SPECTRA PHYSICS LASERS INC, S-1, 1997-10-21

SPECTRA PHYSICS LASERS INC
S-1, 1997-10-21

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997
REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

SPECTRA-PHYSICS LASERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<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:

<TABLE>
<S> <C>
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

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per share.............................. $31,878,000 $9,660
================================================================================================================
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).

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.
================================================================================
<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 OCTOBER 21, 1997

[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
$ and $
per share. See "Underwriting" for a discussion of the factors to be considered
in determining the initial public offering price. The Company intends to apply
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 % of the Company's Common Stock ( % 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.

<TABLE>
<CAPTION>
============================================================================================
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................. $ $ $
Total(3)................... $ $ $
============================================================================================
</TABLE>

(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
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 %
of the Company's outstanding Common Stock (approximately % 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

<TABLE>
<S> <C>
Common Stock offered by the Company.......... shares
Common Stock to be outstanding after the
offering(1)................................ shares
Use of Proceeds.............................. For general corporate purposes, including
working capital and capital expenditures. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol....... "SPLI"
</TABLE>

- ---------------

(1) Excludes 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 shares of Common Stock (assuming an initial public offering
price of $ 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 shares of Common Stock (assuming an initial
public offering price of $ 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 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)

<TABLE>
<CAPTION>
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)
-------- ------------ ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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)... $ $ $ $
Shares used
in
computing
pro forma
net income
(loss) per
share(4)...
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>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30, 1997(1)
------------------------------------------------- ---------------------------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(2) AS ADJUSTED(6)
------- ------- ------- -------- -------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $25,858 $26,977 $26,452 $ 30,273 $ 27,531 $29,471 $ 46,105 $
Total assets........................ 69,038 66,307 65,915 80,691 86,848 103,934 108,841
Long term obligations............... 43,920 57,852 58,775 69,067 71,584 73,289 1,290
Parent equity (deficit)............. 5,424 (10,823) (14,348) (16,480) (21,223) (18,741) 71,787
</TABLE>

(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
sales subsidiaries and cash to settle certain net liabilities of the sales
subsidiaries; (d) settlement of certain employee stock options for cash and
equity and the contribution to equity by Spectra-Physics AB and affiliates
of the cash used for such settlement; 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.

(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 exchanged for a combination of cash and the Company's
future obligation to issue capital stock of the Company upon completion of
the offering. 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 shares of Common Stock offered hereby (at
an assumed initial public offering price of $ 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.

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 % of the
outstanding shares of Common Stock of the Company (approximately % 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.

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.

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 shares of Common Stock 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
approximately 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 shares of
Common Stock (assuming an initial public offering price of $ 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 restrictions on transfer. 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 provisions of the Company's Certificate of Incorporation and
Bylaws could have the effect of discouraging,

12
<PAGE> 14

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 intends to apply 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."

13
<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
$ million (approximately $ million if the Underwriters' overallotment option
is exercised in full) assuming an initial public offering price of $ 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.

14
<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(2)................ -- --
Additional paid-in capital.................. -- --
Parent equity (deficit)(3).................. (18,741) 71,787
-------- ------
Total stockholders' equity.................. (18,741) 71,787
-------- ------
Total capitalization..................... $ 55,017 $ 71,787 $
======== ======
</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 sales subsidiaries and cash to settle certain net
liabilities of the sale subsidiaries; and (c) settlement of certain employee
stock options for cash and equity and the contribution to equity by
Spectra-Physics AB and affiliates of the cash used for such settlement.

(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
$ per share), after deducting the estimated underwriting discounts and
estimated offering expenses.

(3) Excludes 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 shares of Common Stock (assuming an
initial public offering price of $ 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.

15
<PAGE> 17

DILUTION

The pro forma net tangible book value of the Company as of September 30,
1997 was $ or $ 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 shares of
Common Stock offered by the Company hereby at the assumed initial public
offering price of $ 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 $ or
$ per share. This represents an immediate increase in net tangible book
value of $ per share to Spectra-Physics AB and an immediate dilution of
$ per share to new investors. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $
Pro forma net tangible book value per share before this offering... $
Increase in net tangible book value per share attributable to new
investors........................................................
------
Pro forma net tangible book value per share after this offering....
------
Dilution per share to new investors................................ $
======
</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>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Spectra-Physics AB................ % $ % $
New investors..................... $
------- --- -------- ---
Total...................
======= === ======== ===
</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. As of October , 1997,
there were outstanding stock options to purchase an aggregate of
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)....... $ $
Shares used in computing pro forma net income
(loss) per share.............................
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 exchanged 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.

(4) See Note 2 of the Notes to the Consolidated Financial Statements.

