 1997 and the consolidated statements of operations, cash
flows and parent equity (deficit) for each of the three years in the period
ended December 31, 1996 and the nine months ended September 30, 1997, included
in this
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Prospectus, have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Commission under
the Securities Act with respect to the securities offered by this Prospectus.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the offering, reference is made to the Registration
Statement, including the exhibits filed therewith, which may be inspected
without charge at the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of the Registration Statement may be obtained
from the Commission at its principal office upon payment of prescribed fees.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, where the contract or other
document has been filed as an exhibit to the Registration Statement, each such
statement is qualified in all respects by reference to the applicable document
filed with the Commission.
As a result of the offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith will file reports and other information with the
Commission. Such reports and other information, when filed, can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York,
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and notes thereto, together with an
opinion thereon expressed by an independent public accounting firm, and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.
58
<PAGE> 60
GLOSSARY
<TABLE>
<S> <C>
AlGaAs............................. aluminum gallium arsenide, a semiconductor material for
near infrared semiconductor lasers (700 nm-900 nm).
CW................................. continuous wave, indicates the amplitude of a wave
(e.g., laser beam) is constant and not changing in time.
DRAM............................... dynamic random access memory. A type of volatile memory
product that is used in electronic systems to store data
and program instructions. It is the most common type of
RAM and must be refreshed with electricity thousands of
times per second or else its memory will fade away.
HPSL............................... high power semiconductor laser, semiconductor laser that
has an output power greater than 0.5W.
J.................................. Joule, an energy measurement unit: one calorie equals
4.18 Joules.
kHz................................ kilo-Hertz, one thousand Hertz, a frequency measurement
unit that equals one thousand cycles per second.
mJ................................. milli-Joule, one thousandth of a Joule.
monochromaticity................... literally means "one color", describes a state of high
color purity or a very narrow spectral bandwidth of
emitted light; a laser is the only light source capable
of achieving such a state.
MRI................................ magnetic resonance imaging.
mW................................. milli-Watt, one-thousandth of a Watt.
nm................................. nanometer, a unit of length that equals one-billionth of
a meter, commonly used in optical wavelength
descriptions; for example, green light is about 520 nm.
OEM................................ original equipment manufacturer.
OPO................................ optical parametric oscillator, an optical system
designed to generate a broad range of wavelengths from a
single laser source.
QMAD............................... quiet multi-axial-mode doubling, a Spectra-Physics
patented invention which solves the fundamental chaos
problem encountered in intra-cavity second harmonic
generation, or doubling, with a design that
intentionally incorporates many (>100) axial modes to
achieve ultra quiet laser output; technology
incorporated in Spectra-Physics' Millennia SLPSS high
power green lasers.
PC................................. personal computer.
SLPSS.............................. semiconductor laser pumped solid state.
semiconductor-based lasers......... semiconductor lasers and SLPSS lasers.
SRAM............................... static random access memory. A type of volatile memory
product that is used in electronic systems to store data
and program instructions. Unlike the more common DRAM,
it does not need to be refreshed.
Ti:Saph............................ titanium doped sapphire, a crystal used as a gain medium
in a laser, capable of broad tunability and ultra-short
pulse generation.
(LOGO)m............................ micrometer; a unit of length that equals one millionth
of a meter.
UV................................. ultra violet
W.................................. Watt, a power measurement unit, equals a rate of energy
of one Joule per second.
YAG................................ yttrium aluminum garnet, a crystal that serves as the
host for an array of atom species that are capable of
lasing in the near infrared. The most notable example,
the neodymium doped version, Nd:YAG, is one of the major
crystalline materials in either 1amp-pumped or SLPSS
laser systems.
</TABLE>
G-1
<PAGE> 61
SPECTRA-PHYSICS LASERS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheet.......................................................... F-3
Consolidated Statement of Operations................................................ F-4
Consolidated Statement of Cash Flows................................................ F-5
Consolidated Statement of Parent Equity (Deficit)................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
Spectra-Physics Lasers, Inc.
We have audited the accompanying consolidated balance sheet of
Spectra-Physics Lasers, Inc. as of December 31, 1995 and 1996 and September 30,
1997, and the related consolidated statements of operations, cash flows, and
parent equity (deficit) for each of the three years in the period ended December
31, 1996 and the nine month period ended September 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Spectra-Physics
Lasers, Inc. as of December 31, 1995 and 1996 and September 30, 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 and the nine month period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
San Jose, California
October 18, 1997, except
for Notes 11 and 12, for which
the date is October 22, 1997
F-2
<PAGE> 63
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
AS OF DECEMBER 31, --------------------
------------------- PRO-FORMA
1995 1996 ACTUAL UNAUDITED
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 1,042 $ 2,531 $ 1,283 $ 3,626
Accounts receivable, including $288, $366, and $0,
respectively, due from affiliated companies, less
allowance for doubtful accounts of $328, $361,
and $730, respectively........................... 33,667 37,952 34,176 34,176
Inventories......................................... 22,705 21,809 27,414 27,414
Deferred tax assets................................. -- -- 14,519 14,519
Prepaid expenses and other current assets........... 963 1,726 1,465 1,869
-------- -------- --------- ---------
Total current assets........................ 58,377 64,018 78,857 81,604
Property, plant and equipment, net.................... 19,831 20,651 22,944 23,983
Intangible assets, net of accumulated amortization of
$1,587, $1,772, and $1,864, respectively............ 1,295 1,110 1,018 1,018
Other assets.......................................... 1,188 1,069 1,115 1,971
-------- -------- --------- ---------
Total assets................................ $ 80,691 $ 86,848 $103,934 $ 108,576
======== ======== ========= =========
LIABILITIES AND PARENT EQUITY (DEFICIT)
Current liabilities:
Accounts payable, including $175, $0, and $0,
respectively, due to affiliates.................. $ 8,207 $ 8,128 $ 8,253 $ 14,066
Taxes payable....................................... 105 573 2,037 2,037
Interest due to SPAB................................ 2,872 4,062 2,002 --
Accrued and other current liabilities............... 16,920 23,724 37,094 19,362
-------- -------- --------- ---------
Total current liabilities................... 28,104 36,487 49,386 35,465
Long-term liabilities:
Loans and advances from SPAB........................ 67,078 69,698 71,756 --
Other long-term liabilities......................... 1,989 1,886 1,533 1,665
-------- -------- --------- ---------
Total long-term liabilities................. 69,067 71,584 73,289 1,665
Commitments and contingencies
Parent equity (deficit)............................... (16,480) (21,223) (18,741) 71,446
-------- -------- --------- ---------
Total liabilities and Parent equity
(deficit)................................. $ 80,691 $ 86,848 $103,934 $ 108,576
======== ======== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE> 64
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- --------------------------------
1994 1995 1996 1996 1996 1997 1997
------- -------- -------- --------- --------- -------- ---------
PRO-FORMA UNAUDITED PRO-FORMA
UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $95,123 $112,527 $135,434 $135,434 $90,415 $113,061 $113,061
Cost of products sold.............. 62,482 73,040 88,320 88,320 59,584 71,178 71,178
------- -------- -------- -------- ------- -------- --------
Gross margin..................... 32,641 39,487 47,114 47,114 30,831 41,883 41,883
Operating expenses:
Research and development......... 7,788 7,933 12,005 12,005 8,571 10,857 10,857
Selling, general and
administrative................. 24,812 27,848 28,966 28,966 20,755 23,555 23,555
Other............................ -- 1,863 6,915 1,915 4,762 16,157 1,657
------- -------- -------- -------- ------- -------- --------
Total operating
expenses................ 32,600 37,644 47,886 42,886 34,088 50,569 36,069
------- -------- -------- -------- ------- -------- --------
Operating income (loss)... 41 1,843 (772) 4,228 (3,257) (8,686) 5,814
Other income (expense):
Interest expense................. (3,492) (4,590) (5,374) -- (3,940) (3,930) --
Foreign currency gain (loss)..... (1,439) 1,046 2,532 2,532 1,832 2,566 2,566
Legal settlement................. -- -- -- -- -- 17,010 17,010
------- -------- -------- -------- ------- -------- --------
Total other income
(expense)............... (4,931) (3,544) (2,842) 2,532 (2,108) 15,646 19,576
------- -------- -------- -------- ------- -------- --------
Income (loss) before
income taxes............ (4,890) (1,701) (3,614) 6,760 (5,365) 6,960 25,390
Income tax expense (benefit)....... 311.... 318 634 634 17 (23,272) (16,102)
------- -------- -------- -------- ------- -------- --------
Net income (loss)......... $(5,201) $ (2,019) $ (4,248) $ 6,126 $(5,382) $ 30,232 $ 41,492
======= ======== ======== ======== ======= ======== ========
Pro forma net income (loss) per
share............................ $ (0.33) $ 0.46 $ 2.33 $ 3.10
======== ======== ======== ========
Shares used in computing pro forma
net income (loss) per share...... 13,000 13,371 13,000 13,371
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE> 65
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ---------------------
1994 1995 1996 1997
------- ------- ------- 1996 --------
---------
UNAUDITED
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................... $(5,201) $(2,019) $(4,248) $(5,382) $ 30,232
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation and amortization............. 4,274 3,729 4,420 3,268 3,521
Deferred tax assets....................... -- -- -- -- (14,519)
Non-cash sales............................ (489) -- -- -- --
Changes in operating assets and liabilities:
Accounts receivable....................... (1,021) (7,034) (4,285) 3,922 3,776
Inventories............................... (430) (3,632) 896 (4,156) (5,605)
Prepaid expenses and other current
assets................................. (387) 493 (763) (369) 261
Accounts payable.......................... 4 2,058 (79) (1,849) 125
Accrued and other current liabilities..... 1,726 3,772 8,359 3,275 12,421
------ ------ ------ ------- ------
Total cash provided by (used in)
operating activities................. (1,524) (2,633) 4,300 (1,291) 30,212
------ ------ ------ ------- ------
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment................................. (1,832) (8,093) (5,055) (3,715) (5,722)
Other....................................... 126 4 103 86 (53)
------ ------ ------ ------- ------
Total cash provided by (used in)
investing activities................. (1,706) (8,089) (4,952) (3,629) (5,775)
------ ------ ------ ------- ------
FINANCING ACTIVITIES:
Net transfers (to) from SPAB................ 1,674 (92) (479) 1,672 (27,743)
Changes in loans and advances from SPAB..... 1,403 11,078 2,620 3,832 2,058
------ ------ ------ ------- ------
Total cash provided by (used in)
financing activities................. 3,077 10,986 2,141 5,504 (25,685)
------ ------ ------ ------- ------
Increase (decrease) in cash............ (153) 264 1,489 584 (1,248)
Cash at beginning of period................. 931 778 1,042 1,042 2,531
------ ------ ------ ------- ------
Cash at end of period....................... $ 778 $ 1,042 $ 2,531 $ 1,626 $ 1,283
====== ====== ====== ======= ======
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Sale of building for a note............... $ 1,186
======
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE> 66
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
CONSOLIDATED STATEMENT OF PARENT EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED
---------------------------------- SEPTEMBER 30,
1994 1995 1996 1997
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
Balance at Beginning of Period............... $(10,823) $(14,348) $(16,480) $ (21,223)
Net income (loss).......................... (5,201) (2,019) (4,248) 30,232
Net transfers (to) from SPAB............... 1,674 (92) (479) (27,743)
Foreign currency translation............... 2 (21) (16) (7)
-------- -------- -------- --------
Balance at End of Period..................... $(14,348) $(16,480) $(21,223) $ (18,741)
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE> 67
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
1. BUSINESS AND BASIS OF PRESENTATION
Spectra-Physics Lasers, Inc. (the "Company") designs, develops,
manufactures and distributes lasers and laser systems for the industrial,
original equipment manufacturer (OEM), and research and development markets.
Prior to the Reorganization referred to below, Spectra-Physics Lasers, Opto
Power Corporation, and Spectra-Physics Laser Data Systems, Inc., together with
various foreign subsidiaries of Spectra-Physics AB that conducted sales and
technical support operations on their behalf, were operated as a functional
group called the Lasers and Optics Group. In preparation for its initial public
offering (the "Offering") the Company was reorganized so that the assets and
liabilities (including contractual rights and obligations) of the Lasers and
Optics Group were held directly or indirectly by the Company. Accordingly,
pursuant to various agreements (i) the assets and liabilities of the Lasers and
Optics Group not held by the Company were transferred to the Company and (ii)
the assets and liabilities of the Company not part of the Lasers and Optics
Group were transferred to SPAB's subsidiaries (other than the Company and its
subsidiaries.) In connection with the Reorganization, intercompany receivables
and payables were eliminated. Unless specified otherwise, SPAB refers to
Spectra-Physics AB and/or affiliates of Spectra-Physics AB (other than the
Company and its subsidiaries).
The accompanying consolidated financial statements include Spectra-Physics
Lasers, Opto Power Corporation, Spectra-Physics Laser Data Systems, Inc. and the
various foreign subsidiaries of SPAB that conducted sales and technical support
operations on their behalf and reflect the financial position, results of
operations, and cash flows of the Company as if it were a separate entity for
each period presented. The accompanying financial statements do not include
assets and liabilities not part of the Laser and Optics Group. These assets were
transferred to SPAB.
The consolidated financial statements include allocations of certain SPAB
corporate and group expenses (including cash management and treasury, legal,
employee benefits, insurance, income taxes and corporate overhead services)
relating to the Company's businesses. Management believes these allocations are
reasonable. However, the financial information included herein may not
necessarily reflect the consolidated financial position, results of operations,
and cash flows of the Company in the future or what they would have been had the
Company been a separate entity during the periods presented.
In connection with the Reorganization, the Company entered into, or is
expected to enter into, several agreements with SPAB that provide for (1)
certain tax sharing matters, (2) registration rights in favor of Spectra Physics
USA, (3) the use of the Spectra Physics name and trademark, (4) cross licensing
of certain patents, (5) certain distribution arrangements, and (6) various
indemnification arrangements. In addition, certain subsidiaries of the Company
and certain subsidiaries of SPAB entered into agreements providing for the
continuation of certain ongoing service and facilities leasing arrangements.
The unaudited pro forma balance sheet at September 30, 1997 and statement
of operations for the year ended December 31, 1996, and the nine months ended
September 30, 1997, give effect to the: (1) conversion to equity of amounts due
by the Company to SPAB for loans, advances and accrued interest; (2) removal of
interest expense related to such loans and advances; (3) contribution to equity
of the Company by SPAB of certain net assets related to foreign holding
companies of SPAB and cash to settle certain net liabilities of the holding
companies; (4) settlement of certain employee stock options for cash and equity
(including related shares of common stock) and the contribution to equity by
SPAB the cash used for such settlement; and (5) related impact of income taxes.
The unaudited pro forma balance sheet was prepared assuming that the
transactions had occurred on September 30, 1997 and the unaudited pro forma
statements of operations were prepared assuming the transactions occurred on
January 1, 1996.
F-7
<PAGE> 68
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
Unaudited pro forma balance sheet:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------------
(IN THOUSANDS)
PRO FORMA
COMPANY PRO FORMA FINANCIAL
HISTORICAL ADJUSTMENTS STATEMENT
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash....................................................................... $ 1,283 $ 2,343(1) $ 3,626
Accounts receivable........................................................ 34,176 34,176
Inventories................................................................ 27,414 27,414
Deferred tax assets........................................................ 14,519 14,519
Prepaid expenses and other current assets.................................. 1,465 404(1) 1,869
-------- -------- --------
Total current assets................................................... 78,857 2,747(1) 81,604
Property, plant and equipment, net......................................... 22,944 1,039(1) 23,983
Intangible assets.......................................................... 1,018 1,018
Other assets............................................................... 1,115 856(1) 1,971
-------- -------- --------
Total assets........................................................... $ 103,934 $ 4,642 $ 108,576
======== ======== ========
LIABILITIES AND PARENT EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................... $ 8,253 $ 5,813(1) $ 14,066
Taxes payable.............................................................. 2,037 2,037
Interest due to SPAB....................................................... 2,002 (2,002)(3) --
Accrued and other current liabilities...................................... 37,094 1,367(1) 19,361
(19,100)(2)
-------- -------- --------
Total current liabilities.............................................. 49,386 (13,922) 35,464
Long-term liabilities:
Loans and advances from SPAB............................................... 71,756 (71,756)(3) --
Other long-term liabilities................................................ 1,533 132(1) 1,665
-------- -------- --------
Total long-term liabilities............................................ 73,289 (71,624) 1,665
Parent equity (deficit).................................................... (18,741) (2,670)(1) 71,447
19,100(2)
73,758(3)
-------- -------- --------
Total liabilities and Parent Equity (deficit).......................... $ 103,934 $ 4,642 $ 108,576
======== ======== ========
</TABLE>
F-8
<PAGE> 69
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
Unaudited pro forma statement of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PRO FORMA PRO FORMA
COMPANY PRO FORMA FINANCIAL COMPANY PRO FORMA FINANCIAL
HISTORICAL ADJUSTMENTS STATEMENT HISTORICAL ADJUSTMENTS STATEMENT
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $ 135,434 $ 135,434 $ 113,061 $ 113,061
Cost of products sold.................. 88,320 88,320 71,178 71,178
-------- ------- -------- -------- -------- --------
Gross margin....................... 47,114 47,114 41,883 41,883
Operating expenses:
Research and development............... 12,005 12,005 10,857 10,857
Selling, general and administrative.... 28,966 28,966 23,555 23,555
Other.................................. 6,915 (5,000)(2) 1,915 16,157 (14,500)(2) 1,657
-------- ------- -------- -------- -------- --------
Total operating expenses........... 47,886 (5,000) 42,886 50,569 (14,500) 36,069
-------- ------- -------- -------- -------- --------
Operating income (loss)............ (772) 5,000 4,228 (8,686) 14,500 5,814
Other income (expense):
Interest expense....................... (5,374) 5,374(4) -- (3,930) 3,930(4) --
Foreign currency gain (loss)........... 2,532 2,532 2,566 2,566
Legal settlement....................... -- -- 17,010 17,010
-------- ------- -------- -------- -------- --------
Total other income (expense)....... (2,842) 5,374 2,532 15,646 3,530 19,576
-------- ------- -------- -------- -------- --------
Income (loss) before income
taxes............................ (3,614) 10,374 6,760 6,960 18,430 25,390
Income tax expense (benefit)........... 634 -- 634 (23,272) 7,170(6) (16,102)
-------- ------- -------- -------- -------- --------
Net income (loss)...................... $ (4,248) $ 10,374 $ 6,126 $ 30,232 $ 11,260 $ 41,492
======== ======= ======== ======== ======== ========
Pro forma net income (loss) per
share................................ $ (0.33) $ 0.79 $ 0.46 $ 2.33 $ 0.77 $ 3.10
======== ======= ======== ======== ======== ========
Shares used in computing pro forma net
income (loss) per share.............. 13,000 371(5) 13,371 13,000 371(5) 13,371
======== ======= ======== ======== ======== ========
</TABLE>
- ---------------
1. Represents the contribution to equity of the Company by SPAB of certain net
assets related to foreign holding companies of SPAB and cash to settle
certain net liabilities of the holding companies.
2. Represents the settlement of certain employee stock options for cash and
equity and the contribution to equity by SPAB the cash used for such
settlement.
3. Represents the conversion to equity of amounts due by the Company to SPAB for
loans, advances and accrued interest.
4. Represents the removal of interest expense related to loans and advances
described in item 3.
5. Represents the related shares of common stock issued in consideration of the
settlement of the employee stock options described in item 2.
6. Represents the income tax effect of the pro forma adjustments.
The unaudited pro forma financial statements do not purport to represent
what the financial position or results of operations actually would have been
had the Offering and related transactions occurred on the dates referred to
above nor do they project the Company's financial position or results of
operations for any future date.
F-9
<PAGE> 70
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Period Financial Statements:
The consolidated interim financial statements reflect all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the financial position of the Company at September 30, 1997, and its results of
operations and cash flows for the nine months ended September 30, 1996 and 1997.
Interim results are not necessarily indicative of full year performance.
The Company's fiscal year ends on December 31. The Company's fiscal
quarters end on the Friday closest to the end of the calendar month. For
presentation purposes, the financial statements reflect the calendar month end
date.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates relate to the useful lives of property, plant
and equipment, allowances for doubtful accounts and customer returns, inventory
realizability, potential accruals relating to litigation matters, warranty and
other accruals, and contingent assets and liabilities. Actual results could
differ from those estimates, and such differences may be material to the
financial statements.
Inventories:
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets of 3
to 25 years.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" effective as of the beginning of fiscal 1997. The adoption of
this statement had no material affect on the Company's financial statements.
Intangible Assets:
Intangible assets, principally patent rights, are stated at cost and
amortized on a straight-line basis over their estimated useful lives of
generally 17 years.
Foreign Currency Translation:
The local currency of the Company's subsidiaries in the United Kingdom,
Germany, the Netherlands, France and Japan are the functional currencies for
each entity. The assets and liabilities and sales and expense accounts of these
foreign subsidiaries have been translated using the exchange rate at the balance
sheet date and the weighted average exchange rate for the period, respectively.