(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'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 exchanged 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. 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 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

21
<PAGE> 23

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 outstanding foreign exchange contracts with
Spectra-Physics AB by buying offsetting currency contracts. Settlement of these
contracts led to a realized gain of approximately $2.0 million. The majority of
this gain was accrued at September 30, 1997 as part of the unrealized gain on
foreign currency contracts ("mark-to-market") recorded in other income.

22
<PAGE> 24

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 contracts and
simple 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 will be deferred and included in the measurement of the underlying
transaction. Gains on foreign currency options designated as hedges of probable
anticipated transactions 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 was 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 exchanged 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
-------------------------------------- -------------------------------------- ----------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <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 $ 39,613
Cost of products
sold.............. 15,967 17,436 15,370 24,267 17,947 19,920 21,717 28,736 22,535 23,750 24,893
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Gross margin.... 8,981 9,129 8,925 12,452 9,336 10,803 10,692 16,283 12,545 14,618 14,720
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
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 4,015
Selling, general
and
administrative... 6,505 6,626 6,716 8,001 6,806 7,102 6,847 8,211 7,274 7,514 8,767
Other............. 308 386 538 631 1,431 1,790 1,541 2,153 6,490 4,833 4,834
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses...... 8,747 9,026 9,123 10,748 10,520 11,902 11,666 13,798 17,082 15,871 17,616
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Operating income
(loss)........ 234 103 (198) 1,704 (1,184) (1,099) (974) 2,485 (4,537) (1,253) (2,896)
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) (1,164)
Foreign currency
gains (loss).... (633) (368) 870 1,177 1,094 502 236 700 2,123 (868) 1,311
Legal
settlement...... -- -- -- -- -- -- -- -- -- 17,010 --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Total other
income
(expense)..... (1,781) (1,416) (279) (68) (230) (795) (1,083) (734) 700 14,799 147
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Income (loss)
before income
taxes......... (1,547) (1,313) (477) 1,636 (1,414) (1,894) (2,057) 1,751 (3,837) 13,546 (2,749)
Income tax expense
(benefit)......... 60 (114) (133) 505 (61) 54 24 617 126 76 (23,474)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- --------
Net income
(loss)........ $(1,607) $(1,199) $ (344) $ 1,131 $(1,353) $(1,948) $(2,081) $ 1,134 $(3,963) $13,470 $ 20,725
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ========
OTHER DATA:
Operating income
(loss) before
infrequent or
unusual items..... $ 542 $ 489 $ 340 $ 2,335 $ 247 $ 691 $ 567 $ 4,638 $ 1,953 $ 3,580 $ 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 SEPT. 30
------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <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% 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 62.8
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross margin.... 36.0 34.4 36.7 33.9 34.2 35.2 33.0 36.2 35.8 38.1 37.2
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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 10.1
Selling, general
and
administrative... 26.1 24.9 27.6 21.8 24.9 23.1 21.1 18.2 20.7 19.6 22.1
Other........... 1.2 1.5 2.2 1.7 5.2 5.8 4.8 4.8 18.5 12.6 12.2
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
operating
expenses.... 35.1 34.0 37.5 29.3 38.5 38.7 36.0 30.6 48.7 41.4 44.4
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Operating
income
(loss)...... 0.9 0.4 (0.8) 4.6 (4.3) (3.5) (3.0) 5.6 (12.9) (3.3) (7.2)
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) (2.9)
Foreign currency
gains
(loss)........ (2.5) (1.4) 3.6 3.2 4.0 1.6 0.8 1.6 6.1 (2.3) 3.3
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 0.4
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
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 (6.8)
Income tax expense
(benefit)....... 0.2 (0.4) (0.5) 1.4 (0.2) 0.2 0.1 1.4 0.3 0.2 (59.3)
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income
(loss)...... (6.4)% (4.5)% (1.4)% 3.1% (5.0)% (6.3)% (6.4)% 2.6% (11.2)% 35.0% 52.3%
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
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% 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.

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.

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

27
<PAGE> 29

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.

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.

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.

31
<PAGE> 33

- 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.

32
<PAGE> 34

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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<PAGE> 35

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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<PAGE> 36

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 130 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

35
<PAGE> 37

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 $59.8 million, compared with
approximately $41.1 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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<PAGE> 38

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 believes it has the world's
largest capacity for the production of high power semiconductor-based laser
wafers based on the operation of 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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<PAGE> 39

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.

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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 80 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........... 52 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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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 expects that an additional independent
director will be elected to the Board of Directors of the Company before the
offering is consummated. 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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<PAGE> 45

(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 12.5% of the total number of shares expected to be
outstanding after the offering (after giving effect to the exercise of the
Underwriters' overallotment option), 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 shares of the Common Stock
under the 1997 Plan at the initial public offering price, of which shares,
shares, shares and 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

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<PAGE> 46

after termination of employment or, if later, the end of the foregoing two-year
period. These Options expire 10 years from the grant date.

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 10% of
their compensation on a pre-tax basis and up to 10% 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

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<PAGE> 47

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 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 terminate
their Opto Power options in exchange 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 shares of
Common Stock (assuming an initial public offering price of $ 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.

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<PAGE> 48

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 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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<PAGE> 49

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
shares or approximately % of the Company's outstanding Common
Stock (approximately % 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 shares of Common Stock (assuming an initial public offering
price of $ 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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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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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.

51
<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.

52
<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, shares of Common Stock (assuming an
initial public offering price of $ per share) will be outstanding. No shares
of Preferred Stock are issued or outstanding.

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 intends to apply 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."

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

53
<PAGE> 55

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.

54
<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, shares (assuming an initial
public offering price of $ per share) of the Company's Common Stock will
be outstanding. The shares of Common Stock sold in the offering
( 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 will be owned by Spectra-Physics USA at the
close of the offering and 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 approximately 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 shares of
Common Stock to certain employees pursuant to Registered 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. 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 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.

55
<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...........................................................
=========
</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
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 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 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

56
<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, up to 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

57
<PAGE> 59

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.
um................................. 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 Note 12, for which the
date is October 21, 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 2,134
-------- --------- --------- ---------
Total current assets........................ 58,377 64,018 78,857 81,869
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 $ 108,841
======== ========= ========= =========
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 19,661
-------- --------- --------- ---------
Total current liabilities................... 28,104 36,487 49,386 35,764
Long-term liabilities:
Loans and advances from SPAB........................ 67,078 69,698 71,756 --
Other long-term liabilities......................... 1,989 1,886 1,533 1,290
-------- --------- --------- ---------
Total long-term liabilities................. 69,067 71,584 73,289 1,290

Commitments and contingencies

Parent equity (deficit)............................... (16,480) (21,223) (18,741) 71,787
-------- --------- --------- ---------
Total liabilities and Parent equity
(deficit)................................. $ 80,691 $ 86,848 $103,934 $ 108,841
======== ========= ========= =========
</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............................ $ $ $ $
Shares used in computing pro forma
net income (loss) per share......
</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 reflect the financial
position, results of operations, and cash flows of the Company as if it were a
separate entity for each period presented. As discussed above, certain assets
and liabilities related to the Company's operations held by SPAB subsidiaries
other than the Company were transferred to the Company and certain assets and
liabilities unrelated to the operations of the Company were transferred to SPAB
subsidiaries. The Company will record the transactions during the three months
ended December 31, 1997.

The consolidated financial statements include allocations of certain SPAB
corporate and group expenses (including cash management and treasury, legal,
tax, employee benefits, insurance services, income taxes and other corporate
overhead) 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 statements
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 the foreign sales
subsidiaries and cash to settle certain net liabilities of the sales
subsidiaries (the "Reorganization"); (4) settlement of certain employee stock
options for cash and equity 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)

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.

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.

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)

Foreign Currency Translation:

The local currency of the Company's subsidiaries in the United Kingdom,
Germany, 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.

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.

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)

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.

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 was 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 the 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, the Company's indirect parent 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 change.
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

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)

was accrued at September 30, 1997 as part of the unrealized gain on foreign
currency contracts ("mark-to-market") recorded in other income.

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 leveraging 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
contracts and simple 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 will be deferred and included in the measurement of the
underlying transaction. Gains on foreign currency options designated as hedges
of probable anticipated transactions 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 subsidiaries' stock plans
in accordance with the provisions of APB 25. As the terms of the subsidiary
stock option plans obligate the Company to settle the options in cash in certain
instances, the Company has reflected compensation expense relating to the
subsidiaries stock options 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.

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)

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 services, income taxes and corporate
overhead services. Charges are allocated to the Company based on 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 are
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 accrue
interest at a

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)

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 are 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.

4. BALANCE SHEET ACCOUNTS

Inventories, property, plant and equipment, and accrued and other current
liabilities were composed 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.

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

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)

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
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, in the aggregate, up to
20% of its common stock then outstanding on a fully diluted basis. One-half of
the 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. The
options are exercisable, at an exercise price of $.05 per share, 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 their 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.

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>

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)

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>

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>

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)

(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.

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.

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)

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. Based on its
historical experience and estimates provided by environmental engineers, the
Company estimates that 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 $1.9 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 $0.4 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, 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-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)

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-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)

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, are included in the North
American geographic area. Included in corporate headquarter costs are expense
allocations from SPAB totalling $0.3 million in each of 1994, 1995, and 1996 and
$0.2 million in 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
terminate 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.