F-10
<PAGE> 71
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
The net effect of the translation of the accounts of the Company's
subsidiaries has been included in equity as cumulative foreign currency
translation adjustments. The net effect of adjustments that arise from exchange
rate changes on transactions denominated in a currency other than the local
currency are included in other income (expense) as incurred.
Environmental Matters:
Accruals for remediation costs are recognized when management determines
that it is probable that a liability has been incurred and such costs can be
reasonably estimated. Such accruals are recorded at undiscounted amounts and are
recorded even if significant uncertainties exist over the ultimate cost of the
remediation. Ongoing environmental compliance costs, including maintenance and
monitoring costs, are charged against the accrual.
Sales Recognition:
Net sales and related cost of sales for products are recognized upon
shipment.
Concentrations:
Cash is invested in deposits with banks in the United States and in
countries where subsidiaries operate. Deposits in these banks may exceed the
amount of insurance provided on such deposits; however, the Company is exposed
to loss only to the extent of the amount of cash reflected on its balance sheet.
The Company has not experienced any losses on its deposits of cash.
The Company markets its products on both a direct and an OEM basis
principally in North America, Europe and Japan to companies for use in printing,
micro-machining, marking, materials processing, medical, semiconductor
manufacturing, inspection and repair applications, as well as universities and
other entities involved in research. No individual customer accounts for more
than 10% of net sales. The Company has adopted credit policies and standards to
accommodate growth into these markets. The Company performs continuing credit
evaluations of its customers' financial condition and although the Company
generally does not require collateral, letters of credit may be required from
its customers in certain circumstances. Bad debt losses to date have been
insignificant.
A number of components necessary for the manufacture and operation of many
of the Company's products are obtained from a sole supplier or a limited group
of suppliers. The disruption or termination of any of these sources could have a
material adverse effect on the Company's business, operating results and
financial condition.
Warranty Costs:
Upon shipment of product, the Company accrues the estimated cost of
warranty. The Company in general warrants its products for twelve to twenty-four
months depending on the product line.
Advertising and Promotion Costs:
The Company's policy is to expense advertising and promotion costs as they
are incurred. The Company's advertising and promotion expenses were
approximately $0.9 million, $1.2 million, and $1.3 million in the years ended
December 31, 1994, 1995, and 1996, respectively, and approximately $0.9 million
and $1.5 million in the nine months ended September 30, 1996 and 1997,
respectively.
F-11
<PAGE> 72
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
Income Taxes:
The accompanying financial statements reflect the provisions of SFAS No.
109, "Accounting for Income Taxes". Accordingly, the Company uses the liability
method to calculate deferred taxes. The realization of deferred tax assets is
based on historical tax positions and expectations about future taxable income.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax basis of assets and liabilities based on enacted
tax laws and rates applicable to the period in which differences are expected to
affect taxable income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to amounts that are more likely than not to be
realized. The provision for income taxes consists of the taxes payable or
refundable for the period plus or minus the change during the period in deferred
income tax assets and liabilities.
Income taxes have been provided in the historical financial statements as
if the Company were a separate taxable entity. Under the Company's tax sharing
agreement with SPAB, however, the consolidated tax liability for a given year is
allocated only to companies in the group which have separate taxable income for
that year. The tax liability is allocated pro-rata based on each company's
relative separate taxable income. Companies with losses are not allocated any of
the tax liability and are not given any benefit for their losses. Any
differences between the Company's method for providing income tax expense
(benefit) in the historical financial statements and the tax sharing arrangement
it has with SPAB have been reflected in Parent equity (deficit) as contributions
or dividends. Effective October 1997, the Company and SPAB have entered into a
tax sharing arrangement which generally requires the Company to determine its
U.S. tax liability as a separate consolidated group.
Financial Instruments With Off-Balance-Sheet Risk:
From 1991 to October 1997, the Company entered into forward foreign
exchange contracts with SPAB to offset certain operational exposures from
changes in foreign currency exchange rates. Such exposures resulted from
portions of the Company's operations being denominated in currencies other than
the U.S. dollar, primarily the Japanese yen and European currencies. These
foreign exchange contracts were not collateralized and were entered into in
anticipation of product sales, made in the normal course of business, and
accordingly, were speculative in nature.
Since the forward foreign exchange contracts were not designated as hedges
of firm, identifiable foreign currency commitments, the unrealized gains and
losses resulting from the impact of currency exchange rate movements on these
contracts were recognized in the periods in which the exchange rates changed.
Such gains and losses were recorded as other income or expense. Also, included
in other income and expense were realized gains and losses on the settlement of
foreign exchange contracts and realized and unrealized gains and losses on the
transactions denominated in currencies other than the U.S. dollar for U.S. based
operations
In October 1997, the Company changed the way it hedges its foreign currency
exposures. It closed all of its 1998 outstanding foreign exchange contracts with
SPAB by buying offsetting currency contracts. In place of the current hedging
program, the Company will hedge its foreign exchange exposure by entering into
transactions with independent financial institutions. The Company will not hold
or issue financial instruments for trading purposes nor will it hold or issue
leveraged derivative financial instruments. The objective of the Company's new
foreign exchange risk management policy is to preserve the U.S. dollar value of
its non-U.S. dollar cash flows. These cash flows arise primarily from the sale
of the Company's products in currencies other than the U.S. dollar, most of
which are made through the Company's subsidiaries in Japan and Europe. The
Company will use forward exchange contracts and simple purchased foreign
currency option contracts to hedge, respectively, firm commitments and probable
anticipated transactions that expose the Company to enterprise risk. Gains and
losses on forward exchange contracts that are designated as hedges of a firm
order
F-12
<PAGE> 73
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
from a customer outside the United States will be deferred and included in the
measurement of the underlying transaction. Gains on purchased foreign currency
options with little or no intrinsic value designated as hedges of probable
anticipated foreign sales transactions expected to occur within the next three
to six months whose significant characteristics and terms are known will also be
deferred and recognized at the time of the closing of the anticipated
transactions.
The contract amounts and fair value of forward foreign exchange contracts
outstanding was $27.8 million and $25.6 million, respectively, at September 30,
1997. The counterparty for all contracts was SPAB.
Pro Forma Net Income (Loss) Per Share:
Pro forma net income (loss) per share has been computed based upon the
number of common shares outstanding after the Reorganization.
Stock Based Compensation:
In 1995, the Financial Accounting Standards Board ("FASB") issued SFAS No.
123, "Accounting for Stock-Based Compensation," which establishes a fair value
based method of accounting for stock-based compensation plans and is effective
for fiscal years beginning after December 15, 1995. SFAS No. 123 allows a
company to continue to follow the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and disclose the pro
forma impact of SFAS No. 123 on results of operations and earnings per share.
The Company has elected to continue to account for its stock-based compensation
plans in accordance with the provisions of APB 25. As the terms of the
stock-based compensation plans obligate the Company to settle the options in
cash in certain instances, the Company has reflected compensation expense
relating to the stock-based compensation plans in the statement of operations
and no pro forma disclosures are required.
Impact of Recently Issued Accounting Standards:
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," and
in March 1997 issued SFAS No. 129 "Disclosures of Information About Capital
Structure," both of which are required to be adopted by the Company in the year
ended December 31, 1998. These statements specify the computation, presentation
and disclosure requirements for earnings per share and the capital structure of
a company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes the requirements for disclosure
of comprehensive income. Comprehensive income generally represents all changes
in stockholders' equity except those resulting from investments or contributions
from stockholders. SFAS No. 130 is effective for the Company in 1998. SFAS No.
131 requires publicly-held companies to report financial and other information
about key sales-producing segments of the entity for which such information is
available and utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit and loss,
certain sales and expense items and total assets. A reconciliation of segment
financial information to amounts reported in the financial statements would be
provided. SFAS No. 131 is effective for the Company in 1998.
The Company has determined that the impact of adopting each of the recently
issued accounting standards will not be material to its financial position or
results of operations.
3. TRANSACTIONS WITH SPAB
SPAB allocated certain expenses relating to cash management and treasury,
legal, employee benefits, insurance, income taxes and corporate overhead
services. Charges were allocated to the Company based on
F-13
<PAGE> 74
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
actual amounts incurred on behalf of the Company or agreed upon amounts or
percentages based on the Company's headcount and sales that management of the
Company believes were reasonable. Amounts charged to operations were $0.3
million in each of the years ended December 31, 1994, 1995, and 1996, and $0.2
million in each of the nine months ended September 30, 1996 and 1997,
respectively.
SPAB used a centralized cash management program to finance its operations.
Cash deposits from the Company's operations were transferred to SPAB on a
periodic basis and SPAB funded the Company's disbursement bank account as
required. Prior to the Reorganization, the Company and SPAB had an agreement
whereby SPAB charged the Company interest based on certain of the Company's net
balance payable to SPAB calculated using SPAB cost of related borrowed funds.
Certain borrowings from SPAB were not subject to interest charges; however,
interest expense has been imputed in the accompanying statement of operations at
rates consistent with actual rates charged to the Company. Beginning in October
1997, the Company no longer participates in SPAB's centralized cash management
program.
In October 1997, the Company obtained a $10.0 million uncommitted,
unsecured credit facility with a bank. Borrowings against this facility are
guaranteed by SPAB. Upon the consummation of the Offering, the guarantee will be
removed and the Company expects that the amount of the facility will be
increased to $20.0 million.
Net transfers to/from SPAB, included in Parent equity (deficit), includes
third party liabilities paid on behalf of the Company by SPAB, interest expense
imputed on non-interest bearing advances, cash transfers, amounts due to/from
SPAB for services and other charges, and income taxes.
The activity in the net transfers (to) from SPAB account, is summarized
below (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------
1994 1995 1996 1997
------ ------- ------- -------------
<S> <C> <C> <C> <C>
SPAB service and other charges................... $ 283 $ 328 $ 328 $ 249
Income taxes paid by (owed by) SPAB, net......... 311 112 (1,365) (10,863)
Liabilities paid by SPAB for the benefit of the
Company........................................ 345 862 1,775 --
Cash transfers (to) SPAB......................... -- (2,464) (2,202) (17,702)
Interest expense imputed on non-interest bearing
loans.......................................... 735 1,070 985 573
------ ------- ------- --------
Net transfers (to) from SPAB................... $1,674 $ (92) $ (479) $ (27,743)
====== ======= ======= ========
</TABLE>
Loans and advances from SPAB represent a short-term interest bearing
$30,000,000 loan and various interest bearing short-term cash advances as well
as long-term interest bearing and non-interest bearing loans to the Company and
its foreign sales subsidiaries. The interest bearing loans and advances accrued
interest at a rate determined by SPAB (7.25% at December 31, 1996 and September
30, 1997). Interest has been imputed on the non-interest bearing obligations at
a rate consistent with the interest bearing obligations.
The short-term loan and advances were classified as long-term obligations
in the accompanying consolidated financial statements because the Company had
the ability and intent at each balance sheet date to defer payment for over one
year. In October 1997, in connection with the Reorganization, SPAB converted all
loans, advances, and interest accrued on such amounts outstanding to equity of
the Company.
F-14
<PAGE> 75
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
4. BALANCE SHEET ACCOUNTS
Inventories, property, plant and equipment, and accrued and other current
liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------- AT SEPTEMBER 30,
1995 1996 1997
------- ------- ----------------
<S> <C> <C> <C>
INVENTORIES:
Raw material........................... $ 9,658 $10,484 $ 11,013
Work in process........................ 5,421 6,092 7,578
Finished goods......................... 7,626 5,233 8,823
------- ------- -------
$22,705 $21,809 $ 27,414
======= ======= =======
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and leasehold
improvements........................ $19,001 $19,506 $ 19,703
Machinery and office equipment......... 37,513 41,579 45,215
------- ------- -------
56,514 61,085 64,918
Less accumulated depreciation and
amortization........................ 36,683 40,434 41,974
------- ------- -------
$19,831 $20,651 $ 22,944
======= ======= =======
ACCRUED AND OTHER CURRENT LIABILITIES:
Salaries and wages..................... $ 2,338 $ 2,914 $ 2,869
Benefits, bonus and commissions........ 3,565 4,387 3,453
Accrued compensation for stock
options............................. 1,000 6,000 20,500
Warranty............................... 2,280 2,433 3,173
Advance payments from customers........ 4,901 5,501 4,125
Other.................................. 2,836 2,489 2,974
------- ------- -------
$16,920 $23,724 $ 37,094
======= ======= =======
</TABLE>
5. PARENT EQUITY (DEFICIT)
Common Stock:
After the Reorganization, the Company's authorized common stock was
60,000,000 shares with a par value of $0.01 per share and 13,000,000 shares of
common stock were issued and outstanding.
Preferred Stock:
After the Reorganization, the Company's authorized preferred stock was
10,000,000 shares with a par value of $0.01 per share. The Board of Directors
may, at its discretion, designate one or more series of preferred stock and
establish the voting, dividend, liquidation, and other rights and preferences of
the shares of each series, and provide for the issuance of shares of any series.
6. BENEFIT AND INCENTIVE PLANS
The Company sponsors a defined contribution plan covering substantially all
U.S. employees. The plan provides for limited Company matching of participants'
contributions. Contributions to the plan by the Company and charged to
operations were $0.4 million, $0.4 million and $0.5 million in the years ended
F-15
<PAGE> 76
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
December 31, 1994, 1995 and 1996, respectively, and $0.4 million and $0.6
million in the nine months ended September 30, 1996 and 1997, respectively.
The Company's Executive Incentive Plan and Employee Bonus Plan provide
certain officers and employees of the Company with annual incentive cash bonus
awards based on the achievement of certain pre-established quantitative and
qualitative goals, including overall Company profitability. The Company charged
to operations $0.3 million, $1.3 million and $1.9 million in the years ended
December 31, 1994, 1995 and 1996, respectively, and $0 and $0.7 million in the
nine months ended September 30, 1996 and 1997, respectively, under these plans.
Spectra-Physics Laser Data Systems, Inc., a subsidiary of the Company, has
granted certain of its employees options to purchase 22 shares of its common
stock (20% of total common stock outstanding). One-half of the options vest over
a period of time beginning in 1995 at an exercise price and weighted average
exercise price of $.05 per share on the applicable date of grant and ending
December 31, 1999 and one-half are performance-based options. At December 31,
1996 and September 30, 1997, four shares under option were vested. The options
are exercisable from the effective date of an initial public offering of such
subsidiary's common stock until the earlier of the first anniversary of such
initial public offering or May 1, 2000. If a sale of control of the subsidiary
occurs before May 1, 2000, the subsidiary must redeem the options, to the extent
vested, by paying the holders the difference between the exercise price and the
per share value received in the sale of control (unless the acquiror in the sale
of control does not wish such options to be cancelled, in which case they shall
not be redeemed). Subject to certain qualifications, if neither an initial
public offering nor a sale of control occurs before May 1, 2000, the subsidiary
must redeem the options by paying its option holders the difference, on a
per-share basis, between the exercise price and the fair market value of the
subsidiary's common stock as determined by the board of directors, provided that
the holders of a majority of the options may request an independent appraisal of
the board's valuation. At September 30, 1997 options to purchase 22 shares were
outstanding at a weighted average price of $.05 per share, none were exercisable
and the weighted average contractual life was 2.6 years.
SPAB adopted the 1994 Phantom Stock Option Plan pursuant to which certain
of the then executive officers and employees of the Company were granted in 1994
an aggregate of 35,000 phantom stock options (the "Phantom Stock Options") at an
exercise price and weighted average exercise price of 117 SEK (Swedish krona)
per option. The terms of the options expire after four years. Each Phantom Stock
Option entitles the holder to the right to receive a cash payment upon exercise
of the Phantom Stock Option equal to the fair market value of one share of
common stock of SPAB less the reference price of the Phantom Stock Option.
Pursuant to the plan and subject to certain conditions, the fair market value of
SPAB's common stock is defined as the average price of the last 10,000 shares of
common stock of SPAB traded on the Stockholm Stock Exchange. Phantom Stock
Options may be exercised from two to four years from the date of grant. During
the years ended December 31, 1995 and 1996, 7,000 and 2,000 of the Phantom Stock
Options were canceled, respectively, and in the nine months ended September 30,
1997, a total of 8,000 options were exercised. At September 30, 1997, 18,000 of
the Phantom Stock Options remained outstanding. All of the options were fully
exercisable and had a weighted average remaining contractual life of one year.
The Company charged to operations $0, $0, and $0 in the years ended December 31,
1994, 1995 and 1996, respectively, and $0 and $0.4 million in the nine months
ended September 30, 1996 and 1997, respectively, under the 1994 Phantom Stock
Option Plan.
F-16
<PAGE> 77
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
7. INCOME TAXES
Income (loss) before income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
U.S............................... $(4,621) $(3,600) $(5,814) $(5,424) $5,037
Foreign........................... (269) 1,899 2,200 59 1,923
------- ------- ------- ------- ------
$(4,890) $(1,701) $(3,614) $(5,365) $6,960
======= ======= ======= ======= ======
</TABLE>
The provision for income taxes in the years ended December 31, 1994, 1995,
and 1996 and the nine months ended September 30, 1996, represented foreign taxes
currently payable at each of the applicable country's statutory rate. The
benefit of income taxes for the nine months ended September 30, 1997 consisted
of the following:
<TABLE>
<S> <C>
U.S. Federal and state:
Current................................................. $ 632
Deferred................................................ (632)
--------
--
--------
Foreign:
Current................................................. 824
Deferred................................................ --
--------
824
--------
Decrease in valuation allowance........................... (24,096)
--------
Total........................................... $(23,272)
========
</TABLE>
The following table summarizes the significant differences between the U.S.
Federal statutory taxes and the Company's provision for (benefit from) income
taxes for financial statement purposes (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- --------------------
1994 1995 1996 1996 1997
------- ----- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Tax expense (benefit) at statutory $(1,712)
rate................................... $(595) $(1,265) $(1,878) $ 2,436
Foreign taxes............................ 477 28 209 17 258
State taxes, net of Federal benefit...... (190) (92) (161) -- 211
Decrease in valuation allowance.......... -- -- -- -- (26,204)
Losses for which no tax benefit was 1,681
recognized............................. 913 1,602 1,878 --
Other.................................... 55 64 249 -- 27
------- ----- ------- ------- --------
Income tax expense (benefit)............. $ 311 $ 318 $ 634 $ 17 $(23,272)
======= ===== ======= ======= ========
</TABLE>
F-17
<PAGE> 78
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
The Company's deferred tax assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 21,414 20,564 $ --
Inventory valuation accounts............................. 2,227 2,608 3,305
Accrued expenses, primarily stock option compensation.... 500 2,675 10,031
Depreciation............................................. 572 485 470
Other.................................................... 415 372 713
-------- -------- -------
25,128 26,704 14,519
Valuation allowance for deferred tax assets.............. (25,128) (26,704) --
-------- -------- -------
Net deferred tax assets.................................... $ -- $ -- $14,519
======== ======== =======
</TABLE>
Income taxes have been provided in the historical financial statements as
if the Company were a separate taxable entity. From 1992 to June 1997, income
tax expense reflected foreign taxes only due to the expectation by the Company
at that time of continuing losses in the U.S. Deferred tax assets were
established relating to: (i) net operating loss carryforwards, which included
interest expense from SPAB; (ii) accrued compensation associated with employee
stock options; (iii) inventory valuation reserves; and (iv) other accruals.
These deferred tax assets were offset in total by a valuation allowance due to
the expectation of continued losses in the U.S.
During the quarter ended September 30, 1997, the Company decreased the tax
valuation allowance and recognized a tax benefit relating to the above items
(net of foreign taxes) totaling $23.3 million. The decrease of the valuation
allowance and the recognition of the tax benefit in the quarter was based on
management's expectations regarding future taxable income for the Company.
Management's expectations included the consideration of the conversion of loans
and advances from SPAB to equity in October 1997 which will eliminate related
interest charges in the future.
For U.S. income tax return purposes, from 1991 through September 1997, the
Company was part of a U.S. consolidated group pursuant to a tax sharing
agreement among SPAB affiliated companies which file a consolidated tax return.
Under this tax sharing agreement, the deferred tax assets relating to the
Company's net operating loss carryovers referred to above have already been used
to offset the taxable income of other members of the tax filing group with no
benefit to the Company. Since the deferred tax assets related to the net
operating loss carryforward have been used by affiliated companies, and
therefore not available for use by the Company, the deferred tax asset arising
from the loss carryforwards (amounting to $10.2 million) have been recorded as a
dividend to SPAB. The deferred tax assets relating to accrued compensation
associated with employee stock options, the inventory valuation reserve and the
other accruals are recognized as deferred tax assets in the accompanying
financial statements.
8. COMMITMENTS
The Company leases manufacturing, research and development and office
facilities under non-cancellable operating leases which expire in 1998 through
2006. The Company is responsible for taxes, insurance and maintenance expenses
related to the leased facilities. Under the terms of certain lease agreements,
the leases may be extended, at the Company's option, and certain of the leases
provide for adjustments of the minimum monthly rent.