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-19
<PAGE> 80
[LOGO] SPECTRA-PHYSICS
The High Power Solid State Laser Company

[Illustration of fiber coupling to laser diode and optical lens.]
<PAGE> 81

======================================================

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.
======================================================
======================================================
SHARES

[LOGO]
SPECTRA-PHYSICS

COMMON STOCK
------------------------------

PROSPECTUS

------------------------------
NATIONSBANC MONTGOMERY
SECURITIES, INC.

COWEN & COMPANY
, 1997
======================================================
<PAGE> 82

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........................................ $ 9,660
NASD Filing Fee.................................................... 3,688
Nasdaq National Market listing fee................................. *
Blue Sky Fees and Expenses......................................... *
Printing and Engraving Expenses.................................... *
Directors and Officers Insurance................................... *
Legal Fees and Expenses............................................ *
Accounting Fees and Expenses....................................... *
Transfer Agent and Registrar Fees and Expenses..................... *
Miscellaneous...................................................... *
------
Total.............................................................. *
</TABLE>

- ---------------

* To be supplied by amendment

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

II-1
<PAGE> 83

the Company shall be successful in prosecuting an indemnity claim, the
reasonable expenses of any such 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> 84

<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 (included on signature pages).
27.1 -- Financial Data Schedule
</TABLE>

- ---------------

* To be filed by amendment.

(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> 85

SIGNATURES

Pursuant to the requirements of the Securities Act, the Company has duly
caused this 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 October 21, 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 October 21, 1997
- --------------------------------------------- Chief Executive Officer
Patrick L. Edsell (Principal Executive
Officer)

/s/ THOMAS J. SCANNELL Vice President, Finance October 21, 1997
- --------------------------------------------- (Principal Financial and
Thomas J. Scannell Principal Accounting
Officer)

/s/ LARS SPONGBERG Director October 21, 1997
- ---------------------------------------------
Lars Spongberg

/s/ LAWRENCE C. KARLSON Director October 21, 1997
- ---------------------------------------------
Lawrence C. Karlson

/s/ LENNART RAPPE Director October 21, 1997
- ---------------------------------------------
Lennart Rappe
</TABLE>

II-4
<PAGE> 86

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> 87

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING BALANCE AT
DESCRIPTION OF YEAR ADDITIONS DEDUCTIONS END OF YEAR
- ------------------------------------------------ ---------- --------- ---------- -----------
<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
</TABLE>

S-2
<PAGE> 88

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 (included on signature pages).......................
27.1 -- Financial Data Schedule................................................
</TABLE>

- ---------------

* To be filed by amendment.

<PAGE> 1
EXHIBIT 2.1

PLAN OF REORGANIZATION
UNDER SECTION 368 OF THE INTERNAL REVENUE CODE

This is a Plan of Reorganization between Spectra-Physics, Inc., a Delaware
corporation ("SPI") and Spectra-Physics Lasers, Inc., a Delaware corporation
("SPL") under Section 368 of the Internal Revenue Code of 1986, as amended.

1. SPI shall merge with and into SPL (the "Merger") in accordance with
the Plan of Merger attached hereto as Exhibit A. Pursuant to the
Merger, all of the assets of SPI shall be transferred to SPL and all
of the liabilities of SPI shall be assumed by SPL.

2. This Plan of Reorganization shall be effective upon adoption by the
Board of Directors and stockholders of SPI and SPL.

3. The officers and employees of SPI and SPL are authorized to take
such further actions as are necessary and appropriate to implement
this Plan of Reorganization.

<PAGE> 1
EXHIBIT 3.1

RESTATED CERTIFICATE OF INCORPORATION

SPECTRA-PHYSICS LASERS, INC.

1. Name. The name of the Corporation is Spectra-Physics Lasers, Inc.

2. Registered Office. The address of the Corporation's registered
office in the State of Delaware is 1013 Centre Road, in the City of Wilmington,
County of New Castle, and the name of the registered agent is Corporation
Service Company.

3. Purpose. The purposes for which the Corporation is formed are to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware and to possess and exercise all of
the powers and privileges granted by such law and any other law of Delaware.

4. Authorized Capital. The aggregate number of shares of stock which
the Corporation shall have authority to issue is 70,000,000 shares, divided into
two (2) classes consisting of 10,000,000 shares of Preferred Stock, par value
$.01 per share ("Preferred Stock") and 60,000,000 shares of Common Stock, par
value $.01 per share ("Common Stock").

The following is a statement of the designations, preferences,
qualifications, limitations, restrictions and the special or relative rights
granted to or imposed upon the shares of each such class, and the authority
expressly granted to the Board of Directors of the Corporation to fix any such
provisions of the Preferred Stock not fixed in this Certificate.

A. PREFERRED STOCK.

1. The Board of Directors is authorized, at any time and
from time to time, to provide for the issuance of shares of
Preferred Stock in one or more series with such designations,
preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof as
are stated and expressed in the resolution or resolutions providing
for the issue thereof adopted by the Board of Directors (as such
resolutions may be amended by a resolution or resolutions
subsequently adopted by the Board of Directors), and as are not
stated and expressed in this Certificate of Incorporation including,
but not limited to, determination of any of the following:

1
<PAGE> 2
a. The distinctive designation of the series and the
number of shares which will constitute the series, which
number may be increased or decreased (but not below the number
of shares then outstanding) from time to time by action of the
Board of Directors;

b. The dividend rate and the times of payment of
dividends on the shares of the series, whether dividends will
be cumulative, and if so, from what date or dates;

c. The price or prices at which, and the terms and
conditions on which, the shares of the series may be redeemed
at the option of the Corporation;

d. Whether or not the shares of the series will be
entitled to the benefit of a retirement or sinking fund to be
applied to the purchase or redemption of such shares and, if
so entitled, the amount of such fund and the terms and
provisions relative to the operation thereof;

e. Whether or not the shares of the series will be
convertible into, or exchangeable for, any other shares of
stock of the Corporation or other securities, and if so
convertible or exchangeable, the conversion price or prices,
or the rates of exchange, and any adjustments thereof, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;

f. The rights of the shares of the series in the
event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation;

g. Whether or not the shares of the series will have
priority over or be on a parity with or be junior to the
shares of any other series or class in any respect or will be
entitled to the benefit of limitations restricting the
issuance of shares of any other series or class having
priority over or being on a parity with the shares of such
series in any respect, or restricting the payment of dividends
on or the making of other distributions in respect of shares
of any other series or class ranking junior to the shares of
the series as to

2
<PAGE> 3
dividends or assets, or restricting the purchase or redemption
of the shares of any such junior series or class, and the
terms of any such restriction;

h. Whether the series will have voting rights, in
addition to any voting rights provided by law, and, if so, the
terms of such voting rights; and

i. Any other preferences, qualifications, privileges,
options and other relative or special rights and limitations
of that series.

2. Dividends. Holders of Preferred Stock shall be entitled
to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment thereof, dividends at the
rates fixed by the Board of Directors for the respective series, and
no more, before any dividends shall be declared and paid, or set
apart for payment, on Common Stock with respect to the same dividend
period.

3. Preference on Liquidation. In the event of the voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation, holders of each series of Preferred Stock will be
entitled to receive the amount fixed for such series plus, in the
case of any series on which dividends will have been determined by
the Board of Directors to be cumulative, an amount equal to all
dividends accumulated and unpaid thereon to the date of final
distribution whether or not earned or declared before any
distribution shall be paid, or set aside for payment, to holders of
Common Stock. If the assets of the Corporation are not sufficient to
pay such amounts in full, holders of all shares of Preferred Stock
will participate in the distribution of assets ratably in proportion
to the full amounts to which they are entitled or in such order or
priority, if any, as will have been fixed in the resolution or
resolutions providing for the issue of the series of Preferred
Stock. Neither the merger nor consolidation of the Corporation into
or with any other corporation, nor a sale, transfer or lease of all
or part of its assets, will be deemed a liquidation, dissolution or
winding up of the corporation within the meaning of this paragraph
except to the extent specifically provided for herein.

3
<PAGE> 4
4. Redemption. The Corporation, at the option of the Board
of Directors, may redeem all or part of the shares of any series of
Preferred Stock on the terms and conditions fixed for such series.

5. Voting Rights. Except as otherwise required by law, as
otherwise provided herein or as otherwise determined by the Board of
Directors as to the shares of any series of Preferred Stock prior to
the issuance of any such shares, the holders of Preferred Stock
shall have no voting rights and shall not be entitled to any notice
of meeting of stockholders.

B. COMMON STOCK.

1. Dividends. Subject to the terms of any Preferred Stock,
holders of Common Stock will be entitled to receive such dividends
as may be declared by the Board of Directors.

2. Distribution of Assets. In the event of the voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, holders of Common Stock will be entitled to receive all
of the remaining assets of the Corporation available for
distribution to its stockholders after all amounts to which the
holders of Preferred Stock are entitled have been paid or set aside
in cash for payment.