F-18
<PAGE> 79
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
Future minimum annual lease payments under the leases are as follows (in
thousands):
PERIOD ENDING DECEMBER 31,
<TABLE>
<S> <C>
1997 $ 817
1998 2,464
1999 1,601
2000 777
2001 518
Thereafter 588
------
$6,765
======
</TABLE>
Rent expense was $3.0 million, $2.7 million and $2.4 million in the years
ended December 31, 1994, 1995, and 1996, respectively. Rent expense was $1.8
million and $1.9 million in the nine months ended September 30, 1996 and 1997,
respectively.
9. ENVIRONMENTAL MATTERS
Since 1984, the Company has been identified by federal and state
authorities as one of several potentially responsible parties ("PRPs") in
conjunction with past releases of industrial solvents to soil and groundwater at
one of the Company's facilities. The site has been listed on the National
Priorities List, or "Superfund List", and the Company is subject to orders
requiring it to perform remediation on- and off-site. Applicable federal law
imposes joint and several liability on each PRP for the cleanup of this site.
Pursuant to these orders, the Company and other PRPs are jointly performing and
funding remediation that includes soil treatment, on-site and off-site
groundwater extraction, treatment and monitoring. All of the required soil and
groundwater remediation and monitoring systems currently required by the order
are in place, and consequently the initial capital expenditures for such systems
have been incurred. Generally the Company has determined its share of total
estimated clean up and remediation costs and has accrued the amount that it
believes to be its share of the total cost.
Measurement of environmental accruals is subject to uncertainties,
including the evolving nature of environmental regulations and their
enforcement, the amount of time required to complete remediation, and the extent
to which other PRPs will bear their share of the remediation costs. The Company
estimates that at September 30, 1997 the remediation process will be completed
at a cost ranging from approximately $2.1 million to $4.3 million. It is
possible that the Company's recorded estimate of its obligation may change. At
December 31, 1995 and 1996 and September 30, 1997, the Company had accrued its
best estimate of the liability of approximately $2.7 million (of which $1.9
million was included in long term liabilities), $2.2 million (of which $1.8
million was included in long term liabilities) and $2.1 million (of which $1.5
million was included in long term liabilities), respectively, for anticipated
future remediation costs associated with the Superfund site referred to above.
During the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996 and 1997, the Company paid approximately $0.3 million,
$0.2 million, and $0.5 million, and $0.2 million and $0.1 million, respectively,
for remediation of this site.
In October 1997, the Company was served with a complaint that had been
filed in the Superior Court of the State of California seeking an unspecified
amount of damages for personal injuries and property damage incurred by
residents of a single location alleged to have resulted from the Company's and
others' negligent and/or intentional handling of toxic chemicals. While the
Company believes it has meritorious defenses to the claims asserted in this
lawsuit and intends to vigorously defend itself in this case the amount of loss,
if any,
F-19
<PAGE> 80
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
that may result upon resolution of this complaint is not currently estimable nor
have any amounts been accrued in the financial statements. Accordingly, there
can be no assurance that the complaint will be resolved without adverse impact
to the Company's financial position or results of operations.
10. WORLDWIDE OPERATIONS
The Company operates in one segment, the development, manufacturing and
distribution of lasers and laser systems for the industrial, OEM and research
and development markets.
F-20
<PAGE> 81
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
Information about the Company's geographic areas is as follows (in
thousands):
<TABLE>
<CAPTION>
NORTH
AMERICA
EUROPE JAPAN AND EXPORT ELIMINATIONS TOTAL
------- ------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Net sales
External................................... $26,044 $23,627 $ 45,452 $ -- $ 95,123
Internal................................... 18 -- 34,176 (34,194) $ --
------- ------- -------- -------- --------
$26,062 $23,627 $ 79,628 $(34,194) $ 95,123
======= ======= ======== ======== ========
Operating income (loss)...................... $ 1,043 $ (571) $ 229 $ (660) $ 41
======= ======= ======== ======== ========
Year ended December 31, 1995:
Net sales
External................................... $28,223 $30,479 $ 53,825 $ -- $112,527
Internal................................... -- -- 37,755 (37,755) --
------- ------- -------- -------- --------
$28,223 $30,479 $ 91,580 $(37,755) $112,527
======= ======= ======== ======== ========
Operating income (loss)...................... $ 1,091 $ 809 $ (211) $ 154 $ 1,843
======= ======= ======== ======== ========
Identifiable assets.......................... $12,349 $14,405 $ 62,636 $ (8,699) $ 80,691
======= ======= ======== ======== ========
Year ended December 31, 1996:
Net sales
External................................... $30,449 $30,517 $ 74,468 $ -- $135,434
Internal................................... -- -- 37,825 (37,825) --
------- ------- -------- -------- --------
$30,449 $30,517 $112,293 $(37,825) $135,434
======= ======= ======== ======== ========
Operating income (loss)...................... $ 1,251 $ 937 $ (2,733) $ (227) $ (772)
======= ======= ======== ======== ========
Identifiable assets.......................... $11,765 $12,183 $ 71,530 $ (8,630) $ 86,848
======= ======= ======== ======== ========
Nine months ended September 30, 1996
(unaudited):
Net sales
External................................... $19,136 $21,849 $ 49,430 $ -- $ 90,415
Internal................................... -- -- 25,517 (25,517) --
------- ------- -------- -------- --------
$19,136 $21,849 $ 74,947 $(25,517) $ 90,415
======= ======= ======== ======== ========
Operating income (loss)...................... $ 508 $ (464) $ (3,213) $ (88) $ (3,257)
======= ======= ======== ======== ========
Nine months ended September 30, 1997:
Net sales
External................................... $20,261 $23,220 $ 69,580 $ -- $113,061
Internal................................... -- -- 36,080 (36,080) --
------- ------- -------- -------- --------
$20,261 $23,220 $105,660 $(36,080) $113,061
======= ======= ======== ======== ========
Operating income (loss)...................... $ 668 $ 1,519 $ (9,891) $ (982) $ (8,686)
======= ======= ======== ======== ========
Identifiable assets.......................... $ 9,864 $12,631 $ 88,799 $ (7,360) $103,934
======= ======= ======== ======== ========
</TABLE>
External sales are based on the location of the Company's sales and service
subsidiary. Transfers between geographic areas consist of products that are sold
at amounts generally above cost and are consistent with governing tax
regulations. Identifiable assets are those assets used in each geographic area.
Export sales are
F-21
<PAGE> 82
SPECTRA-PHYSICS LASERS, INC.
(AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF SPECTRA-PHYSICS AB)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE PRO FORMA
INFORMATION IS UNAUDITED)
United States foreign direct sales to unaffiliated customers primarily in Europe
and Asia Pacific. Export sales totaled $7.4 million in 1994, $8.6 million in
1995, $10.1 million in 1996 and $6.4 million and $6.3 million in the nine months
ended September 30, 1996 and 1997, respectively.
For fiscal 1994, 1995 and 1996, and the nine months ended September 30,
1996 and 1997, corporate headquarter costs of $3.6 million, $3.7 million, $3.8
million, $2.9 million and $3.4 million, respectively, were included in the North
American geographic area. Included in corporate headquarter costs were expense
allocations from SPAB totalling $0.3 million in each of 1994, 1995, and 1996 and
$0.2 million in each of the nine months ended September 30, 1996 and 1997.
11. OTHER STATEMENT OF OPERATIONS ITEMS
Included in other operating expenses in the years ended December 31, 1995
and 1996, and the nine months ended September 30, 1996 and 1997, was $0.9
million, $1.9 million, $1.0 million and $1.7 million, respectively, of legal
expenses associated with a lawsuit which was settled in the second quarter of
1997. As a result of the settlement, the Company received $17.0 million of net
proceeds which was included as other income in the nine months ended September
30, 1997.
Also included in other operating expenses in the years ended December 31,
1995 and 1996, and the nine months ended September 30, 1996 and 1997, was $1.0
million, $5.0 million, $3.8 million and $14.5 million, respectively, of
compensation expense associated with stock options of a subsidiary of the
Company, Opto Power Corporation. In October 1997, the option holders agreed to
cancel their Opto Power options in exchange for cash payments in the aggregate
amount of approximately $14.7 million, payable upon execution of the
cancellation agreements, and additional cash payments or, upon completion of the
offering, Common Stock of the Company. The foregoing cash payments were funded
by a capital contribution to the Company by SPAB. As a result of the agreement
to cancel the stock options for a combination of cash and capital stock of the
Company, the Company reversed approximately $1.4 million of excess accrued
expenses in the fourth quarter of 1997.
12. SUBSEQUENT EVENTS
The Company expects to adopt the 1997 Spectra-Physics Lasers, Inc. Stock
Option Plan (the "1997 Plan") which provides for the granting of non-qualified
stock options to certain officers, key employees and non-employee directors of
the Company. No awards under the 1997 Plan have been made to date.
On October 21, 1997, the Company filed a Registration Statement with the
Securities and Exchange Commission with respect to the initial public offering
of its Common Stock.
F-22
<PAGE> 83
[LOGO] SPECTRA-PHYSICS
The High Power Solid State Laser Company
[Illustration of fiber coupling to laser diode and optical lens.]
<PAGE> 84
======================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Underwriters.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any security other than the shares of Common Stock to which it
relates or an offer to, or a solicitation of , any person in any jurisdiction in
which such offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to the date hereof.
----------------------------------
TABLE OF CONTENTS
----------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 29
Management............................ 41
Principal Stockholder................. 48
Certain Relationships and
Transactions........................ 49
Description of Capital Stock.......... 53
Shares Eligible for Future Sale....... 55
Underwriting.......................... 56
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 58
Glossary.............................. G-1
Index to Financial Statements......... F-1
</TABLE>
------------------------
Until , 1997, (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
======================================================
======================================================
2,400,000 SHARES
[LOGO]
SPECTRA-PHYSICS
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
NATIONSBANC MONTGOMERY
SECURITIES, INC.
COWEN & COMPANY
, 1997
======================================================
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the registrants' expenses in connection with
the issuance of the securities being registered, all of which will be paid or
reimbursed by the Company.
<TABLE>
<S> <C>
Commission Registration Fee...................................... $ 10,037
NASD Filing Fee.................................................. 3,688
Nasdaq National Market listing fee............................... 50,000
Blue Sky Fees and Expenses....................................... 5,000
Printing and Engraving Expenses.................................. 155,000
Legal Fees and Expenses.......................................... 528,941
Accounting Fees and Expenses..................................... 664,000
Transfer Agent and Registrar Fees and Expenses................... 5,000
Miscellaneous.................................................... 227,334
------
Total............................................................ $1,649,000
======
</TABLE>
- ---------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation, as amended (the "Charter") of the Company
provides that directors of the Company shall be entitled to all limitations on
the liability of directors available under the DGCL. Further, the Charter
provides that a director shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions by the director not in good faith
or which involve intentional misconduct or a knowing violation of the law, (iii)
for actions described under Section 174 of the DGCL relating to the declaration
of dividends and purchase or redemption of shares in violation of the DGCL or
(iv) for any transactions from which a director derived an improper personal
benefit. In addition, Section 145 of the DGCL, under certain circumstances,
provides for the indemnification of the Company's officers and directors against
liabilities which they may incur in such capacities.
In general, any officer or director of the Company shall be indemnified by
the Company against expenses including attorneys' fees, liability and loss
actually and reasonably incurred by that person in connection with a legal
proceeding as a result of such relationship, whether or not the indemnified
liability arises from an action by or in the right of the Company, if the
officer or director acted in good faith, and in the manner believed to be in or
not opposed to the Company's best interest, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the conduct was
unlawful. Such indemnity is limited to the extent that (i) such person is
otherwise indemnified and (ii) such indemnification is prohibited by the DGCL or
any other applicable law.
Any indemnification under the previous paragraph (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
the determination that indemnification of the director or officer is proper in
the circumstances because that person has met the applicable standard of conduct
set forth above. Such determination shall be made (i) by the Board of Directors
by a majority vote of a quorum of directors who are not parties to such action
or (ii) if such quorum is not obtainable, or, even if obtainable and a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion. If there has been a change in control of the Company between the time
of the act or omission giving rise to such indemnification claim and the making
of such claim, the party seeking indemnification may direct that the issue of
permissibility be determined by independent legal counsel. To the extent that a
director or officer of the Company shall be successful in prosecuting an
indemnity claim, the reasonable expenses of any such
II-1
<PAGE> 86
person and the fees and expenses of any special legal counsel engaged to
determine the possibility of indemnification shall be borne by the Company.
Expenses incurred by a director or officer of the Company in defending a
civil or criminal action, suit or proceeding shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that person is not entitled to be
indemnified by the Company as authorized by the Bylaws.
The indemnification and advancement of expenses provided by, or granted
pursuant to Article IV of the Bylaws is not deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled, both as to action in that person's official capacity and as to action
in another capacity while holding such office.
The Board of Directors has the power to authorize the Company to purchase
and maintain insurance on behalf of the Company and others to the extent that
the power to do so has not been prohibited by the DGCL, create any fund to
secure any of its indemnification obligations and give other indemnification to
the extent permitted by law. The obligations of the Company to indemnify a
director or officer under Article IV of the Bylaws is a contract between the
Company and such director or officer and no modification or repeal of the Bylaws
shall detrimentally affect such officer or director with regard to that person's
acts or omissions prior to such modification or repeal. The Company intends to
obtain directors' and officers' liability insurance prior to consummation of the
offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company has not issued any unregistered securities within the past
three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Registration Statement:
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------
<C> <S> <C>
*1.1 -- Form of Underwriting Agreement.
**2.1 -- Plan of Reorganization of the Company.
**3.1 -- Certificate of Incorporation of the Company, as amended.
**3.2 -- Bylaws of the Company.
4.1 -- Specimen Common Stock Certificate.
*5.1 -- Opinion of Dechert Price & Rhoads regarding legality of the Common Stock being
registered.
**10.1 -- Agreement by and between Spectra-Physics USA and the Company, dated as of August
29, 1997.
*10.2 -- Registration Rights Agreement between Spectra-Physics USA and the Company.
*10.3 -- Form of Executive Employment Agreement with certain officers of the Company.
10.4 -- Employment Agreement dated May 19, 1995 between the Company and Mark S. Sobey.
10.5 -- Form of Executive Incentive Plan.
10.6 -- 1997 Spectra-Physics Lasers, Inc. Stock Option Plan.
10.7 -- Patent License Agreement dated as of October 4, 1997 by and between and Company,
as licensor, and Precision, as licensee.
10.8 -- Patent License Agreement dated as of October 4, 1997 by and between Precision,
as licensor, and the Company, as licensee.
</TABLE>
II-2
<PAGE> 87
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------------------
<C> <S> <C>
10.9 -- Tradename and Trademark License Agreement dated as of August 29, 1997 by and
between the Company, Spectra-Physics AB and certain Spectra-Physics AB
subsidiaries.
10.10 -- Form of Restricted Stock Plan Agreement among the Company, Opto Power and
certain Opto Power employees.
*11.1 -- Statement re computation of per share earnings.
**21.1 -- List of Subsidiaries.
23.1 -- Consent of Dechert Price & Rhoads included in the opinion filed as Exhibit 5.1.
23.2 -- Consent of Coopers & Lybrand L.L.P.
**24.1 -- Powers of Attorney.
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- ----------------------------------------------------------------------------------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
All other schedules are omitted because they are not required or
applicable, or because the information is included in the Consolidated Financial
Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To provide the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to
each purchaser.
(b) Insofar as indemnification for liabilities arising under the
Securities Act, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) (1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto
in the State of California on November 26, 1997.
SPECTRA-PHYSICS LASERS, INC.
By: /s/ PATRICK L. EDSELL
------------------------------------
Patrick L. Edsell
Chairman, President and
Chief Executive Officer
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Patrick L. Edsell and Thomas J. Scannell,
each and individually, his attorneys-in-fact, with full power of substitution
and resubstitution, for him in any and all capacities, to sign any or all
amendments or post-effective amendments to this Registration Statement or any
Registration Statement for the same offering that is effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to
file the same with exhibits thereto and other documents in connection therewith
or in connection with the registration of Common Stock under the Securities
Exchange Act of 1934, as amended, with the Securities and Exchange Commission,
granting unto each of such attorneys-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary in
connection with such matters and hereby ratifying and confirming all that each
such attorney-in-fact, or his agent or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------- ------------------
<C> <S> <C>
/s/ PATRICK L. EDSELL Chairman, President, and November 26, 1997
- --------------------------------------------- Chief Executive Officer
Patrick L. Edsell (Principal Executive
Officer)
THOMAS J. SCANNELL* Vice President, Finance November 26, 1997
- --------------------------------------------- (Principal Financial and
Thomas J. Scannell Principal Accounting
Officer)
LARS SPONGBERG* Director November 26, 1997
- ---------------------------------------------
Lars Spongberg
LAWRENCE C. KARLSON* Director November 26, 1997
- ---------------------------------------------
Lawrence C. Karlson
LENNART RAPPE* Director November 26, 1997
- ---------------------------------------------
Lennart Rappe
*By: /s/ PATRICK L. EDSELL
- ---------------------------------------------
Patrick L. Edsell
Attorney-in-Fact
Pursuant to Power of Attorney
</TABLE>
II-4
<PAGE> 89
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholder
Spectra-Physics Lasers, Inc.
In connection with our audits of the consolidated financial statements of
Spectra-Physics Lasers, Inc. as of December 31, 1995 and 1996 and September 30,
1997, and for each of the three years in the period ended December 31, 1996 and
the nine month period ended September 30, 1997, which financial statements are
included in the Prospectus, we have also audited the financial statement
schedule listed in Item 16(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
San Jose, California
October 18, 1997
S-1
<PAGE> 90
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING BALANCE AT
DESCRIPTION OF YEAR ADDITIONS DEDUCTIONS END OF YEAR
- ------------------------------------------------ ---------- --------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts for the years
ended:
December 31, 1994............................. $ 779 $ 10 $ (142) $ 647
December 31, 1995............................. 647 60 (379) 328
December 31, 1996............................. 328 33 361
Warranty reserves for the years ended:
December 31, 1994............................. $2,324 $ 1,631 $ (1,875) $ 2,080
December 31, 1995............................. 2,080 1,821 (1,621) 2,280
December 31, 1996............................. 2,280 2,429 (2,276) 2,433
</TABLE>
S-2
<PAGE> 91
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE NO.
- ------- ---------------------------------------------------------------------- ------------
<C> <S> <C> <C>
*1.1 -- Form of Underwriting Agreement........................................
**2.1 -- Plan of Reorganization of the Company.................................
**3.1 -- Certificate of Incorporation of the Company, as amended...............
**3.2 -- Bylaws of the Company.................................................
4.1 -- Specimen Common Stock Certificate.....................................
*5.1 -- Opinion of Dechert Price & Rhoads regarding legality of the Common
Stock being registered................................................
**10.1 -- Agreement by and between Spectra-Physics USA and the Company, dated as
of August 29, 1997....................................................
*10.2 -- Registration Rights Agreement between Spectra-Physics USA and the
Company, dated as of October , 1997.................................
*10.3 -- Form of Executive Employment Agreement with certain officers of the
Company...............................................................
10.4 -- Employment Agreement dated May 19, 1995 between the Company and Mark
S. Sobey..............................................................
10.5 -- Form of Executive Incentive Plan......................................
10.6 -- 1997 Spectra-Physics Lasers, Inc. Stock Option Plan...................
10.7 -- Patent License Agreement dated as of October 4, 1997 by and between
and Company, as licensor, and Precision, as licensee..................
10.8 -- Patent License Agreement dated as of October 4, 1997 by and between
Precision, as licensor, and the Company, as licensee..................
10.9 -- Tradename and Trademark License Agreement dated as of August 29, 1997
by and between the Company, Spectra-Physics AB and certain
Spectra-Physics AB subsidiaries.......................................
10.10 -- Form of Restricted Stock Plan Agreement among the Company, Opto Power
and certain Opto Power employees.
*11.1 -- Statement re computation of per share earnings........................
**21.1 -- List of Subsidiaries..................................................
23.1 -- Consent of Dechert Price & Rhoads included in the opinion filed as
Exhibit 5.1...........................................................
23.2 -- Consent of Coopers & Lybrand L.L.P. ..................................
**24.1 -- Powers of Attorney....................................................
27.1 -- Financial Data Schedule...............................................
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
Exhibit 4.1
[FORM OF FACE OF SECURITY]
[LOGO] SPECTRA-PHYSICS
SPECTRA-PHYSICS LASERS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
CERTIFICATE NUMBER SHARES
------------------ ------
SEE REVERSE FOR CERTAIN DEFINITIONS
AND A STATEMENT AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND RESTRIC-
TIONS ON SHARES
CUSIP: 847568 10 2
THIS CERTIFIES that____________________________________________________________
is the owner of _____________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
Spectra-Physics Lasers, Inc. (the "Corporation") transferable
only on the books of the Corporation by the holder hereof in person or by a duly
authorized attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
[SEAL] Dated: _________________________
/s/ Thomas J. Scannell /s/ Patrick L. Edsell
Secretary President
<PAGE> 2
[FORM OF REVERSE OF SECURITY]
SPECTRA-PHYSICS LASERS, INC.