3. Voting Rights. Except as otherwise required by law, and
subject to the terms of any Preferred Stock, the holders of Common
Stock shall have the general right to vote for all purposes,
including the election of directors, and shall be entitled to one
vote for each share thereof held; provided that holders of Common
Stock shall not, except as required by law, have the right to
approve amendments to the terms of any Preferred Stock the issuance
of which was authorized by the Board of Directors.

5. Bylaws. The board of directors of the Corporation is authorized to
adopt, amend or repeal the bylaws of the Corporation, except as otherwise
specifically provided therein.

6. Elections of Directors. Elections of directors need not be by
written ballot unless the bylaws of the Corporation shall so provide.

7. Right to Amend. The Corporation reserves the right to amend any
provision contained in this Certificate as the same may from time to time be in
effect in the manner now or

4
<PAGE> 5
hereafter prescribed by law, and all rights conferred on stockholders or others
hereunder are subject to such reservation.

8. Limitation on Liability. The directors of the Corporation shall be
entitled to the benefits of all limitations on the liability of directors
generally that are now or hereafter become available under the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
no director of the Corporation shall be liable to the Corporation 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
Corporation 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 Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this Section 8 shall be prospective only, and shall not affect,
to the detriment of any director, any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.

Dated: October __, 1997

/s/ Patrick L. Edsell_______
-----------------------------------------
Patrick L. Edsell, President

<PAGE> 1
EXHIBIT 3.2

BYLAWS

SPECTRA-PHYSICS LASERS, INC.

ARTICLE I

STOCKHOLDERS

1.1 MEETINGS.

1.1.1 PLACE. Meetings of the stockholders shall be held at such place as
may be designated by the board of directors.

1.1.2 ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and for other business shall be held on such date and at
such time as may be fixed by the board of directors.

1.1.3 NOMINATIONS FOR ELECTION OF DIRECTORS. Nominations for election to
the board of directors may be made by the board of directors or by any
stockholder of any outstanding class of stock entitled to vote for the election
of directors, provided that such a nomination by a stockholder may be made at an
annual meeting only if written notice of the stockholder's intention to make
such nomination is delivered or mailed to the chair of the board of directors
not less than 60 days nor more than 90 days prior to the annual meeting at which
such nomination is to occur. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected and
including information as to the purpose of such nomination); (ii) as to the
stockholder giving the notice (A) the name and address, as they appear on the
Corporation's books, of such stockholder and (B) the class and number of shares
of the Corporation which are beneficially owned by such stockholder and also
which are owned of record by such stockholder; and (C) as to the beneficial
owner, if any, on whose behalf the nomination is made, (1) the name and address
of such person and (2) the class and number of shares of the Corporation which
are beneficially owned by such person. At the request of the board of directors,
any person nominated by the board of directors for election as a director shall
furnish to the secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.

<PAGE> 2
1.1.4 NOTICE OF STOCKHOLDER BUSINESS. At any annual meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (i) pursuant to the Corporation's notice of meeting, (ii) by
or at the direction of the board of directors or (iii) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of the notice
provided for in this bylaw, who shall be entitled to vote at such annual meeting
and who properly brings such business before the annual meeting in compliance
with this bylaw. For business to be properly brought before an annual meeting by
a stockholder, the stockholder must have given timely notice thereof in writing
to the secretary of the Corporation. To be timely, a stockholder's notice must
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be received no
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or public disclosure
was made. A stockholder's notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the meeting (i) a brief
description of the business desired to brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, and the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, (iii) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder of
record and by the beneficial owner, if any, on whose behalf the proposal is made
and (iv) any material interest of such stockholder of record and the beneficial
owner, if any, on whose behalf the proposal is made in such business.
Notwithstanding anything in these bylaws to the contrary, no business shall be
conducted at an annual meeting of the stockholders except in accordance with the
procedures set forth in this bylaw. The chairman of the meeting shall, if the
facts warrant, determine and declare to the annual meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed in this bylaw, and if the chairman should so determine, shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. Notwithstanding the foregoing provisions of
this bylaw, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this bylaw.

1.1.5 SPECIAL MEETINGS. Special meetings of the stockholders may be called
at any time by the board of directors or the holders of a majority of the
outstanding shares of stock of the Corporation entitled to vote at the meeting.

1.1.6 QUORUM. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of stock of the Corporation entitled to vote
on a particular matter shall constitute a quorum for the purpose of considering
such matter.

-2-
<PAGE> 3
1.1.7 VOTING RIGHTS. Except as otherwise provided herein, in the
certificate of the Corporation or by law, every stockholder shall have the right
at every meeting of stockholders to one vote for every share standing in the
name of such stockholder on the books of the Corporation which is entitled to
vote at such meeting. Every stockholder may vote either in person or by proxy.