The Corporation will furnish to any stockholder, upon request and
without charge, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof authorized to be issued and the qualifications, limitations or
restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ____ Custodian
TEN ENT - as tenants by the entireties (Cust)
____ under Uniform Gifts to Minors
JT TEN - as joint tenants with right of (Minor)
survivorship and not as tenants Act _____
in common (State)
COM PROP - as community property UNIF TRF MIN ACT - ______ Custodian
(Cust)
(until age __) ____ under Uniform Transfers to
Minors Act (Minor) ______
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------
- -------------------------------------------------------------------------------
(Please print or typewrite name and address of assignee)
_____________ Shares represented by the within Certificate, and do hereby
irrevocably constitute and appoint __________ Attorney to transfer the said
stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated: _____________ Your Signature: _______________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate in every particular without alteration
or enlargement, or any change whatever.
Signature Guaranteed:
By: _______________________________________________________
The signature must be guaranteed by an eligible
guarantor institution (banks, stockbrokers, savings and
loan associations and credit unions with membership in
an approved signature guarantee medallion program,
pursuant to S.E.C. Rule 17Ad-15).
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this
19th day of May, 1995, by and between Spectra-Physics Lasers, Inc. (the
"Company"), and Mark S. Sobey ("Executive").
BACKGROUND
1. The Company desires to develop a new business to be operated by a new
company to be formed as a subsidiary of the Company ("Newco") for the purpose of
developing a new end-users system business for the company (the "Business").
2. Employer desires to employ Executive, and Executive is willing to be
employed by Employer, upon the terms and subject to the conditions hereinafter
set forth. As used herein, "Employer" shall mean the Company prior to the
formation of Newco and Newco after its formation.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and intending to be legally bound hereby, the parties agree as follows:
TERMS
SECTION 1. Employment. Employer hereby employs Executive, and Executive
hereby accepts such employment and agrees to serve initially as the Company's
Vice President - New Business Development and, upon formation of Newco, as
Newco's President during the Employment Period set forth in Section 6, subject
to the terms and conditions hereinafter set forth.
SECTION 2. Management Duties. Prior to the formation of Newco, Executive
shall work with those employees designated by the Company to identify a target
market and develop a five-year plan for the Business satisfactory to the Company
in its sole discretion and shall perform such additional duties relating
thereto, which duties shall however, in all cases be subject to policies set by,
and at the direction and control of, the Company's Board of Directors. Once such
five-year plan has been approved by the Company and the Company has formed
Newco, Executive will become an employee of Newco. As President of Newco,
Executive shall work to establish and operate Newco in accordance with the
five-year plan for the Business approved by the Company (the "Plan") and shall
carry out such duties as are customarily associated with such position, which
duties shall however, in all cases be subject to policies set by, and at the
direction and control of, Newco's Board of Directors.
SECTION 3. Extent of Services. During the Employment Period, Executive
shall devote his full time and attention and give his best efforts, skills and
abilities exclusively to the development, management and operations of Employer
and the Business. Executive shall perform his services hereunder at such places
as are required for the effective development and management of Employer and the
Business.
<PAGE> 2
SECTION 4. Compensation and Benefits.
(a) During the Employment Period, Executive shall receive as
compensation for his services a salary at the rate of One Hundred Forty-Five
Thousand Six-Hundred Dollars ($145,600) per annum or such greater amount as
determined by the Board of Directors of Employer from time to time in its
absolute and sole discretion (the "Base Salary"), which Base Salary shall be
payable in equal installments at such intervals as Employer pays its employees
generally.
(b) During the Employment Period, Executive shall be entitled to
participate in all employee benefit plans and programs approved by the Company's
Board of Directors as the Company shall provide generally to other employees of
the Company from time to time; provided, however, that Executive shall not be
entitled to participate in any bonus or profit-sharing plans of the Company
after formation of Newco but shall be entitled to participate in all employee
benefit plans and programs approved by Newco's Board of Directors as Newco shall
provide generally to other employees of Newco from time to time. Upon formation
of Newco, Newco shall adopt an employee equity incentive plan substantially upon
the terms outlined on Exhibit A hereto and consistent therewith and, subject to
the execution by Executive of an equity incentive agreement in a form acceptable
to Newco and Executive (the "Equity Agreement"), Executive shall be granted
equity incentive rights covering the common stock of Newco equal to the Covered
Interest. For purposes of this Agreement, "Covered Interest" shall mean: (i) 10%
of Newco's outstanding common stock (as measured on a fully-diluted basis) so
long as Newco's contributed capitalization is equal to or less than the
contributed capitalization projected in the Plan for such time; and (ii) in the
event that Newco's contributed capitalization exceeds the amount projected in
the Plan for such time, 10% of Newco's outstanding common stock (as measured on
a fully-diluted basis) immediately prior to such contribution.
(c) Executive shall be entitled to those holidays and that amount of
vacation that are permitted under and are consistent with policies of the
Employer.
(d) All payments to Executive or his estate made pursuant to this
Agreement shall be subject to such withholding as may be required by any
applicable laws.
SECTION 5. Expense Reimbursements. During the Employment Period,
Employer shall reimburse Executive for all reasonable and itemized out-of-pocket
expenses incurred by Executive in the ordinary course of the Business, provided
such expenses are properly reported to Employer in accordance with its
accounting procedures.
SECTION 6. Term. The period of Executive's employment under this
Agreement (the "Employment Period") shall commence as of the date hereof and,
unless sooner terminated pursuant to Section 7 of this Agreement, shall continue
until the close of business on the earlier of (a) the fifth anniversary hereof
and (b) the fourth anniversary of the formation of Newco, and the Employment
Period shall terminate upon the earlier of such time; Provided however that the
Employment Period shall be extended for additional periods of one-year unless
either Employer or the Executive shall have given written notice to the other,
no later than 90
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<PAGE> 3
days prior to the last day of the then-existing Employment Period, that the term
of this Agreement shall not be so extended.
SECTION 7. Termination.
(a) The Employment Period may be terminated by either Employer (or its
successor) or the Executive at any time or for any reason, as provided in this
Section 7(a). The Employment Period shall terminate upon the earliest to occur
of the following:
(i) the close of business on the last day of the then-existing
Employment Period (as such Employment Period may be extended from time to time
pursuant to Section 6);
(ii) the Executive's death;
(iii) delivery by Employer to Executive of a written notice of
Employer's election to terminate Executive's employment hereunder because of
Executive's Disability (as defined below);
(iv) delivery by Employer to Executive of a written notice of
Employer's election to terminate Executive's employment hereunder for Cause (as
defined below);
(v) delivery by Employer to Executive of a written notice of
Employer's election to terminate Executive's employment hereunder and such
termination is not for Cause or as a result of Executive's death or Disability;
(vi) the close of business on the day which is 90 days after the
date on which the Executive shall have delivered to Employer written notice of
Executive's election to terminate Executive's employment hereunder and such
termination is not Justifiable Termination (as defined below), or
(vii) the close of business on the day on which the Executive
shall have delivered to Employer written notice of Executive's intent to
terminate Executive's employment hereunder due to Justifiable Termination.
(b) For purposes of this Agreement, "Disability" shall mean that
Executive suffers from an illness or other physical or mental impairment which,
in the judgment of the Board of Directors of Employer, prevents Executive from
performing his duties hereunder for a period of ninety (90) consecutive days.
For purposes of this Agreement, "Cause" means termination of Executive's
employment with Employer (i) due to willful neglect by Executive of, or willful
refusal by Executive to perform, his duties with Employer or due to willful
misconduct by Executive relating to, or materially adversely affecting his
ability to perform, his duties with Employer or materially adversely affecting
Employer, in each case as determined by Employer's Board of Directors in good
faith; or (ii) in connection with any material breach by Executive of the terms
of this Agreement; or (iii) any termination by Executive of his employment
hereunder which is not due to Justifiable Termination. For purposes of this
Agreement, "Justifiable
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<PAGE> 4
Termination" shall mean termination of Executive's employment with Employer due
to (x) any material adverse change in the position held by Executive with Newco
or in Executive's principal place of employment with Newco (in no event to
include relocation within Newco's then-existing metropolitan area); or (y) any
material failure of the Employer to perform its obligations under this
Agreement.
(c) Following any termination of Executive's employment hereunder, all
obligations of the Company and Newco under this Agreement (other than (x) any
obligations with respect to the payment of accrued and unpaid salary, accrued
and unpaid vacation, and expense reimbursement under Sections 4 and 5 hereof
through the date of Executive's termination of employment hereunder, (y) as set
forth in Section 7(d), and (z) any rights granted pursuant to the Equity
Agreement which survive termination in accordance with the terms thereof) shall
terminate.
(d) In the event of any termination of Executive's employment hereunder
prior to the close of business on the last day of the Employment Period pursuant
to Section 7(a)(v) or pursuant to Section 7(a)(vii) as a result of Justifiable
Termination, the Employer shall pay to Executive severance compensation in an
amount equal to 100% of Executive's Base Salary as in effect on the date of such
termination. All cash severance compensation amounts owed pursuant to this
Section 7(d) shall be paid within ten (10) days following the effective date of
Executive's termination, as applicable. In addition: (x) in the event of any
termination of Executive's employment hereunder prior to the close of business
on the last day of the Employment Period for any reason other than pursuant to
Section 7(a)(iv) or Section 7(a)(vi), the Employer shall pay to Executive a
payment equal to the pro rata portion of any aggregate bonus payment (owed under
the terms of any Employer bonus plan in effect for the fiscal year of such
termination) earned or accrued and unpaid through the date of termination,
payable promptly after calculation following the end of such fiscal year; and
(y) in the event of any termination of Executive's employment hereunder prior to
the close of business on the last day of the Employment Period pursuant to
Section 7(a)(v) or pursuant to Section 7(a)(vii) as a result of Justifiable
Termination, the Employer shall pay for health insurance benefit programs for
Executive comparable to those which Executive participated in immediately prior
to his termination for the one year period following such termination (except to
the extent Executive receives comparable benefits from another employer).
(e) Any termination by Employer or by Executive of Executive's
employment hereunder shall be communicated by written notice which shall
indicate the specific termination provision in this Agreement relied upon.
(f) Any severance compensation granted in this Section 7 (together with
the rights granted under the Equity Agreement referred to in Section 7(C) above
and any rights granted under any written option agreement with Executive) shall
be the sole and exclusive compensation or benefit due to Executive upon
termination of Executive's employment.
SECTION 8. Representations, Warranties and Acknowledgments of Executive.
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<PAGE> 5
(a) Executive represents and warrants that he is not a party to or
otherwise subject to or bound by the terms of any contract, agreement or
understanding which in any manner would limit or otherwise affect his ability to
perform his obligations hereunder, including without limitation any contract,
agreement or understanding containing terms and provisions similar in any manner
to those contained in Section 9 hereof. Executive further represents and
warrants that his employment with Employer will not require him to disclose or
use any confidential information belonging to prior employers or other persons
or entities.
(b) Executive represents and warrants that his experience and
capabilities are such that the provisions of Section 9 will not prevent him from
earning his livelihood, and acknowledges that it would cause the Company and
Newco and their respective affiliates (including Spectra-Physics AB and its
direct and indirect subsidiaries, the "Group") serious and irreparable injury
and cost if Executive were to use his ability and knowledge in competition with
the Group or to otherwise breach the obligations contained in Section 9.
(c) Executive recognizes and acknowledges that: (i) in the course of
Executive's employment by Employer, it will be necessary for Executive to
acquire information which could include, in whole or in part, information
concerning the Group's experimental and development plans, trade secrets, secret
procedures, information relating to ideas, improvements, and inventions,
disclosures, processes, systems, formulas, composition, patents, patent
applications, machinery, materials research activities and plans, customers or
vendors and prospective customers, the Group's product costs, the Group's
prices, profits and volume of sales, and future business plans, and other
confidential or proprietary information belonging to the Group or relating to
the Group's affairs, even if such information has been disclosed to one or more
third parties pursuant to distribution agreements, joint research agreements or
other agreements entered into by any member of the Group (collectively, such
information is referred to herein as the "Confidential Information"); (ii) the
Confidential Information is the property of the Group; (iii) the use,
misappropriation or disclosure of the Confidential Information would cause
irreparable injury to the Group; and (iv) it is essential to the protection of
the Group's good will and to the maintenance of the Group's competitive position
that the Confidential Information be kept secret and that Executive not disclose
the Confidential Information to others or use the Confidential Information to
Executive's own advantage or the advantage of others (except as may be necessary
for the performance of Executive's duties hereunder).
(d) Executive further recognizes and acknowledges that his duties at the
Company and Newco may include the preparation of materials, including written or
graphic materials, and that any such materials conceived or written by him shall
be done as "work made for hire" as defined and used in the Copyright Act of
1976, 17 U.S.C. Section 1 et seq. In the event of publication of such materials,
Executive acknowledges that since the work is "work made for hire," Employer
will solely retain and own all rights in said materials, including right of
copyright.
SECTION 9. Executives Covenants and Agreements.
(a) Executive agrees to hold and safeguard the Confidential Information in trust
for the Company, Newco, and their successors and assigns and agrees that he
shall not, without the prior written consent of the Board of Directors of the
Company or Newco, disclose
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<PAGE> 6
or make available to anyone for use outside the Company's or Newco's
organization at any time, either during his employment with Employer or
subsequent to the termination of his employment with Employer for any reason,
any of the Confidential Information, whether or not developed by Executive,
except as required in the performance of Executive's duties to Employer.
(b) Executive shall disclose promptly to Employer any and all Employer
Inventions (as defined below) authorized, conceived or made by Executive during
the period of Executive's employment by Employer and related to the business or
activities of Employer, and hereby assigns and agrees to assign all his right,
title and interest world-wide in all Employer Inventions and in all intellectual
property rights based upon Employer Inventions to Employer. Whenever requested
to do so by Employer, Executive shall execute any and all applications,
assignments or other instruments which Employer shall deem necessary to apply
for and obtain letters patent or copyrights of the United States or any foreign
country or to otherwise protect Employer's interest therein or to evidence the
assignment thereof to Employer. Such obligations shall continue beyond the
termination of Executive's employment with Employer for any reason with respect
to Employer Inventions authored, conceived or made by Executive during the
period of Executive's employment by Employer, and shall be binding upon
Executive's assigns, executors, administrators and other legal representatives.
In the event that the Company or Newco is unable for any reason to secure
Executive's signature to any lawful and necessary document required to apply for
or execute any patent, copyright or other applications with respect to any
Employer Inventions (including but not limited to any renewals, extensions,
continuations, divisions or continuations in part thereof), Executive hereby
irrevocably appoints Employer and its duly authorized officers and agents as his
agents and attorneys-in-fact to execute and file any such application and to do
all other lawfully permitted acts to further the prosecution and issuance of
patents, copyrights or other rights relating to such Employer Inventions with
the same legal force and effect as if executed by Executive. Executive
represents and warrants to Employer that there are at present no works,
software, inventions, discoveries or improvements which were recorded, written,
conceived, invented, made or discovered by Executive before entering into this
Agreement and which Executive desires to remove from the provisions of this
Agreement. As provided in Section 2870 of the California Labor Code, Executive
shall not be required to assign to Employer any Inventions (as defined below)
which are (i) conceived and developed entirely on his own time; (ii) not related
to any actual or anticipated business of Employer; (iii) not the result of work
done in the course of his employment with Employer; and (iv) conceived and made
without any Employer equipment, supplies, facilities or Confidential
Information. Employer shall have the irrevocable, royalty-free, worldwide right
to use in its business, and to use, make, have made and sell products,
processes, and/or services derived from any Employer Inventions.
(c) As used in this Agreement: (i) "Inventions" means any new or useful
art, discovery, contribution, finding, and improvements thereof or know-how
related thereto, whether patentable or not, including but not limited to
contributions, concepts, ideas, developments, discoveries, processes, formulas,
or methods, composition, techniques, articles, machines, designs, or software;
and (ii) "Employer Inventions" means all Inventions conceived or made by
Executive, alone or with others, which (i) relate or may relate in any manner to
the Business or its research and development, (ii) were conceived or made, in
whole or in part, on Employer's time or with any of Employer's equipment,
supplies, facilities or Confidential Information, or (iii) result from tasks
assigned to Executive by Employer.
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<PAGE> 7
(d) Upon the termination of Executive's employment with Employer for any
reason Executive shall promptly deliver to Employer all correspondence,
drawings, blueprints, manuals, letters, notes, notebooks, reports, flow-charts,
programs, proposals, price lists, customer lists, company credit cards, company
vehicles and any documents concerning Employer's customers or concerning
products or processes used by Employer and, without limiting the foregoing, will
promptly deliver to Employer any and all other documents or materials containing
or constituting Employer Inventions or Confidential Information.
(e) Executive covenants and agrees that during the period of Executive's
employment hereunder and for the Post-Termination Period thereafter (as defined
below) following the termination of Executive's employment hereunder, Executive
shall not, anywhere in the world, directly or indirectly, engage (whether as
principal, agent, officer, director, employee, consultant, shareholder, or
otherwise, whether alone or in association with any other person, corporation or
other entity) in any business or other enterprise which sells or attempts to
sell in competition with the Company or Newco any products or services which are
the same as or substantially similar to the products or services sold or
proposed to be sold by the Company or Newco at any time during the last two (2)
years prior to the termination of Executive's employment hereunder. For purposes
of this Agreement, "Post-Termination Period" shall mean (x) in the event that
Executive is terminated by Employer other than for Cause or Executive terminates
employment for Justifiable Termination, 180 days, and (y) in the event that
Executive's employment is terminated for any reason other than as set forth in
clause (x), two (2) years.
(f) Executive agrees that during his employment with Employer, he shall
not, directly or indirectly, solicit the trade of, or trade with, any customer,
prospective customer or supplier of Employer for any purpose other than for the
benefit of Employer.
(g) Executive agrees that, for two (2) years following termination of
Executive's employment with Employer hereunder for any reason, Executive shall
not, directly or indirectly, solicit or induce, or attempt to solicit or induce,
any employee of the Company or Newco to leave the employ of the Company or Newco
for any reason whatsoever nor shall Executive offer or provide employment
(whether such employment is with the Executive or any other business or
enterprise), either on a full-time basis or part-time or consulting basis, to
any person who then currently is, or who within one year prior thereto had been,
employed by the Company, Newco or any of their subsidiaries.
SECTION 10. Remedies. Executive acknowledges that his promised services
hereunder are of a special, unique, unusual, extraordinary and intellectual
character, which give them peculiar value the loss of which cannot be reasonably
or adequately compensated in an action of law, and that, in the event there is a
breach hereof by Executive, Employer will suffer irreparable harm, the amount of
which will be impossible to ascertain. Accordingly, Employer shall be entitled,
if it so elects, to institute and prosecute proceedings in any court of
competent jurisdiction, either at law or in equity, to obtain damages for any
breach or to enforce specific performance of the provisions or to enjoin
Executive from committing any act in breach of this Agreement. The remedies
granted to Employer in this Agreement are cumulative and are in addition to
remedies otherwise available to Employer at law or in equity. If Employer is
obliged to resort to the courts for the enforcement of any of the covenants of
Executive contained in
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<PAGE> 8
Section 9 hereof, each such covenant shall be extended for a period of time
equal to the period of such breach, if any, which extension shall commence on
the later of (i) the date on which the original (unextended) term of such
covenant is scheduled to terminate or (ii) the date of the final court order
(without further right of appeal) enforcing such covenant.
SECTION 11. Waiver of Breach. The waiver by Employer of a breach of any
provision of this Agreement by Executive shall not operate or be construed as a
waiver of any other or subsequent breach by Executive of such or any other
provision. No delay or omission by Employer or Executive in exercising any
right, remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof, and any such right, remedy or power may be
exercised by Employer or Executive from time to time and as often as may be
deemed expedient or necessary by Employer or Executive in its or his sole
discretion.
SECTION 12. Notices. All notices required or permitted hereunder shall
be made in writing by hand-delivery, certified or registered first-class mail,
or air courier guaranteeing overnight delivery to the other party at the
following addresses:
To Employer:
Spectra-Physics Lasers, Inc.
1335 Terra Bella
Mountain View, CA 94043
Attention: President
To Executive:
Mr. Mark S. Sobey
14 Clover Lane
San Carlos, CA 94070
or to such other address as either of such parties may designate in a written
notice served upon the other party in the manner provided herein. All notices
required or permitted hereunder shall be deemed duly given and received when
delivered by hand, if personally delivered; on the third day next succeeding the
date of mailing if sent by certified or registered first-class mail; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
SECTION 13. Severability. If any term or provision of this Agreement or
the application thereof to any person or circumstance shall, to any extent, be
held invalid or unenforceable by a court of competent jurisdiction, the
remainder of this Agreement or the application of any such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law. If any of the provisions contained in this Agreement shall for any reason
be held to be excessively broad as to duration, scope, activity or subject, it
shall be construed by limiting and reducing it, so as to be valid and
enforceable to the extent compatible with the applicable law or the
determination by a court of competent jurisdiction.