ARTICLE II

DIRECTORS

2.1 NUMBER AND TERM. The board of directors shall have authority to (i)
determine the number of directors to constitute the board and (ii) fix the terms
of office of the directors.

2.2 VACANCIES. The board of directors shall have authority to fill vacancies
in the board of directors. The person elected shall hold office until the next
annual meeting of stockholders when the vacancy shall be filled as usual.

2.3 MEETINGS.

2.3.1 PLACE. Meetings of the board of directors shall be held at such
place as may be designated by the board or in the notice of the meeting.

2.3.2 REGULAR MEETINGS. Regular meetings of the board of directors shall
be held at such times as the board may designate. Notice of regular meetings
need not be given.

2.3.3 SPECIAL MEETINGS. Special meetings of the board may be called by
direction of the chairman of the board or by a majority of the directors in
office on three days' notice to each director, either personally or by mail,
telegram or facsimile transmission.

2.3.4 QUORUM. A majority of all the directors in office shall constitute a
quorum for the transaction of business at any meeting.

2.3.5 VOTING. Except as otherwise provided herein, in the certificate of
incorporation or by law, the vote of a majority of the directors present at any
meeting at which a quorum is present shall constitute the act of the board of
directors.

2.3.6 COMMITTEES. The board of directors may, by resolution adopted by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more directors and such alternate members (also directors) as
may be designated by the board. Unless otherwise provided herein, in the absence
or disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or

-3-
<PAGE> 4
not such member or members constitute a quorum, may unanimously appoint another
director to act at the meeting in the place of any such absent or disqualified
member. Except as otherwise provided herein, in the certificate of incorporation
or by law, any such committee shall have and may exercise the powers of the full
board of directors to the extent provided in the resolution of the board
directing the committee.

ARTICLE III

OFFICERS

3.1 ELECTION. At its first meeting after each annual meeting of the
stockholders, the board of directors shall elect a president, treasurer,
secretary and such other officers as it deems advisable.

3.2 AUTHORITY, DUTIES AND COMPENSATION. The officers shall have such
authority, perform such duties and serve for such compensation as may be
determined by resolution of the board of directors. Except as otherwise provided
by board resolution, (i) the president shall be the chief executive officer of
the Corporation, shall have general supervision over the business and operations
of the Corporation, may perform any act and execute any instrument for the
conduct of such business and operations and shall preside at all meetings of the
board and stockholders, (ii) the other officers shall have the duties
customarily related to their respective offices, and (iii) any vice president,
or vice presidents in the order determined by the board, shall in the absence of
the president have the authority and perform the duties of the president.

ARTICLE IV

INDEMNIFICATION

4.1 RIGHT TO INDEMNIFICATION. The Corporation shall indemnify any person who
was or is party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (a "proceeding"), by reason of the fact that such person is or
was a director or officer of the Corporation or a constituent Corporation
absorbed in a consolidation or merger, or is or was serving at the request of
the Corporation or a constituent Corporation absorbed in a consolidation or
merger, as a director or officer of another Corporation, partnership, joint
venture, trust or other enterprise, or is or was a director or officer of the
Corporation serving at its request as an administrator, trustee or other
fiduciary of one or more of the employee benefit plans of the Corporation or
other enterprise, against expenses (including attorneys' fees), liability and
loss actually and reasonably incurred or suffered by such person in connection
with such proceeding, whether or not the indemnified liability arises or arose
from any threatened, pending or completed proceeding by or in the right of the
Corporation, except to the extent that such indemnification is prohibited by
applicable law.

-4-
<PAGE> 5
4.2 ADVANCE OF EXPENSES. Expenses incurred by a director or officer of the
Corporation in defending a proceeding shall be paid by the Corporation in
advance of the final disposition of such proceeding subject to the provisions of
any applicable statute.

4.3 PROCEDURE FOR DETERMINING PERMISSIBILITY. To determine whether any
indemnification or advance of expenses under this Article IV is permissible, the
board of directors by a majority vote of a quorum consisting of directors not
parties to such proceeding may, and on request of any person seeking
indemnification or advance of expenses shall be required to, determine in each
case whether the applicable standards in any applicable statute have been met,
or such determination shall be made by independent legal counsel if such quorum
is not obtainable, or, even if obtainable, a majority vote of a quorum of
disinterested directors so directs, provided that, if there has been a change in
control of the Corporation between the time of the action or failure to act
giving rise to the claim for indemnification or advance of expenses and the time
such claim is made, at the option of the person seeking indemnification or
advance of expenses, the permissibility of indemnification or advance of
expenses shall be determined by independent legal counsel. The reasonable
expenses of any director or officer in prosecuting a successful claim for
indemnification, and the fees and expenses of any special legal counsel engaged
to determine permissibility of indemnification or advance of expenses, shall be
borne by the Corporation.