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<PAGE> 9
SECTION 14. Governing Law; Exclusive Choice of Forum. The implementation
and interpretation of this Agreement shall be governed by and enforced in
accordance with the laws of the State of California without giving effect to the
conflicts of law provisions thereof. Each party irrevocably submits to the
exclusive jurisdiction of any court located in the State of California, for
purposes of any action, suit or other proceeding arising out of this Agreement
or any transaction contemplated hereby and agrees not to raise any objection in
any court located in the State of California to the laying or maintaining of the
venue of any such action, suit or proceeding in such court.
SECTION 15. Binding Effect and Assignability. The rights and obligations
of both parties under this Agreement shall inure to the benefit of and shall be
binding upon their heirs, successors and assigns. Executive's rights under this
Agreement shall not, in any voluntary or involuntary manner, be assignable and
may not be pledged or hypothecated without the prior written consent of
Employer.
SECTION 16. Attorneys' Fees; Costs. If a party hereto prevails in a
proceeding for damages or injunctive relief, that party, in addition to other
relief, shall be entitled to reasonable attorneys' fees, costs and the expenses
of litigation incurred by such party in securing the relief granted by the
Court.
SECTION 17. Counterparts; Section Headings. This Agreement may be
executed in any number of counterparts each of which shall be deemed to be an
original, but all of which together shall constitute one and the same
instrument. The section headings of this Agreement are for convenience of
reference only.
SECTION 18. Survival. Notwithstanding the termination of this Agreement
or Executive's employment hereunder for any reason, Sections 5, 7, 8, 9, 10, 13,
14, 15, 16 and 18 hereof shall survive any such termination.
SECTION 19. Entire Agreement. This instrument constitutes the entire
agreement with respect to the subject matter hereof between the parties hereto
and replaces and supersedes as of the date hereof any and all prior oral or
written agreements and understandings between the parties hereto. This Agreement
may only be modified by an agreement in writing executed by both Executive and
Employer.
IN WITNESS WHEREOF, the undersigned have executed this Agreement the
date and year first written above.
Company:
SPECTRA-PHYSICS LASERS, INC.
By /s/ Patrick E. Edsell
-------------------------------
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Executive:
/s/ Mark S. Sobey
---------------------------------
Mark S. Sobey
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<PAGE> 11
Exhibit A
STOCK OPTION PLAN SUMMARY
A. PROPOSED INITIAL CAPITALIZATION
<TABLE>
<CAPTION>
Newco
Common Stock
------------
<S> <C>
Spectra-Physics No less than 80% of shares
Management No more than 20% of shares*
</TABLE>
Shares would be granted subject to options.
B. NONQUALIFIED STOCK OPTION PLAN: PRINCIPAL TERMS
After formation of Newco, options to purchase common stock of Newco ("options")
will be made available to key managers of Newco selected by the Company
("Managers"). The Options will be granted to Managers in consideration for their
services to Newco.
Exercise Price
The exercise price under the options shall be the price per share that
the Company initially pays for its shares of Newco common stock
(expected to be $0.05 per share) for Managers who are granted options
within the first six months after formation of Newco and the fair market
value at the time of grant for Managers who are granted Options
thereafter.
Vesting
-------
Upon Grant - 10% of total granted to each Manager.
Time-Based - 40% of the total granted to each Manager,
with 25% of this a-mount vesting at the end
of each fiscal year for each of the first
four years that a Manager is employed by
Newco.
Performance - 50% of the total granted to each Manager,
with 25% of this amount eligible for vesting
at the end of each fiscal year for each of
the first four years that a Manager is
employed by Newco if Newco's actual sales
and ORAD performance meet the targets set
forth in the business plan adopted by
Newco's board of directors for such fiscal
year.
Accelerated - See "Sale of Newco" below.
Option Exercise
<PAGE> 12
Managers will not be entitled to exercise the Options unless, prior to
their lapse or purchase by Newco, an IPO occurs, which generally shall
mean a sale of Newco's equity securities pursuant an effective SEC
registration statement, if as a result of such sale (x) Newco becomes a
reporting company under Section 12 of the Securities Exchange Act of
1934, as amended, (y) Newco receives at least $10 million in net
proceeds and the common stock sold pursuant to such registration
statement represents at least 35% of the common stock of Newco
outstanding after such sale, and (z) the common stock of Newco is traded
on the New York Stock Exchange or the American Stock Exchange, or quoted
on the NASDAQ National Market System.
Sale of Newco
If Newco engages in a "sale of control" transaction (e.g., merger, sale
of all of Newco's stock or sale by Newco of substantially all of its
assets), holders of vested Options will be entitled to receive the net
consideration per share received by Newco's existing holders of common
stock (after deducting the applicable exercise price) in cancellation of
such Options. In the event of a sale of control, all unvested options
which are eligible to vest over time as described above under
"Vesting-Time-Based" shall immediately vest. In the event of a sale of
control, if the acquiror elects in its sole discretion to continue the
option program described in this Stock Option Plan Summary following
such a sale of control, then all unvested options which are eligible to
vest over time as described above under "Vesting - Performance" shall
continue and be assumed following the sale of control transaction.
Purchase Rights
The Options will be subject to purchase by Newco (unless Newco shall
have consummated an IPO or sale of control or the Options shall have
lapsed) as follows:
During initial four years of Newco employment
If a Manager's employment with Newco is terminated by Newco
(other than for cause) or is terminated by the Manager due to
Justifiable Termination after the grant of the Options but during
the initial four years of a Manager's employment with Newco, then
Newco will determine the reasonable value of the shares subject
to such Manager's vested Options as of the time of termination as
described below. The valuation of shares of Newco's common stock
shall be determined by Newco's board of directors in good faith,
and such valuation shall be binding on the parties. If such
Manager has not been engaged in any business or activity in
competition with Newco or the Company at any time following
termination in breach of the Manager's obligations under any
written employment agreement (the "Employment Agreement"), then
Newco will be required to purchase all of such Manager's Options
at the determined value of the shares (net of the applicable
exercise price): (x) promptly following the valuation of such
shares in the event that the Manager's employment with Newco is
terminated by Newco (other than
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for cause) or as a result of the Manager's death or disability;
and (y) on the first anniversary of the Manager's termination of
employment in all other cases.
After fourth anniversary of Newco Employment
Newco shall be required to purchase all Options then held by a
Manager on a date selected by Newco between the fourth and fifth
anniversary, of the date of employment of such Manager with Newco
(with thirty days notice to Manager). The purchase price for a
Manager's Options shall be an amount equal to the percentage of
shares represented by such Manager's Options multiplied by the
value of all of Newco's shares of common stock as described below
(net of the applicable exercise price), payable promptly
following valuation unless such Manager engages in any business
or activity in competition with Newco or the Company prior
thereto in breach of the Manager's obligations under the
Employment Agreement. The valuation of shares of Newco's common
stock shall be deter-mined by Newco's board of directors in good
faith. In the event of any disagreement with such valuation,
Newco shall select an arbitrator (who is an independent banking
firm or other appraiser) to review the reasonableness of Newco's
valuation. The cost of arbitration will be borne by Newco. If the
arbitrator determines that Newco's valuation is reasonable, then
Newco's valuation shall be binding on the parties; if the
arbitrator determines that Newco's valuation is not reasonable,
then the arbitrator will determine a value for which Newco will
purchase the Manager's Options.
Antidilution
The number of shares of common stock subject to the Options and
the exercise price per share shall be appropriately adjusted if
Newco declares or effects any stock dividend or subdivision or
combination of shares.
Transferability
The Options will not be transferable except by will or the laws
of descent and distribution.
Lapse of Options
If a Manager is terminated for cause at any time or if such
Manager terminates employment for any reason prior to January 1,
1998 (other than due to Justifiable Termination) or if such
Manager engages in any business or activity in competition with
Newco or the Company in breach of the Manager's obligations under
the Employment Agreement at any time following termination or
valuation of shares subject to Options and prior to payment of
the consideration described above, then all such Options shall
lapse and be cancelled without any consideration. If a Manager's
employment with Newco ceases for any reason (other than for
Cause) on or after January 1, 1998 or if Newco engages in a "sale
of control", then the
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<PAGE> 14
Manager shall receive the consideration described above under
"Purchase Rights" in exchange for cancellation of the Manager's
Options; provided, however, the provisions of "Sale of Newco"
shall be operative as described above with respect to unvested
Options.
-4-
<PAGE> 1
EXHIBIT 10.5
Form of Executive Incentive Plan
Dear _______,
This letter will confirm our discussion and agreements reached in regard to your
1997 incentive program. This program consists of two parts. Part I is based on
SPL operating results while Part II is based on performance with respect to
agreed upon objectives. Ninety (90%) of your total potential incentive can be
earned under Part I with ten (10%) earned under Part II.
Part I: SPL Operating Results
Bonus Payment
Matrix
The key measures of performance are Cash Flow, GM, and ORAD. For 1997, these
performance indicators are weighted as specified on the matrix on Page 1. The
incentive payments shown in the above matrix are independent. That means once
you have your final results for 1997, you proceed by calculating the actual Cash
Flow, GM and ORAD and then determine the amount of the incentive payment (if
any) for each by going to the appropriate location in the matrix. For example,
if the 1997 Actual results are:
CASH FLOW GM ORAD
then the incentive payment would be:
<TABLE>
<CAPTION>
Total Bonus
Criteria Budget Actual Payment
- -------- ------ ------ -----------
<S> <C> <C> <C>
CASH FLOW
GM
ORAD
</TABLE>
However, no incentive payment in Part I will be made unless SPL's ORAD,
including incentives, is greater than zero. Also, please note that no incentive
payment is earned until your actual results equal or exceed the minimum
performance level. Furthermore, the incentive payments for Cash Flow, GM, and
ORAD peak out at the maximum performance level and no additional incentive
payments are earned for performance beyond these levels.
Part II: Objectives
The objectives included in Attachment I will be used to evaluate the amount of
any payment that may be earned under this section of the program. The value of
each objective is shown next to the objective
<PAGE> 2
1997 Incentive Plan
Page 2
number. No payment will be made under Part II unless SPL's ORAD, including
incentives, is greater than zero.
The total payment made under this plan is the sum of any payment earned as
specified in the Bonus Payment Matrix shown on Page 1 and the amount earned in
Part II, after SPL's ORAD, including all incentives, is greater than zero.
(Note: Your total maximum bonus is _____ of your base salary.)
Spectra-Physics Lasers reserves the right to revise, modify, and terminate this
incentive plan at any time by providing either written or oral notification to
all participants. This incentive plan will be administered by the President of
Spectra-Physics Lasers. The decisions or actions of the incentive plan
administrator on any questions, intent, interpretations, or administrative
matters regarding this incentive plan are binding on the participants.
It should be understood that nothing contained in this incentive plan shall be
deemed or construed as creating a "permanent" contract of employment expressed
or implied for any period of time. Further, participants in this incentive plan
should understand and agree that their employment with Spectra-Physics Lasers
shall be "at will", and, therefore, may be terminated by you or the company at
any time and for any reason, with or without cause and with or without notice.
You represent and agree that no other representation has been made to you.
This "at will" employment relationship will remain in effect throughout your
employment with the company and any of its parent, subsidiary, or affiliated
entities, and may only be modified by an express written contract for a
specified term signed by you and the President of the company.
Any payments that are due will be made promptly after the final results are
available. Also, this is a plan for 1997 only and the company reserves the right
to continue, amend or discontinue this plan for 1998 and thereafter.
Please check the budgeted figures for Cash Flow, GM and ORAD as well as the
objectives. If everything is in order and this incentive program as described
above is acceptable to you, please sign this letter in the appropriate place and
return it to me. Of course, you should keep a copy of your files.
<PAGE> 3
1997 Incentive Plan
Page 3
If you wish to discuss this matter, please feel free to call me. In the
meantime, please accept my best wishes for a successful 1997.
Best Regards,
Patrick L. Edell
Accepted by: _________________________
Date: ________________________________
<PAGE> 1
EXHIBIT 10.6
1997 SPECTRA-PHYSICS LASERS, INC.
STOCK OPTION PLAN
Date Adopted: November __, 1997
<PAGE> 2
1997 SPECTRA-PHYSICS LASERS, INC.
STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Plan is to assist the Company, its Subsidiaries and
Affiliates in attracting and retaining valued employees and non-employee
directors by offering them a greater stake in the Company's success and a closer
identity with it, and to encourage ownership of the Company's stock by such
employees and non-employee directors.
2. Definitions
2.1 "Affiliate" means any entity other than the Subsidiaries in which
the Company has a substantial direct or indirect equity interest, as determined
by the Board.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Common Stock" means the Common Stock of the Company, par value
$.01 per share, or such other class or kind of shares or other securities
resulting from the application of Section 8.
2.5 "Company" means Spectra-Physics Lasers, Inc., a Delaware
corporation, or any successor corporation.
<PAGE> 3
2.6 "Committee" means the committee designated by the Board to
administer the Plan under Section 4. No later than the date of the first meeting
of stockholders of the Company held to elect directors and held after December
31, 2000, the Committee shall have at least two members, each of whom shall be a
member of the Board, a non-employee director (as such term is defined in Rule
16b-3) and an Outside Director.
2.7 "Effective Date" shall have the meaning ascribed to such term in
Section 9 of the Plan.
2.8 "Employee" means an officer or other key employee of the Company,
a Subsidiary or an Affiliate including a director who is such an employee.
2.9 "Fair Market Value" means on any given date, the value per share
of the Common Stock as determined by the Committee if the Common Stock is not
traded in a public market, and, if the Common Stock is traded in a public
market, shall be, if the Common Stock is listed on a national securities
exchange or included on the NASDAQ National Market, the last reported sale price
thereof on such date, or, if the Common Stock is listed on a national securities
exchange but is not traded or reported on such date, the last reported sale
price on the last preceding day on which the Common Stock was traded or
reported, or if the Common Stock is included on the NASDAQ National Market but
is not traded or reported on such date, the mean between the last reported "bid"
and "asked" prices thereof on such date, as reported on NASDAQ National Market
or, if not so reported, as
<PAGE> 4
reported by the National Daily Quotation Bureau, Inc. or as reported in the
customary financial reporting service, as applicable and as the Committee
determines.
2.10 "Grantee" means an Employee or Non-Employee Director to whom an
Option is granted.
2.11 "Holder" means a Grantee or a Permitted Transferee, as
applicable.
2.12 "Initial Public Offering" means the Company's initial public
offering of Common Stock registered with the Securities Exchange Commission
pursuant to the Registration Statement.
2.13 "1934 Act" means the Securities Exchange Act of 1934, as
amended.
2.14 "Non-Employee Director" means any member of the board that is
not (i) an Employee or (ii) an affiliate of the Company or Spectra-Physics AB,
other than a member that is affiliated solely through such director's position
on the board of directors of the Company or its subsidiaries, through a
consulting or similar arrangement with the Company or through status as a
stockholder of the Company or Spectra-Physics AB.
2.15 "Option" means any stock option granted from time to time under
Section 6 or Section 7 of the Plan.
2.16 "Outside Director" means a member of the Board who: (i) is not a
current employee of the Company, its
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<PAGE> 5
Subsidiaries or Affiliates; (ii) is not a former employee of the Company, its
Subsidiaries or Affiliates who receives during the year compensation for prior
services with the Company, its Subsidiaries or Affiliates (other than benefits
under a tax-qualified retirement plan); (iii) has not been an officer of the
Company, its Subsidiaries or Affiliates; and (iv) does not receive any
remuneration from the Company, its Subsidiaries or Affiliates (either directly
or indirectly) in any capacity other than as director. The requirements of this
Section shall be interpreted and applied in a manner consistent with the
requirements of Treasury Regulation ss. 1.162-27(e)(3).
2.17 "Performance Goals" means a goal that must be met by the end of
a period specified by the Committee (but that is substantially uncertain to be
met before the grant of the Award) based upon: (i) the price of Common Stock,
(ii) the market share of the Company, its Subsidiaries or Affiliates (or any
business unit thereof), (iii) sales by the Company, its Subsidiaries or
Affiliates (or any business unit thereof), (iv) earnings per share of Common
Stock, (v) return on shareholder equity of the Company, or (vi) costs of the
Company, its Subsidiaries or Affiliates (or any business unit thereof).
2.18 "Permitted Transferee" means the spouse, parents, siblings,
children or grandchildren (in each case, natural or adopted) of a Grantee, any
trust for his or her
- 4 -
<PAGE> 6
benefit or the benefit of his or her spouse, parents, siblings, children or
grandchildren (in each case, natural or adopted), or any corporation or
partnership in which the direct and beneficial owner of all of the equity
interest in such corporation or partnership is such individual Grantee or
Permitted Transferee (or any trust for the benefit of such persons).
2.19 "Plan" means the 1997 Spectra-Physics Lasers, Inc. Stock Option
Plan herein set forth, as amended from time to time.
2.20 "Registration Statement" means the Company's Form S-1
Registration Statement (No. 333-38329), as amended, filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
2.21 "Rule 16b-3" means Rule 16b-3, or any successor thereto,
promulgated by the Securities and Exchange Commission under the 1934 Act.
2.22 "Retirement" means retirement from the active employment of the
Company, a Subsidiary or an Affiliate pursuant to the relevant provisions of the
applicable pension plan of such entity or as otherwise determined by the Board.
2.23 "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company (or any subsequent
parent of the Company) if each of the corporations other than the last
corporation in the
- 5 -
<PAGE> 7
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
3. Eligibility
Any Employee is eligible to receive Options. Non- Employee Directors are
eligible to receive Options pursuant to Section 7.
4. Administration and Implementation of Plan
4.1 Once the Committee has been established by the Board, the Plan
shall be administered by the Committee, which shall have full power to interpret
and administer the Plan and full authority to act in selecting the Employees to
whom Options will be granted, in determining the amount of Options to be granted
to each such Employee, the terms and conditions of Options granted under the
Plan and the terms of agreements which will be entered into with Holders, so
long as such terms, conditions and agreements are not otherwise inconsistent
with the Plan. Prior to such time as the Committee shall have been established
by the Board, the Plan shall be administered by the Board, which shall have all
powers of the Committee set forth herein during the time it administers the
Plan.
4.2 The Committee's powers shall include, but not be limited to, the
power to determine whether, to what extent and under what circumstances an
Option may be exchanged for cash, to
- 6 -
<PAGE> 8
determine the effect, if any, of a change in control of the Company upon
outstanding Options; and to grant Options that are transferable by the Grantee.
4.3 The Committee shall have the power to adopt regulations for
carrying out the Plan and to make changes in such regulations not inconsistent
with the Plan as it shall, from time to time, deem advisable. The Committee
shall have the power unilaterally and without approval of a Holder to amend an
existing Option in order to carry out the purposes of the Plan so long as such
an amendment does not take away any benefit granted to a Holder by the Option
and as long as the amended Option comports with the terms of the Plan and Rule
16b-3. Any interpretation by the Committee of the terms and provisions of the
Plan and the administration thereof, and all action taken by the Committee,
shall be final and binding on Holders.
4.4 The Committee may condition the grant of any Option upon the
Grantee's achievement of a Performance Goal that is established by the Committee
before the grant of the Option. The Committee shall have discretion to determine
the specific targets with respect to various categories of Performance Goals set
forth in the definition thereof. Before granting an Option subject to this
Section, the Committee shall certify that an individual has satisfied the
applicable Performance Goal.
- 7 -
<PAGE> 9
5. Shares of Stock Subject to the Plan
5.1 Subject to adjustment as provided in Section 8, the total number
of shares of Common Stock with respect to which Options may be granted under the
Plan shall equal the amount by which "x" exceeds "y", where "x" equals the
quotient (rounded up to the nearest whole share of Common Stock) obtained by
dividing (A) the sum of (i) the number of shares of Common Stock sold in the
Initial Public Offering, including any shares sold pursuant to the underwriters'
over-allotment option, plus (ii) the number of shares of Common Stock required
to be issued pursuant to the Option Cancellation and Restricted Stock Plan
Agreements between the Company and certain employees of its Subsidiary, Opto
Power Corporation, plus (iii) the number of shares of Common Stock outstanding
immediately prior to the Initial Public Offering (such sum being referred to
herein as "Outstanding Shares") by, (B) 87.5%, and "y" equals the number of
Outstanding Shares.
5.2 The maximum number of shares of Common Stock with respect to
which Options may be granted to any Employee during the term of the Plan is
1,000,000 shares (the "Individual Limit"). Subject to Section 5.3 and Section 8,
any Option that is cancelled or repriced by the Committee shall count against
the Individual Limit. Notwithstanding the foregoing, the Individual
- 8 -
<PAGE> 10
Limit may be adjusted to reflect the effect on Options of any transaction or
event described in Section 8.
5.3 Any shares of Common Stock issued by the Company under the Plan
shall reduce the shares of Common Stock available for Options under the Plan and
shall be counted against the Individual Limit applicable to the individual to
whom the shares are issued. Any shares of Common Stock issued hereunder may
consist, in whole or in part, of authorized and unissued shares or treasury
shares of Common Stock. If any shares of Common Stock subject to any Option
granted hereunder are forfeited or such Option otherwise terminates without the
issuance of such shares or the payment of other consideration in lieu of such
shares, the shares subject to such Option, to the extent of any such forfeiture
or termination, shall again be available under the Plan.
6. Options
Options give the Holder the right to purchase a specified number of
shares of Common Stock from the Company for a specified time period at a fixed
price. Options granted to Grantees shall be non-qualified stock options and are
not intended to be and shall not be incentive stock options as defined in
Section 422 of the Code. The grant of Options shall be subject to the following
terms and conditions:
- 9 -
<PAGE> 11
6.1 Option Grants: Options shall be evidenced by Option agreements.
Such agreements shall be reasonably uniform and not inconsistent with the
requirements of the Plan, and may contain such other provisions in addition to
those required by this Article 6, as the Committee shall deem advisable.
6.2 Option Price: The price per share at which Common Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
shall be not less than the Fair Market Value of a share of Common Stock on the
date of grant.
6.3 Term of Options: The Option agreements shall specify when an
Option may be exercisable and the terms and conditions applicable thereto. The
term of an Option shall in no event be greater than ten (10) years and no Option
may be exercisable sooner than six months from date of grant.
6.4 Payment of Option Price: The option price of the shares of Common
Stock upon the exercise of an Option shall be paid in full in cash at the time
of the exercise or, with the consent of the Committee, in whole or in part in
Common Stock valued at Fair Market Value on the date of exercise.
6.5 Termination by Death: If a Grantee's employment by the Company, a
Subsidiary or Affiliate terminates by reason of death, any unexercised Option
granted to such Grantee (whether held by such Grantee or a subsequent Holder)
under this Section 6 may thereafter be exercised (to the extent
- 10 -
<PAGE> 12
such Option was exercisable at the time of death or on such accelerated basis as
the Committee may determine at or after grant) by, where appropriate, a
subsequent Holder, if any, or the Holder's transferee or legal representative,
for a period of six (6) months from the date of death or until the expiration of
the stated term of the Option, whichever period is shorter, or for such other
period as the Committee shall determine.
6.6 Termination by Reason of Retirement or Disability: If a Grantee's
employment by the Company, a Subsidiary or Affiliate terminates by reason of
disability (as determined by the Committee) or Retirement, any unexercised
Option granted to the Grantee (whether held by such Grantee or a subsequent
Holder) under this Section 6 may thereafter be exercised (to the extent it was
exercisable at the time of termination or on such accelerated basis as the
Committee may determine at or after grant) by the Holder (or, where appropriate,
the Holder's transferee or legal representative), for a period of three (3)
months from the date of such termination of employment or until the expiration
of the stated term of the Option, whichever period is shorter, or for such other
period as the Committee shall determine.
6.7 Other Termination: If a Grantee's employment by the Company,
Subsidiary or Affiliate terminates for any reason other than death, disability
or Retirement, all unexercised
- 11 -
<PAGE> 13
Options awarded to the Grantee (whether held by such Grantee or a subsequent
Holder) under this Section 6 shall terminate on the date of such termination of
employment.
7. Award of Options to Non-Employee Directors.
The Company shall make the following grants of Options to
Non-Employee Directors under this Plan: (i) on or about the date on which the
Company consummates its Initial Public Offering, an Option for Fifteen Thousand
shares of Common Stock; (ii) on the date, after the Initial Public Offering, on
which a person first becomes a Non-Employee Director, whether by election or
appointment, an Option for Fifteen Thousand shares of Common Stock; and (iii) an
Option for Five Thousand shares of Common Stock upon each annual election as a
director occurring more than nine months after the Initial Public Offering. The
grant of Options to Non-Employee Directors shall be subject to the following
terms and conditions:
7.1 Option Grants: Options shall be evidenced by Option agreements.
Such agreements shall be reasonably uniform and not inconsistent with the
requirements of the Plan, and may contain such other provisions in addition to
those required by this Article 7, as the Committee shall deem advisable.
7.2 Option Price: The price per share at which Common Stock may be
purchased upon exercise of the Option shall be determined by the Committee, but
shall be not less than the
- 12 -
<PAGE> 14
Fair Market Value of a share of Common Stock on the date of grant.
7.3 Term of Options: The Option agreements shall specify when an
Option may be exercisable and the terms and conditions applicable thereto. The
term of an Option shall be ten (10) years from the date of grant and no Option
may be exercisable sooner than six months from date of grant.
7.4 Payment of Option Price: The option price of the shares of Common
Stock upon the exercise of an Option shall be paid in full in cash at the time
of the exercise or, with the consent of the Committee, in whole or in part in
Common Stock valued at Fair Market Value on the date of exercise.
7.5 Termination by Death: If a Grantee ceases to be a director of the
Company by reason of death, any unexercised Option granted to such Grantee
(whether held by such Grantee or a subsequent Holder) under this Section 7 may
thereafter be exercised (to the extent such Option was exercisable at the time
of death or on such accelerated basis as the Committee may determine at or after
grant) by, where appropriate, a subsequent Holder, if any, or the Holder's
transferee or legal representative, for a period of six (6) months from the date
of death or until the expiration of the stated term of the Option, whichever
period is shorter, or for such other period as the Committee shall determine.
- 13 -
<PAGE> 15
7.6 Termination by Reason of Retirement or Disability: If a Grantee
ceases to be a director of the Company by reason of disability (as determined by
the Committee) or Retirement, any unexercised Option granted to the Grantee
(whether held by such Grantee or a subsequent Holder) under this Section 7 may
thereafter be exercised (to the extent it was exercisable at the time of
retirement or disability or on such accelerated basis as the Committee may
determine at or after grant), by the Holder (or, where appropriate, the Holder's
transferee or legal representative), for a period of three (3) months from the
date of such retirement or disability or until the expiration of the stated term
of the Option, whichever period is shorter, or for such other period as the
Committee shall determine.
7.7 Other Termination: If a Grantee ceases to be a director of the
Company for any reason other than death, disability or Retirement, all
unexercised Options awarded to the Grantee (whether held by such Grantee or a
subsequent Holder) under this Section 7 shall terminate on the date of such
cessation.
8. Adjustments upon Changes in Capitalization
In the event of a reorganization, recapitalization, stock split, reverse
stock-split, spin-off, split-off, split-up, stock dividend, issuance of stock
rights, combination of shares,
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<PAGE> 16
merger, consolidation or any other change in the corporate structure of the
Company affecting Common Stock, or any distribution to stockholders other than a
cash dividend, the Board shall make appropriate adjustment in the number and
kind of shares authorized by the Plan and any adjustments to outstanding Options
as it determines appropriate. No fractional shares of Common Stock shall be
issued in connection with an Option hereunder pursuant to such an adjustment.
The Fair Market Value of any fractional shares resulting from adjustments
pursuant to this Section shall be paid in cash to the Holder. If during the term
of any Option granted hereunder the Company shall be merged into or consolidated
with or otherwise combined with or acquired by a person or entity, or there is a
divisive reorganization or a liquidation or partial liquidation of the Company,
then at the election of the Committee, the Company may choose to take no action
with regard to the Options granted under the Plan or to take any of the
following courses of action:
(a) Not less than 15 days nor more than 60 days prior to any such
transaction, all Holders shall be notified that their Options shall expire on
the 15th day after the date of such notice, in which event all Holders shall
have the right to exercise all of their Options prior to such new expiration
date; or,
- 15 -
<PAGE> 17
(b) take such other action as the Committee shall determine to be
reasonable under the circumstances to permit the Holder to realize the value of
such Option (which value the Committee may in its discretion determine equals
the excess of the fair market value of the consideration to be received in such
merger, consolidation, combination, acquisition, reorganization or liquidation
had such Option been exercised immediately prior thereto, over the option price
of such Option), including without limitation paying cash to such Holder equal
to the value of the Option or requiring the acquiring corporation to grant
options or stock to such Holder having a value equal to the value of the Option.
Such Holder shall comply with any such action of the Committee.
9. Effective Date, Termination and Amendment
The Plan, as amended, shall become effective on November __, 1997 (the
"Effective Date"), subject to approval of its stockholders as well as the
approval, if necessary, of the stockholders of Spectra-Physics AB. The Plan
shall remain in full force and effect until the earlier of ten (10) years from
the Effective Date, or the date it is terminated by the Board. The Board shall
have the power to amend, suspend or terminate the Plan at any time.
- 16 -
<PAGE> 18
Termination of the Plan pursuant to this Section 9 shall not affect
Options outstanding under the Plan at the time of termination.
10. Transferability
Except as provided below, Options may not be pledged, assigned or
transferred for any reason during the Holder's lifetime, and any attempt to do
so shall be void and the relevant Option shall be forfeited; provided, however
that Options may be pledged, assigned or transferred (i) at the discretion of
the Committee, during the Grantee's lifetime by the Grantee to a Permitted
Transferee, (ii) at the discretion of the Committee, by a Permitted Transferee
to another Permitted Transferee or (iii) as otherwise permitted by the
Committee; provided, further, that any such transfer shall comply with all terms
and conditions established by the Committee and any term, condition or
restriction contained in the agreement entered into with the Holder. Any
transferee of the Holder, including, but not limited to any Permitted
Transferee, shall, in all cases, be subject to the provisions of the agreement
between the Company and the Holder.
11. General Provisions
11.1 Nothing contained in the Plan, or any Option granted pursuant
to the Plan, shall confer upon any Employee any right with respect to
continuance of employment by the Company, a
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<PAGE> 19
Subsidiary or Affiliate, nor interfere in any way with the right of the Company,
a Subsidiary or Affiliate to terminate the employment of any Employee at any
time. A Grantee shall have no right as a stockholder with respect to any shares
covered by such Grantee's Options until the date of the issuance of a stock
certificate to such Grantee for such shares.
11.2 For purposes of this Plan, transfer of employment between the
Company and its Subsidiaries and Affiliates shall not be deemed termination of
employment.
11.3 Holders shall be responsible to make appropriate provision for
all taxes required to be withheld in connection with the grant of any Option and
the exercise thereof. Such responsibility shall extend to all applicable
Federal, state, local or foreign withholding taxes. Upon exercise of Options,
the Company shall, at the election of the Company, have the right to retain the
number of shares of Common Stock whose Fair Market Value equals the amount to be
withheld in satisfaction of the applicable withholding taxes. Agreements
evidencing Options shall contain appropriate provisions to effect withholding in
this manner.
11.4 Without amending the Plan, Options may be granted to Employees
or Non-Employee Directors who are foreign nationals or employed outside the
United States or both, on such terms and conditions different from those
specified in the Plan
- 18 -
<PAGE> 20
as may, in the judgment of the Committee, be necessary or desirable to further
the purpose of the Plan.
11.5 Upon exercise of an Option, the Holder shall be required to
make such representations and furnish such information as may, in the opinion of
counsel for the Company, be appropriate to permit the Company to issue or
transfer the shares of Common Stock in compliance with the provisions of
applicable federal or state securities laws. The Company, in its discretion, may
postpone the issuance and delivery of shares of Common Stock upon any exercise
of an Option, until completion of such registration or other qualification of
such shares under any federal or state laws, or stock exchange listing, as the
Company may consider appropriate. The Company is not obligated to register or
qualify the shares of Common Stock issued pursuant to Options under federal or
state securities laws and may refuse to issue such shares if neither
registration nor exemption therefrom is practical. The Board may require that
prior to the issuance or transfer of any shares of Common Stock upon exercise of
an Option, the recipient enter into a written agreement to comply with any
restrictions on subsequent disposition that the Board or the Company deems
necessary or advisable under any applicable federal and state securities laws.
Certificates representing the shares of Common Stock issued hereunder may be
legended to reflect such restrictions.
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<PAGE> 21
11.6 To the extent that Federal laws (such as the 1934 Act, the Code
or the Employee Retirement Income Security Act of 1974) do not otherwise
control, the Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of Delaware and construed accordingly.
11.7 The Committee may amend any outstanding Options to the extent
it deems appropriate. Such amendment may be made by the Committee without the
consent of the Holder, except in the case of amendments adverse to the Holder,
in which case the Holder's consent is required to any such amendment.
- 20 -
<PAGE> 1
Exhibit 10.7
PATENT LICENSE AGREEMENT
This is a Patent License Agreement (the "Agreement") dated as of
October 4, 1997, (the "Effective Date") between Spectra-Physics Lasers, Inc., a
Delaware corporation ("Licensor") and Spectra Precision, Inc. (formerly known as
Spectra-Physics Laserplane, Inc.), a Delaware corporation ("Licensee").
Background
WHEREAS Licensor owns the patents listed in the attached Exhibit
A, and any and all divisionals, continuations, continuations-in-part,
reexaminations, and reissues, and any U.S. or foreign equivalents thereof
(collectively, the "Licensed Patents"); and
WHEREAS Licensee desires to obtain, and Licensor desires to
grant, a license to use the Licensed Patents subject to the terms and conditions
herein.
NOW, THEREFORE, intending to be legally bound, Licensor and
Licensee agree as follows:
Terms
1. LICENSE.
1.1. Grant of Rights. Licensor hereby grants to Licensee a non-exclusive,
irrevocable (except as provided herein), perpetual (except as provided herein),
world-wide, royalty-free right and license throughout the world to manufacture,
have manufactured, use, sell, and import the Licensed Products, so long as said
Licensed Products comprise a part of a System or are sold as a replacement part
for a previously-sold System.
As used in this Agreement "Licensed Products" shall mean products
embodying or made in accordance with inventions of the Licensed Patents, which
are used in, or manufactured for use in, a System and which are used for
applications in construction, land or hydrographic surveying, mining, dynamic
positioning or agriculture.
As used in this Agreement "Permitted Subsidiary" shall mean any
direct or indirect majority owned subsidiary of Licensee, but only for so long
as it remains a direct or indirect majority owned subsidiary of Licensee.
<PAGE> 2
As used in this Agreement "System" shall mean a system
manufactured by Licensee for sales to its customers, in which:
(a) the portion of the Direct Product Cost of the System
attributable to a Licensed Product is less than fifty percent (50%), or,
in the case of a System comprising a rotating interior construction
system emitting light having a wavelength of between approximately 490
and 570 nanometers, the portion the Direct Product Cost of the System
attributable to a Licensed Product is less than seventy-five percent
(75%); and
(b) the average power output of the System is less than 10
milliwatts for all applications except underground applications, in
which case the average power output of the System is less than 20
milliwatts.
As used in this Agreement "Direct Product Cost" shall mean the
standard manufacturing cost which shall include, without limitation, the cost of
direct labor and materials and a standard allocation for overhead.
1.2. Dispute Resolution. If the parties disagree as to the scope of the
license granted pursuant to Section 1.1 of this Agreement, the parties agree to
use the following procedure to resolve the dispute:
1.2.1. After the dispute arises, a meeting shall be held promptly
between the parties, attended by individuals with decision-making authority
regarding the dispute, to attempt to negotiate a resolution in good faith;
1.2.2. If, within thirty (30) days after such meeting, the parties
have not succeeded in negotiating a resolution of the dispute, then at the
written request of either party, the parties will jointly appoint a
mutually-acceptable neutral person not affiliated with either of the parties. If
the parties have been unable to agree upon such appointment within ten (10) days
after either party requests appointment of the neutral person, they shall seek
assistance from the American Arbitration Association or other mutually
agreed-upon provider of neutral services. The fees of the neutral person shall
be shared equally by the parties.
1.2.3. If the parties have been unable to agree on any of such
matters within twenty (20) days after initial consultation with the neutral
person, the parties agree to negotiate to resolve said dispute through
arbitration to be conducted in Mountain View, California, under the Patent
Arbitration Rules of the American Arbitration Association. Any resulting award
shall be final, binding upon the parties, their successors and assigns, and
non-appealable, and shall be entered in any court of competent jurisdiction to
enforce it. Each party shall bear its own costs and expenses, including
attorneys' fees, in the arbitration.
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<PAGE> 3
1.2.4. Nothing in this Agreement shall limit the right of either
party, before and during any dispute resolution, to have recourse to such
judicial remedies, including temporary or permanent injunction and attachment,
as would be available in the absence of this Section 1.2.
1.3. Maintenance of Licensed Patents and this License. Licensor will
provide reasonable notice to Licensee of its intent not to file necessary
documents, pay necessary fees, or take other actions necessary to ensure the
continued validity and enforceability of the Licensed Patents. If Licensor
chooses not to maintain the validity and enforceability of any of the Licensed
Patents, then Licensor shall permit Licensee to maintain some or all of the
Licensed Patents at its own expense. Licensor will reasonably cooperate with
Licensee in such maintenance. Licensee will pay Licensor's reasonable
out-of-pocket expenses of such cooperation.
2. INFRINGEMENT.
2.1. Notice of Infringement Claims. If Licensee becomes aware of actual
or threatened infringement by a third party of any of the Licensed Patents, it
shall promptly notify Licensor in writing of such infringement or threat.
2.2. Prosecution of Infringement Claims. After any notice provided
pursuant to Section 2.1, the parties will promptly consult in good faith as to
the steps to be taken with respect to such infringement, provided; however, that
in the absence of any agreement to the contrary, the Licensor will be obliged
either: (a) to promptly take such action at its expense as is reasonably
necessary to enjoin such infringement; or (b) to promptly notify Licensee that
Licensor has good cause for refraining from taking such action.
2.2.1. Licensor Prosecution. In the event that Licensor takes
action under Section 2.2(a), Licensee shall cooperate fully with Licensor in
such action, provided that Licensee is reimbursed for all of its reasonable
out-of-pocket expenses incurred in connection with such cooperation. Licensor
shall keep Licensee informed on all material developments throughout the
progress of any such action. The Licensor shall retain all amounts recovered,
whether by judgment, award, settlement, license, sublicense or otherwise, in any
such action.
2.2.2. Licensee's Rights. In the event that Licensor either
notifies Licensee of its intent not to take action pursuant to Section 2.2(b),
or does not take such action within sixty (60) days of notice by Licensee
pursuant to Section 2.1, Licensee shall have the right to prosecute any action
to enforce any of the Licensed Patents if such alleged third party infringer is
engaged in substantially the same business as the Licensee (as determined by
reasonable mutual agreement of Licensor and Licensee) at the time of said actual
or threatened infringement. In all other circumstances, Licensee shall have no
right to prosecute any action to enforce any of the Licensed Patents or
participate in any administrative proceeding relating to the Licensed Patents
except upon the express written consent of Licensor, which consent shall be at
Licensor's sole discretion. In the event that Licensee takes such action,
Licensor agrees to render Licensee all reasonable assistance that may be
required and shall have the right to be represented therein by advisory counsel
of its own selection and at its own expense.
-3-
<PAGE> 4
3. DEFAULT AND TERMINATION.
3.1. Term. This Agreement shall commence on the Effective Date and,
unless terminated earlier pursuant to Section 3.2, shall terminate upon the
latest expiration date of any of the Licensed Patents, or upon final
adjudication that no claim of any Licensed Patent is enforceable, whichever
comes later.
3.2. Termination. Either party may terminate this Agreement only if the
other party materially fails to perform any obligation under this Agreement and
such failure continues, substantially uncured, for 60 days following notice
thereof by the terminating party. The contents of any notice tendered by the
terminating party pursuant to this Section 3.2 shall set forth with reasonable
specificity the claimed material failure of the other party.
4. ASSIGNMENT AND SUBLICENSING.
4.1. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Licensee without the prior written
consent of Licensor; provided, however, that Licensee may, without such consent,
assign such rights and such obligations set forth in this Agreement, in whole or
in part: (a) in connection with a sale of all or substantially all of the assets
and business of Licensee and its Permitted Subsidiaries in which the Licensed
Patents are principally used, or (b) to the surviving entity after a merger,
reorganization or other corporate restructuring of Licensee. This Agreement and
all of the provisions hereof shall be binding upon and shall inure to the
benefit of the parties hereto and their respective permitted successors and
assigns. Licensor reserves the right to assign its rights under this agreement
at its discretion.
4.2. Sublicensing. Licensee may grant sublicenses under some or all of
the Licensed Patents to a Permitted Subsidiary. Licensee shall notify Licensor
of all pertinent details of such sublicenses, and any subsequent amendments
thereto.
5. MISCELLANEOUS.
5.1. Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given: (a) on the date of delivery, if delivered personally; (b) on the business
day after dispatch by documented overnight delivery service such as Federal
Express, if sent in such manner; (c) on the date of transmission by telecopy or
telex or other means of electronic transmission, if so transmitted, provided
that a confirmation copy of any such electronic transmission is sent no later
than the business day following the date of electronic transmission by
documented overnight delivery service or first class mail, postage prepaid; or
(d) on the third business day after deposit in the United States mail, postage
prepaid. Notices or other communications shall be directed to the following
addresses:
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<PAGE> 5
5.1.1. Notices to Licensee:
Spectra Precision Inc.
5475 Kellenburger Road
Dayton, OH 45424
Telephone: (937) 233-8921
Fax: (937) 233-8976
Attention: President
5.1.2. Notices to Licensor:
Spectra-Physics Lasers, Inc.
1335 Terra Bella Avenue
Building 7
Mountain View, CA 94043
Telephone: (415) 966-5555
Fax: (415) 429-0212
Attention: President
Either party may change the addresses set forth above by providing written
notice to the other party.
5.2. Entire Agreement, Amendment, Waiver. This Agreement, and the
exhibits hereto, constitutes the entire understanding between the parties with
respect to the subject matter hereof, and supersedes all other understandings
and negotiations with respect thereto. This Agreement may be amended only in a
writing signed by both parties hereto. Any provision of this Agreement may be
waived only in a writing signed by the party to be charged with such waiver. No
course of dealing between the parties shall be effective to amend or waive any
provision of this Agreement.
5.3. Further Assurances. After the execution of this Agreement, each
party shall take further actions and execute such further documents as may be
necessary or reasonably requested by the other in order to effectuate the intent
of this Agreement and to provide such other party with the benefits of this
Agreement.
5.4. Representations and Warranties. No representation or warranty,
express or implied, is made by either party with respect to the Licensed
Patents.
5.5. Insolvency. All rights and licenses granted under or pursuant to
this Agreement by Licensor to Licensee are, and shall otherwise be deemed to be,
for purposes of Section 365(n) of the United States Bankruptcy Code or
replacement provision therefor (the "Code"), license to rights to "intellectual
property" as defined in the Code. The parties agree that Licensee, as licensee
of such rights under this Agreement, shall retain and may fully exercise all of
its rights and elections under the Code.
-5-
<PAGE> 6
5.6. Governing Law. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Delaware.
5.7. Captions. The captions in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the interpretation
thereof.
5.8. Severability. The provisions of this Agreement are severable. In
the event of the unenforceability or invalidity of any one or more of the terms,
covenants, conditions or provisions of this Agreement under applicable law such
unenforceability or invalidity shall not render any other of the terms,
covenants, conditions or provisions hereof unenforceable or invalid and the
parties hereto agree that this Agreement shall be construed as if such
unenforceable or invalid provision were never contained herein.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
SPECTRA-PHYSICS LASERS, INC.
By: /s/ Patrick L. Edsell
------------------------------------
Patrick L. Edsell, President
SPECTRA PRECISION, INC. (f.k.a
SPECTRA-PHYSICS LASERPLANE, INC.)
By: /s/ Steven Berglund
------------------------------------
Steven Berglund, President
-7-
<PAGE> 1
Exhibit 10.8
PATENT LICENSE AGREEMENT
This is a Patent License Agreement (the "Agreement") dated as of October
4, 1997, (the "Effective Date") between Spectra Precision, Inc. (formerly known
as Spectra-Physics Laserplane, Inc.), a Delaware corporation ("Licensor") and
Spectra-Physics Lasers, Inc., a Delaware corporation ("Licensee").
Background
WHEREAS Licensor owns the patents listed in the attached Exhibit A, and
any and all divisionals, continuations, continuations-in-part, reexaminations,
and reissues, and any U.S. or foreign equivalents thereof (collectively, the
"Licensed Patents"); and
WHEREAS Licensee desires to obtain, and Licensor desires to grant, a
license to use the Licensed Patents subject to the terms and conditions herein.
NOW, THEREFORE, intending to be legally bound, Licensor and Licensee
agree as follows:
Terms
1. LICENSE.
1.1. Grant of Rights. Licensor hereby grants to Licensee a
non-exclusive, irrevocable (except as provided herein), perpetual (except as
provided herein), world-wide, royalty-free right and license throughout the
world to manufacture, have manufactured, use, sell, and import the Licensed
Products in connection with the Business.
As used in this Agreement "Business" shall mean the businesses
conducted by Licensee and its Permitted Subsidiaries as of the Effective Date
and any reasonably related businesses thereafter conducted by Licensee or its
Permitted Subsidiaries, but in no event shall it include the sale of products
which are used for applications in construction, land or hydrographic surveying,
mining, dynamic positioning or agriculture.
As used in this Agreement "Licensed Products" shall mean products
embodying or made in accordance with inventions of the Licensed Patents.
As used in this Agreement "Permitted Subsidiary" shall mean any
direct or indirect majority owned subsidiary of Licensee, but only for so long
as it remains a direct or indirect majority owned subsidiary of Licensee.
<PAGE> 2
1.2. Dispute Resolution. If the parties disagree as to the scope of the
license granted pursuant to Section 1.1 of this Agreement, the parties agree to
use the following procedure to resolve the dispute:
1.2.1. After the dispute arises, a meeting shall be held promptly
between the parties, attended by individuals with decision-making authority
regarding the dispute, to attempt to negotiate a resolution in good faith;
1.2.2. If, within thirty (30) days after such meeting, the parties
have not succeeded in negotiating a resolution of the dispute, then at the
written request of either party, the parties will jointly appoint a
mutually-acceptable neutral person not affiliated with either of the parties. If
the parties have been unable to agree upon such appointment within ten (10) days
after either party requests appointment of the neutral person, they shall seek
assistance from the American Arbitration Association or other mutually
agreed-upon provider of neutral services. The fees of the neutral person shall
be shared equally by the parties.
1.2.3. If the parties have been unable to agree on any of such
matters within twenty (20) days after initial consultation with the neutral
person, the parties agree to negotiate to resolve said dispute through
arbitration to be conducted in Dayton, Ohio, under the Patent Arbitration Rules
of the American Arbitration Association. Any resulting award shall be final,
binding upon the parties, their successors and assigns, and non-appealable, and
shall be entered in any court of competent jurisdiction to enforce it. Each
party shall bear its own costs and expenses, including attorneys' fees, in the
arbitration.
1.2.4. Nothing in this Agreement shall limit the right of either
party, before and during any dispute resolution, to have recourse to such
judicial remedies, including temporary or permanent injunction and attachment,
as would be available in the absence of this Section 1.2.
1.3. Maintenance of Licensed Patents and this License. Licensor will
provide reasonable notice to Licensee of its intent not to file necessary
documents, pay necessary fees, or take other actions necessary to ensure the
continued validity and enforceability of the Licensed Patents. If Licensor
chooses not to maintain the validity and enforceability of any of the Licensed
Patents, then Licensor shall permit Licensee to maintain some or all of the
Licensed Patents at its own expense. Licensor will reasonably cooperate with
Licensee in such maintenance. Licensee will pay Licensor's reasonable
out-of-pocket expenses of such cooperation.
2. INFRINGEMENT.
2.1. Notice of Infringement Claims. If Licensee becomes aware of actual
or threatened infringement by a third party of any of the Licensed Patents, it
shall promptly notify Licensor in writing of such infringement or threat.
2.2. Prosecution of Infringement Claims. After any notice provided
pursuant to Section 2.1, the parties will promptly consult in good faith as to
the steps to be taken with respect
-2-
<PAGE> 3
to such infringement, provided; however, that in the absence of any agreement to
the contrary, the Licensor will be obliged either: (a) to promptly take such
action at its expense as is reasonably necessary to enjoin such infringement; or
(b) to promptly notify Licensee that Licensor has good cause for refraining from
taking such action.
2.2.1. Licensor Prosecution. In the event that Licensor takes
action under Section 2.2(a), Licensee shall cooperate fully with Licensor in
such action, provided that Licensee is reimbursed for all of its reasonable
out-of-pocket expenses incurred in connection with such cooperation. Licensor
shall keep Licensee informed on all material developments throughout the
progress of any such action. The Licensor shall retain all amounts recovered,
whether by judgment, award, settlement, license, sublicense or otherwise, in any
such action.
2.2.2. Licensee's Rights. In the event that Licensor either
notifies Licensee of its intent not to take action pursuant to Section 2.2(b),
or does not take such action within sixty (60) days of notice by Licensee
pursuant to Section 2.1, Licensee shall have the right to prosecute any action
to enforce any of the Licensed Patents if such alleged third party infringer is
engaged in substantially the same business as the Licensee (as determined by
reasonable mutual agreement of Licensor and Licensee) at the time of said actual
or threatened infringement. In all other circumstances, Licensee shall have no
right to prosecute any action to enforce any of the Licensed Patents or
participate in any administrative proceeding relating to the Licensed Patents
except upon the express written consent of Licensor, which consent shall be at
Licensor's sole discretion. In the event that Licensee takes such action,
Licensor agrees to render Licensee all reasonable assistance that may be
required and shall have the right to be represented therein by advisory counsel
of its own selection and at its own expense.
3. DEFAULT AND TERMINATION.
3.1. Term. This Agreement shall commence on the Effective Date and,
unless terminated earlier pursuant to Section 3.2, shall terminate upon the
latest expiration date of any of the Licensed Patents, or upon final
adjudication that no claim of any Licensed Patent is enforceable, whichever
comes later.
3.2. Termination. Either party may terminate this Agreement only if the
other party materially fails to perform any obligation under this Agreement and
such failure continues, substantially uncured, for 60 days following notice
thereof by the terminating party. The contents of any notice tendered by the
terminating party pursuant to this Section 3.2 shall set forth with reasonable
specificity the claimed material failure of the other party.
4. ASSIGNMENT AND SUBLICENSING.
4.1. Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by Licensee without the prior written
consent of Licensor; provided, however, that Licensee may, without such consent,
assign such rights and such obligations set forth in this Agreement, in whole or
in part: (a) in connection with a sale of all or substantially all of the
-3-
<PAGE> 4
assets and business of Licensee and its Permitted Subsidiaries in which the
Licensed Patents are principally used, or (b) to the surviving entity after a
merger, reorganization or other corporate restructuring of Licensee. This
Agreement and all of the provisions hereof shall be binding upon and shall inure
to the benefit of the parties hereto and their respective permitted successors
and assigns. Licensor reserves the right to assign its rights under this
agreement at its discretion.
4.2. Sublicensing. Licensee may grant sublicenses under some or all of
the Licensed Patents to a Permitted Subsidiary. Licensee shall notify Licensor
of all pertinent details of such sublicenses, and any subsequent amendments
thereto.
5. MISCELLANEOUS.
5.1. Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to have been duly
given: (a) on the date of delivery, if delivered personally; (b) on the business
day after dispatch by documented overnight delivery service such as Federal
Express, if sent in such manner; (c) on the date of transmission by telecopy or
telex or other means of electronic transmission, if so transmitted, provided
that a confirmation copy of any such electronic transmission is sent no later
than the business day following the date of electronic transmission by
documented overnight delivery service or first class mail, postage prepaid; or
(d) on the third business day after deposit in the United States mail, postage
prepaid. Notices or other communications shall be directed to the following
addresses:
5.1.1. Notices to Licensee:
Spectra-Physics Lasers, Inc.
1335 Terra Bella Avenue
Building 7
Mountain View, CA 94043
Telephone: (415) 966-5555
Fax: (415) 429-0212
Attention: President
5.1.2. Notices to Licensor:
Spectra Precision, Inc.
5475 Kellenburger Road
Dayton, OH 45424
Telephone: (937) 233-8921
Fax: (937) 233-8976
Attention: President
Either party may change the addresses set forth above by providing written
notice to the other party.
-4-
<PAGE> 5
5.2. Entire Agreement, Amendment, Waiver. This Agreement, and the
exhibits hereto, constitutes the entire understanding between the parties with
respect to the subject matter hereof, and supersedes all other understandings
and negotiations with respect thereto. This Agreement may be amended only in a
writing signed by both parties hereto. Any provision of this Agreement may be
waived only in a writing signed by the party to be charged with such waiver. No
course of dealing between the parties shall be effective to amend or waive any
provision of this Agreement.
5.3. Further Assurances. After the execution of this Agreement, each
party shall take further actions and execute such further documents as may be
necessary or reasonably requested by the other in order to effectuate the intent
of this Agreement and to provide such other party with the benefits of this
Agreement.
5.4. Representations and Warranties. No representation or warranty,
express or implied, is made by either party with respect to the Licensed
Patents.
5.5. Insolvency. All rights and licenses granted under or pursuant to
this Agreement by Licensor to Licensee are, and shall otherwise be deemed to be,
for purposes of Section 365(n) of the United States Bankruptcy Code or
replacement provision therefor (the "Code"), license to rights to "intellectual
property" as defined in the Code. The parties agree that Licensee, as licensee
of such rights under this Agreement, shall retain and may fully exercise all of
its rights and elections under the Code.
5.6. Governing Law. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to conflicts or choice of laws, of the State of Delaware or
California.
5.7. Captions. The captions in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the interpretation
thereof.
5.8. Severability. The provisions of this Agreement are severable. In
the event of the unenforceability or invalidity of any one or more of the terms,
covenants, conditions or provisions of this Agreement under applicable law such
unenforceability or invalidity shall not render any other of the terms,
covenants, conditions or provisions hereof unenforceable or invalid and the
parties hereto agree that this Agreement shall be construed as if such
unenforceable or invalid provision were never contained herein.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first above written.
SPECTRA PRECISION, INC. (f.k.a
SPECTRA-PHYSICS LASERPLANE, INC.)
By: /s/ Steven Berglund
----------------------------------------
Steven Berglund, President
SPECTRA-PHYSICS LASERS, INC.
By: /s/ Patrick L. Edsell
----------------------------------------
Patrick L. Edsell, President
-6-
<PAGE> 1
Exhibit 10.9
TRADENAME AND TRADEMARK LICENSE AGREEMENT
This is a TRADENAME AND TRADEMARK LICENSE AGREEMENT (the "Agreement"),
dated as of August 29, 1997, by and between Spectra-Physics, Inc., a Delaware
corporation ("Licensor"), SPECTRA-PHYSICS AB, a corporation organized under the
laws of Sweden ("SPAB") SPECTRA-PHYSICS LASERPLANE, INC., a Delaware corporation
("SPLP") and SPECTRA-PHYSICS VISION TECH O.Y., a corporation organized under the
laws of Finland ("SPVT") (SPAB, SPLP and SPVT are collectively referred to
herein as "Licensee").
Background
A. Licensor is the owner of the tradename, trademark and service mark
SPECTRA-PHYSICS and SPECTRA-PHYSICS EL-1 (together, the "Spectra-Physics Mark")
and the stylized "S" logo and other logotypes in which the Spectra-Physics Mark
is used (collectively, the "Logos"), with the Spectra-Physics Mark and the Logos
to be referred to collectively herein as the "Marks". Licensor is the owner of
the registrations of the Marks shown in the attached Schedule 1.
B. SPLP is the owner of registrations for the trademark SPECTRA-PHYSICS
LASERPLANE and SPECTRA-PHYSICS EL-1 in the countries shown on the attached
Schedule 2.
C. Licensor wishes to license the Marks to Licensee for use by Licensee
and its sublicensees subject to and in accordance with the terms and conditions
contained in this Agreement.
Terms
NOW THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements contained herein and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Grant of License; Permitted Uses.
(a) Licensor hereby grants to SPAB, for the duration of the term
of this Agreement, a non-transferable, royalty-free, non-exclusive, worldwide
right and license to use the
<PAGE> 2
Spectra-Physics Mark as part of SPAB tradename and corporate name in connection
with SBAB's activities as a holding company for other businesses, and to use the
Logos in connection with such tradename and corporate name. SPAB is also hereby
granted the right to sublicense to (i) SPAB's direct and indirect subsidiaries
whose only business is to act as a holding company for other businesses, the
right to use the Spectra-Physics Mark as part of their respective tradenames and
corporate names and to use the Logos in connection with such tradenames and
corporate names and (ii) SPAB's other direct and indirect subsidiaries, the
right to use the Marks in connection with the sale, promotion or marketing of
any goods or services but only to the extent necessary to indicate that the
manufacturer, provider or distributor is affiliated with Licensee or one of its
sublicensees (for example, "A Division of Spectra-Physics AB", or "A Subsidiary
of Spectra-Physics AB"); provided that in the case of this clause (ii) neither
the size nor the placement of such legend will be prominent. Except as provided
for in the previous sentence, SPAB may not sublicense the Spectra-Physics Mark
to any of its subsidiaries which are operating (as opposed to holding)
companies. The right and license granted in this Section 1(a) is limited solely
to use of the Spectra-Physics Mark as a tradename and corporate name, and the
use of the Logos in connection with its tradename and corporate name, and does
not grant any right to use any Mark as a trademark or service mark identifying
the source or origin of goods or services. Examples of ways in which SPAB and
its permitted sublicensees may use the Marks as tradenames and corporate names
include the following:
(i) on letterhead, business cards, memoranda, administrative forms,
press releases, stock certificates and legal documents, and any similar
materials used in the administration of its business; and
(ii) on signage used in connection with the administration or
operation of its business, including without limitation signage used in and on
facilities and vehicles.
(b) Licensor hereby grants to SPLP and its subsidiaries and
sublicensees (collectively, the "SPLP Licensees") the right to continue to use
the Marks, to the extent and in the manner that such Marks are already being
used as of the date of this Agreement, until August 29, 1998. The overall
quality of the goods and services sold by the SPLP Licensees in connection with
the Marks during such period will not be substantially below that of the goods
and services sold by the SPLP Licensees in connection with the Marks and Logos
on the date of this Agreement.
(c) Licensor hereby grants to SPVT for the duration of the term
of this Agreement a non-transferable, royalty-free, non-exclusive worldwide
right and license to use the Spectra-Physics Marks as part of SPVT's tradename
and corporate name and to use the Logos in connection with its tradename and
corporate name. The right and license granted in this Section 1(c) is limited
solely to use of the Spectra-Physics Mark as a tradename and corporate name, and
the use of the Logos in connection with its tradename and corporate name, and
does not grant any right to use any Mark as a trademark or service mark
identifying the source or origin of goods or
-2-
<PAGE> 3
services. Examples of the ways in which SPVT may use the Marks in its tradename
and corporate name can be found in Sections 1(a)(i) and (ii).
(d) Neither Licensee nor any sublicensee of Licensee shall
register its securities on any stock exchange in the United States under any
corporate name incorporating any Mark.
(e) Subject to the limitations on use described in Sections 1(a)
and (c) above, SPAB and SPVT and their sublicensees shall have the right to
develop and use new logotypes and designs for the Marks (collectively, "New
Marks"). Each New Mark will be submitted to Licensor for Licensor's approval
prior to use, such approval not to be unreasonably withheld, and will be deemed
approved unless Licensor notifies SPAB or SPVT, as the case may be, of its
objections within 30 business days after submission to Licensor. Each New Mark
shall be owned by Licensor and, if registered, registered in Licensor's name,
and shall be automatically considered a "Mark" under this Agreement for all
purposes.
2. Ownership and Maintenance of Marks; Infringement Claims.
(a) Licensee acknowledges that the ownership of all right, title
and interest in and to the Marks are and shall remain solely vested in Licensor,
and Licensee agrees that all of its use and its sublicensees' use of the Marks
shall inure to the exclusive benefit of Licensor for all purposes.
(b) Licensor, at its own expense, shall have primary
responsibility for maintaining and defending the validity of the Marks and its
ownership of the Marks as it sees fit, for seeking and maintaining such
registrations of the Marks as Licensor deems advisable, and for taking such
steps as Licensor deems prudent to protect the Marks against infringement.
(c) Licensee shall promptly notify Licensor of (i) any
unauthorized use or infringement by any third party of the Marks which Licensee
deems material and (ii) any assertion by any third party which Licensee deems
material that Licensee's or any sublicensee's use of the Marks constitutes
trademark, service mark, trade dress or trade name infringement, unfair
competition or any other tortious act. Licensor may prosecute or defend any
claim or action alleging infringement or unfair competition or any other claim
or action involving the Marks as it in its reasonable business judgment deems
advisable. Licensor may conduct each such prosecution or defense as it deems
prudent provided that it keeps Licensee reasonably informed of the progress of
such action, and may enter into any settlement or compromise of such claims or
actions on Licensee's behalf, provided that Licensor may not enter into any
settlement or compromise which would result in the abandonment of any Mark which
Licensee or one of Licensee's sublicensees is currently using, without the
reasonable consent of such Licensee or sublicensee, as the case may be.
3. SPLP Trademark Registrations.
-3-
<PAGE> 4
In consideration of the license rights available to SPLP under
this Agreement, SPLP agrees to voluntarily cancel the trademark registrations
shown on the attached Schedule 2 (the "SPLP Registrations") in each country in
which such mark is registered on August 29, 1998 or as soon as practicable after
SPLP has obtained registration of the mark LASERPLANE in such country, whichever
is earlier. Notwithstanding the existence of the SPLP Registrations, until their
cancellation SPLP shall permit the use of the Marks by Licensor and any licensee
of Licensor in the countries shown on the attached Schedule 2. SPLP agrees not
to oppose, contest or otherwise initiate any proceedings seeking to prevent
Licensor's use or registration of the Marks in the countries shown on the
attached Schedule 2.
4. Term and Termination.
(a) This Agreement shall have an initial term of fifteen (15)
years commencing on the date of this Agreement and shall automatically renew for
successive one (1)-year terms, provided, however, that Licensor may terminate
this Agreement (as to any Licensee ("Terminated Licensee") in the event of a
material breach of any of the terms hereof by such Licensee if such breach is
not cured within 90 days after Licensor has delivered written notice of such
breach to the alleged breaching Licensee.
5. Effect of Termination. Upon the termination of this Agreement for
whatever reason then, as to the Terminated Licensee:
(a) the license of the Marks to the Terminated Licensee, all of
the Terminated Licensee's rights under this Agreement, and the rights under any
sublicenses of the Marks granted by the Terminated Licensee shall cease;
(b) the Terminated Licensee and such Terminated Licensee's
sublicensees shall (i) immediately cease all use of the Marks and all materials
bearing the Marks (such materials to be returned to Licensor or destroyed), and
(ii) shall not adopt or use any marks that are identical or similar to the
Marks;
(c) the Terminated Licensee and each of such Terminated
Licensee's sublicensees shall immediately change its corporate name to delete
any Mark which appears in that name; and
(d) all of the other rights, duties and obligations of the
Terminated Licensee and Licensor (but only with respect to such Terminated
Licensee) shall terminate.
6. Sublicensing. Without Licensor's consent, Licensee may not sublicense
its rights under this Agreement, except that SPAB and SPVT may, without
Licensor's consent, sublicense such rights to their direct or indirect
subsidiaries so long as each such sublicense is within the scope of, is subject
to the limitations set forth in, and otherwise complies with, this Agreement.
-4-
<PAGE> 5
7. Miscellaneous.
(a) Notices. All notices, requests, consents, approvals, demands
and other communications under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered personally, when mailed, postage
prepaid, by United States first-class mail or certified or registered mail,
return receipt requested, or when receipt thereof is acknowledged after being
delivered by overnight courier or delivery service, telegram, facsimile,
telecopy or other electronic transmission device, to the appropriate party at
the following address (or at such other addresses as each party may designate in
writing from time to time):
(i) If to Licensor:
Spectra-Physics Lasers, Inc.
(f.k.a. Spectra-Physics, Inc.)
1335 Terra Bella Avenue
Building 7
Mountain View, CA 94043
Attention: President
Fax: (415) 968-5215
(ii) If to SPAB or SPVT:
Spectra-Physics AB
Box 5226
Sturegatan 32, 4th Floor
102 45 Stockholm, Sweden
Attention: President
Fax: (46) 08-660-9226
(iii) If to SPLP:
Spectra Precision, Inc.
(f.k.a. Spectra-Physics Laserplane, Inc.)
5475 Kellenburger Road
Dayton, OH 45424-1099
Attention: President
Fax: (937) 233-8976
(b) Successors and Assigns; Assignment. This Agreement and the
rights and obligations of the parties hereunder shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Neither this Agreement nor any right or obligation hereunder
may be assigned, transferred, delegated, pledged, hypothecated
-5-
<PAGE> 6
or otherwise disposed of, in any voluntary or involuntary manner, whether by
transfer, merger, acquisition, affiliation, division, conversion, dissolution,
liquidation or otherwise, by Licensee without the prior written consent of
Licensor. Such assignment shall not relieve the assignor of its obligations
incurred prior to the date of the assignment hereunder. Any purported assignment
without such consent shall be null and void and not enforceable against the
non-assigning parties. Notwithstanding anything contained in this Section 6(b),
any merger or consolidation involving Licensee or any acquisitions of all or
substantially all of the assets of Licensee shall not be deemed as assignment
pursuant to this Section 6(b) nor a violation of this Section 6(b) if the
surviving individual or entity assumes full liability for the fulfillment of
Licensee's obligations hereunder. Licensor reserves the right to assign any or
all of its rights and obligations under this Agreement at its discretion.
(c) Governing Law. This Agreement shall be governed by and
construed and enforced in all respects, whether as to validity, construction,
capacity, performance or otherwise, in accordance with the internal laws of the
State of Delaware applicable to contracts made and fully performed therein by
parties domiciled therein, without regard to the conflicts of laws provisions
thereof, except to the extent that the parties' respective rights and
obligations are subject to mandatory local, state and federal laws or
regulations.
(d) Headings; Interpretation. The headings preceding the test of
the sections and subsections and any table of contents of this Agreement are
used solely for convenience of reference by the parties hereto and shall not
constitute a part of this Agreement, nor shall they be given any legal effect or
otherwise affect the interpretation of this Agreement. Any rule of law or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived by the parties hereto.
(e) Amendment. This Agreement shall not be modified in any manner
other than in a writing, signed by each of the parties hereto. No course of
dealing between the parties shall be effective to amend or waive any provision
of this Agreement.
(f) Waiver. The terms and provisions of this Agreement shall not
be waived at any time other than in a writing, signed by the party entitled to
the benefit thereof. The failure of any party hereto at any time to require
performance of any term or provision of this Agreement shall not affect such
party's right at a later time to enforce such term or provision. No consent to
or waiver of any breach of a term or provision of this Agreement by any party
hereto shall be deemed or construed to be a consent to or waiver of any other
breach. All rights and remedies reserved to any party hereto shall be cumulative
and shall not be in limitation of any other right or remedy which such party may
have at law or in equity.
(g) Entire Agreement. This Agreement contains all of the
representations, warranties, covenants, agreements, promises, conditions,
undertakings and inducements among the parties hereto relating to the subject
matter hereof and replaces and supersedes all prior and contemporaneous
representations, warranties, covenants, agreements, promises, conditions,
-6-
<PAGE> 7
undertakings and inducements, whether express or implied, oral or written, among
the parties hereto with respect thereto.
(h) Severability. Each term and provision of this Agreement shall
be construed as separable and divisible from every other term and provision and
the invalidity or unenforceability of any one term or provision shall not limit
the validity and enforceability, in whole or in part, of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
term or provision as may be valid and enforceable.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement or caused this Agreement to be executed by its duly authorized
representatives as of the day and year first above written.
SPECTRA PHYSICS, INC.
By: /s/ John J. Carney
------------------------------
Name: John J. Carney
Title: President
SPECTRA-PHYSICS AB
By: /s/ Lennart F. Rappe
------------------------------
Name: Lennart F. Rappe
Title: Senior Vice President and
Chief Financial Officer
And By: /s/ Eric Asplund
------------------------------
Name: Eric Asplund
Title: Group Treasurer
SPECTRA-PHYSICS LASERPLANE, INC.
By: /s/ Steve N. Berglund
------------------------------
Name: Steve N. Berglund
Title: President
SPECTRA-PHYSICS VISION TECH O.Y.
By: /s/ Martti Karppinan
------------------------------
Name: Martti Karppinan
Title: President
-8-
<PAGE> 1
Exhibit 10.10
OPTION CANCELLATION AND RESTRICTED STOCK PLAN AGREEMENT
This is an Option Cancellation and Restricted Stock Plan Agreement
("Agreement") dated October 20, 1997, among Opto Power Corporation, a Delaware
corporation (the "Company"), Spectra-Physics Lasers, Inc., a Delaware
corporation ("Spectra-Physics"), and the employee of the Company named on
Schedule 1 attached hereto ("Employee").
Background:
A. The Company is a wholly-owned subsidiary of Spectra-Physics.
Spectra-Physics has authorized and approved this and other substantially similar
agreements which together constitute the Spectra-Physics Restricted Stock Plan.
B. The Company and Employee entered into the Stock Option Plan Agreement
listed on Schedule 1 attached hereto (the "Option Agreement") pursuant to which
Employee received certain rights, including without limitation rights to
purchase common stock of the Company.
C. Spectra-Physics currently contemplates making a public offering of
shares of its common stock ("Common Stock").
D. The parties desire to terminate the Option Agreement and the rights
of Employee thereunder. However, in order to provide Employee with a continued
personal stake in the success of its businesses, including that of the Company,
Spectra-Physics desires to give Employee the opportunity to own shares of its
Common Stock if Spectra-Physics makes a public offering of its Common Stock.
Terms:
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties agree as follows:
1. Termination of Option Agreement
The Option Agreement and all of Employee's rights and the Company's
obligations thereunder are hereby terminated and cancelled, and from and after
the date hereof Employee shall have no rights, claims or demands, and the
Company shall have no obligations or liabilities, whatsoever under the Option
Agreement.
1
<PAGE> 2
2. Payment Amount
In consideration of Employee's agreement to terminate the Option
Agreement, and in further consideration of past services rendered, the Company
shall pay Employee an amount (the "Payment Amount") equal to the amount set
forth opposite such heading on the attached Schedule 1. The Payment Amount shall
be comprised of an initial portion (the "Initial Portion") and/or a deferred
portion (the "Deferred Portion") in the amounts set forth opposite such headings
on the attached Schedule 1. The Initial Portion shall be paid in cash or by wire
transfer upon execution of this Agreement, net of Withholding Taxes (as
hereinafter defined). The Deferred Portion shall be paid either in shares of
Common Stock or cash as provided in Section 3 below.
3. Issuance of Restricted Stock; Interest
(a) If an Initial Public Offering (as hereinafter defined) is
consummated on or before December 31, 1998, then concurrent with the
consummation of such Initial Public Offering (the date of such consummation
being the "IPO Closing Date"), and subject to Employee's compliance with Section
7(c), Employee shall receive that number of shares of Common Stock equal to the
Deferred Portion divided by the offering price to the public of such stock as
set forth in the prospectus included as part of the registration statement
relating to such Initial Public Offering, rounded upward to the nearest whole
share (any such shares of Common Stock are hereinafter referred to as
"Restricted Stock"). Any shares of Restricted Stock received pursuant hereto
will be subject to the restrictions on transfer set forth in Section 5 below. As
used in this Agreement, "Initial Public Offering" means an underwritten initial
public offering of shares of Common Stock pursuant to a registration statement
declared effective by the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Securities Act").
(b) If an Initial Public Offering is consummated on or after January 1,
1998, then at the time the Deferred Portion is received by Employee pursuant to
Section 3(a) above, the Company shall pay Employee cash in an amount computed as
if it were interest on the Deferred Portion at a rate of 7.00% per annum, from
January 1, 1998 to the IPO Closing Date, net of Withholding Taxes.
(c) If an Initial Public Offering is not consummated on or before
December 31, 1998, then within three days after that date the Company shall pay
Employee in cash or by wire transfer an amount equal to the Deferred Portion,
plus cash in an amount computed as if it were interest on the Deferred Portion
at a rate of 7.00% per annum from January 1, 1998 to December 31, 1998, net of
Withholding Taxes.
4. Issuance of Certificates
2
<PAGE> 3
Spectra-Physics shall deliver to Employee certificates representing his
shares of Restricted Stock promptly after the IPO Closing Date. Upon issuance of
such Restricted Stock, Employee shall be the owner of such Restricted Stock for
all purposes and will have all corresponding rights, including without
limitation the right to vote his Restricted Stock and to receive all dividends
and other distributions with respect to the Restricted Stock, except that
Employee may not sell, exchange, transfer, pledge, hypothecate or otherwise
dispose of (collectively, "Transfer") any of his Restricted Stock except as
provided in Section 5 of this Agreement.
5. Restrictions on Sale or Transfer of Restricted Stock
(a) Employee shall not Transfer any shares of his Restricted Stock
except as provided in this Section 5.
(b) If the IPO Closing Date is before July 1, 1998, Employee may
Transfer his shares of Restricted Stock as follows: (i) of the Restricted Stock
originally issued to Employee ("Original Issue"), 25% may be Transferred
beginning six months after the IPO Closing Date; (ii) 50% of the Original Issue
(including the 25% already available for Transfer under clause (i) hereof) may
be Transferred beginning 12 months after the IPO Closing Date; (iii) 75% of the
Original Issue (including the 50% already available for Transfer under clause
(ii) hereof) may be Transferred beginning 18 months after the IPO Closing Date;
and (iv) 100% of the Original Issue may be Transferred beginning 24 months after
the IPO Closing Date.
(c) If the IPO Closing Date is on or after July 1, 1998, Employee may
Transfer his shares of Restricted Stock as follows: (i) one-third of the
Original Issue may be Transferred beginning six months after the IPO Closing
Date; (ii) two-thirds of the Original Issue (including the one-third already
available for Transfer under clause (i) hereof) may be Transferred beginning 12
months after the IPO Closing Date; and (iii) all of the Original Issue may be
Transferred beginning 18 months after the IPO Closing Date.
(d) With respect to any share of Restricted Stock the Transfer of which
is restricted under this Section 5, Employee may not engage in any transaction
designed to provide him with substantially the same economic benefit of a
Transfer of any share of Restricted Stock so restricted, such as a short sale or
a sale of a put option.
(e) If, prior to the expiration of two years after the IPO Closing Date,
Employee desires to Transfer more than 10,000 shares of Restricted Stock (and,
provided such Transfer is otherwise permitted by this Section 5), Employee shall
give 3 business days prior written notice to the Company describing the manner
and circumstances of the proposed Transfer. Thereafter, Employee shall, upon
Spectra-Physics' request, cooperate with Spectra-Physics and the underwriters of
the Initial Public Offering in all reasonable respects in fashioning
transactions or other arrangements that will mitigate the possible negative
effects of such Transfer on the trading price of the Common Stock, such as a
block trade effected by such underwriters.
3
<PAGE> 4
(f) Employee shall, at the request of the managing underwriter of the
Initial Public Offering, enter into a customary "lock-up" agreement with such
underwriter restricting Employee's right to Transfer his Restricted Stock for a
period of 180 days following the date of the prospectus included as part of the
registration statement declared effective in connection with the Initial Public
Offering.
6. Representations, Warranties and Covenants of Employee
Employee represents and warrants to, and covenants and agrees with, the
Company and Spectra-Physics that:
(a) Employee has full legal right, power and authority to enter into
this Agreement and to perform Employee's obligations hereunder without the need
for the consent of any other person; and this Agreement has been duly
authorized, executed and delivered and constitutes the legal, valid and binding
obligation of Employee enforceable against Employee in accordance with the terms
hereof.
(b) Any shares of Restricted Stock acquired hereunder will be acquired
by Employee for investment, and not with a view to any distribution thereof that
would violate the Securities Act, or the applicable state securities laws of any
state; and Employee will not distribute any shares of Restricted Stock in
violation of the Securities Act or the applicable securities laws of any state.
(c) Employee understands that any shares of Restricted Stock acquired
hereunder will not be registered under the Securities Act or the securities laws
of any state and must be held indefinitely unless subsequently registered under
the Securities Act and any applicable state securities laws or unless an
exemption from such registration becomes or is available.
(d) Employee is financially able to hold shares of Restricted Stock for
long-term investment, believes that the nature and amount of the securities to
be acquired, if any, are consistent with Employee's overall investment program
and financial position, and recognizes that there are substantial risks involved
in the acquisition of any Restricted Stock hereunder.
(e) Employee confirms that (i) Employee is familiar with the business of
the Company and Spectra-Physics, (ii) Employee has received and has had an
opportunity to review a draft of the prospectus to be included in the
registration statement to be filed in connection with the Initial Public
Offering, (iii) Employee has had the opportunity to ask questions of the
officers and directors of the Company and Spectra-Physics and to obtain (and
that such Employee has received to its satisfaction) such information about the
business and financial condition of the Company and Spectra-Physics as Employee
has reasonably requested, and (iv) Employee, either alone or with Employee's
representative (as defined in Rule 501(h) promulgated under the Securities Act),
if any, has such knowledge and experience in financial and business matters that
such Employee is capable of evaluating the merits and risks of investing in the
Restricted Stock.
4
<PAGE> 5
(f) Employee is a resident of the State of Arizona.
(g) In formulating a decision to enter into this Agreement, Employee has
relied solely upon an independent investigation of the Company's and
Spectra-Physics' business and upon consultations with Employee's legal and
financial advisers with respect to this Agreement; and that in entering into
this Agreement no reliance was placed upon any representations or warranties
other than those contained in this Agreement.
(h) Employee agrees that certificates representing shares of Restricted
Stock shall be inscribed with the following legends in addition to any other
legend required by applicable law:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER THE
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION BECOMES OR IS AVAILABLE.
THE SECURITIES REPRESENTED HEREBY ARE ALSO SUBJECT TO THE TERMS AND
CONDITIONS OF AN OPTION CANCELLATION AND RESTRICTED STOCK PLAN
AGREEMENT DATED OCTOBER ___, 1997 BY AND AMONG THE COMPANY, OPTO
POWER CORPORATION AND THE EMPLOYEE SPECIFIED THEREIN, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. THE
SALE, TRANSFER, ASSIGNMENT OR OTHER DISPOSITION OF THE SECURITIES IS
SUBJECT TO THE TERMS OF SUCH AGREEMENT AND THE SECURITIES ARE
TRANSFERABLE OR OTHERWISE DISPOSABLE ONLY UPON PROOF OF COMPLIANCE
THEREWITH.
7. Compliance With Laws; Withholding Taxes
(a) In addition to the Transfer restrictions set forth herein, Employee
acknowledges that any Transfer of Restricted Stock is also subject to compliance
with applicable federal and state securities laws, including those relating to
trading on the basis of material non-public information concerning the Company.
(b) Payment of the Initial Portion, and payment of the Deferred Portion
if paid in cash, shall be net of all Withholding Taxes. As used in this
Agreement, "Withholding Taxes" means applicable federal income tax (at 28%),
federal Social Security Hospital Insurance (Medicare) tax (at 1.45%) (or, if
applicable, the full federal Social Security tax rate (currently 7.65%)
applicable to wages not in excess of the wage base (currently $65,400)) and
Arizona income tax at the applicable rate.
(c) Concurrent with the issuance of any Restricted Stock to Employee
hereunder, Employee shall remit to the Company in cash all Withholding Taxes,
provided that the
5
<PAGE> 6
withholding rates used to determine the amount of such payment shall be adjusted
as necessary to reflect withholding rates in effect at the time. Spectra-Physics
shall not be obligated to deliver to Employee any shares of Restricted Stock
unless and until Employee remits such Withholding Taxes as provided in this
Section 7(c).
8. Agreement Not to Affect Employment Relationship
This Agreement shall not confer upon Employee any right to continue in
the employ or service of the Company.
9. Miscellaneous
(a) This Agreement may be modified only by a written document executed
by the parties hereto.
(b) The address of Employee to which notices and other communications
shall be given or delivered hereunder shall be the address set forth on the
attached Schedule 1 or such other address as Employee may designate in a written
notice to the Company. The address of the Company to which notices and other
communications shall be given or delivered hereunder shall be 3321 East Global
Loop, Tucson, Arizona 85706, Attn.: President, with a copy to Spectra-Physics
Lasers, Inc., 1335 Terra Bella Avenue, Building 7, Mountain View, California
94043, Attn.: President, or such other address as the Company or Spectra-Physics
may designate in a written notice to Employee.
(c) The rights and obligations of all parties under this Agreement shall
inure to the benefit of and shall be binding upon their heirs, successors and
permitted assigns. Employee may not assign his rights hereunder without the
consent of the other parties hereto.
(d) The validity, performance, constructions and effect of this
Agreement shall be governed by the laws of the State of Delaware, without giving
effect to principles of conflict of laws.
(e) This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
(f) The headings preceding the text of the sections of this Agreement
are for convenience of reference only and shall not constitute a part of this
Agreement, nor shall they affect its meaning, construction or effect.
(g) This Agreement sets forth the entire agreement and understanding
among the parties and supersedes all prior agreements and understandings,
written or oral, relating to the subject matter of this Agreement.
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first written above.
OPTO POWER CORPORATION
By:__________________________
Name:
Title:
SPECTRA-PHYSICS LASERS, INC.
By:__________________________
Name:
Title:
EMPLOYEE
------------------------------
Name (print):
7
<PAGE> 8
SCHEDULE 1
EMPLOYEE INFORMATION:
Name:
Address:
STOCK OPTION PLAN AGREEMENT:
PAYMENT AMOUNT:
Initial Portion:
Deferred Portion:
8
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this amendment No. 1 to the registration
statement on Form S-1 of our report dated October 18, 1997, except for Notes 11
and 12, for which the date is October 22, 1997, on our audits of the financial
statements and financial statement schedule of Spectra-Physics Lasers, Inc. We
also consent to the references to our firm under the captions "Experts" and
"Selected Financial Data."
COOPERS & LYBRAND L.L.P.
San Jose, California
November 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 2,531 1,283
<SECURITIES> 0 0
<RECEIVABLES> 37,952 34,176
<ALLOWANCES> 361 730
<INVENTORY> 21,809 27,414
<CURRENT-ASSETS> 64,018 78,857
<PP&E> 61,085 64,918
<DEPRECIATION> (40,434) (41,974)
<TOTAL-ASSETS> 86,848 103,934
<CURRENT-LIABILITIES> 36,487 49,386
<BONDS> 69,698 71,756
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (21,233) (18,741)
<TOTAL-LIABILITY-AND-EQUITY> 86,848 103,934
<SALES> 135,434 113,061
<TOTAL-REVENUES> 135,434 113,061
<CGS> 88,320 71,178
<TOTAL-COSTS> 47,886 50,569
<OTHER-EXPENSES> (2,842) 15,646
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,614) 6,960
<INCOME-TAX> 634 (23,272)
<INCOME-CONTINUING> (4,248) 30,232
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,248) 30,232
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