4.4 CONTRACTUAL OBLIGATION. The obligations of the Corporation to indemnify a
director or officer under this Article IV, including the duty to advance
expenses, shall be considered a contract between the Corporation and such
director or officer, and no modification or repeal of any provision of this
Article IV shall affect, to the detriment of the director or officer, such
obligations of the Corporation in connection with a claim based on any act or
failure to act occurring before such modification or repeal.

4.5 INDEMNIFICATION NOT EXCLUSIVE; INURING OF BENEFIT. The indemnification and
advance of expenses provided by this Article IV shall not be deemed exclusive of
any other right to which one indemnified may be entitled under any statute,
provision of the Certificate of Incorporation, these bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, and shall inure to the benefit of the heirs, executors and
administrators of any such person.

4.6 INSURANCE AND OTHER INDEMNIFICATION. The board of directors shall have the
power to (i) authorize the Corporation to purchase and maintain, at the
Corporation's expense, insurance on behalf of the Corporation and on behalf of
others to the extent that power to do so has not been prohibited by statute,
(ii) create any fund of any nature, whether or not under the control of a
trustee, or otherwise secure any of its indemnification obligations, and (iii)
give other indemnification to the extent permitted by statute.

-5-
<PAGE> 6
ARTICLE V

TRANSFER OF SHARE CERTIFICATES

Transfers of share certificates and the shares represented thereby shall
be made on the books of the Corporation only by the registered holder or by duly
authorized attorney. Transfers shall be made only on surrender of the share
certificate or certificates.

ARTICLE VI

AMENDMENTS

These bylaws may be amended or repealed at any regular or special meeting
of the board of directors by vote of a majority of all directors in office or at
any annual or special meeting of stockholders by vote of holders of a majority
of the outstanding stock entitled to vote. Notice of any such annual or special
meeting of stockholders shall set forth the proposed change or a summary
thereof.

<PAGE> 1
EXHIBIT 10.1

AGREEMENT

This is an AGREEMENT (the "Agreement"), dated as of August 29, 1997, by
and between Spectra-Physics, Inc., a Delaware corporation ("SPI") and
Spectra-Physics Holdings USA, Inc., a Delaware corporation ("SPHUSA").

Background

A. SPI is currently a wholly-owned direct subsidiary of SPHUSA. SPHUSA
is a wholly-owned direct subsidiary of Spectra-Physics AB, a corporation
organized under the laws of Sweden ("SPAB").

B. It is contemplated that shares of SPI's stock will be offered for
sale to the public (the "Offering").

C. Spectra-Physics Lasers, Inc. ("SPLC"), Opto Power Corporation ("Opto
Power"), Laser Data Systems, Inc. ("Laser Data"), and various foreign
subsidiaries of SPAB which conducted sales and technical support operations on
behalf of SPLC, Opto Power and Laser Data, are operated as a functional group
called the Lasers and Optics Group (collectively, the "LOG"). In preparation for
the Offering, it is necessary to reorganize the LOG so that all assets and
liabilities of the LOG will be held directly or indirectly by SPI and all other
assets and liabilities will be held by SPAB or its subsidiaries (other than SPI
and its subsidiaries) (the "Reorganization") .

D. As part of the Reorganization, SPI desires to transfer to SPHUSA,
and SPHUSA desires to have transferred to it, certain assets and liabilities
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. Distribution of Assets. As a distribution to SPHUSA, SPI hereby
assigns, transfers and delivers to SPHUSA all of SPI's rights, title and
interest in and to all of SPI's goodwill, properties, rights and assets, of
every kind, nature and description, that are not used in or do not relate to the
business and operations of the LOG, wherever located, whether real, personal or
mixed, whether tangible or intangible, and whether or not carried on SPI's books
or

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<PAGE> 2
reflected in any financial statement, including, without limitation, the assets
listed on Schedule A hereof (the "Transferred Assets").

2. Assumption of Liabilities. SPHUSA hereby assumes and agrees to pay,
perform, satisfy, discharge and be responsible for all of the debts,
obligations, contracts and liabilities of SPI that do not relate to the past or
current business or operations of the LOG or that relate to the Transferred
Assets, whether accrued, absolute, contingent or otherwise, whether past,
present or future, whether known or unknown and whether or not reflected in or
reserved on SPI's balance sheet, records or books of account, including, without
limitation, the debts, obligations, contracts and liabilities listed on Schedule
A hereof (the "Assumed Liabilities").

3. Further Assurances. At the request of SPHUSA, at any time on or
after the date hereof, SPI will execute and deliver such further instruments of
transfer and conveyance and take such other action as SPHUSA reasonably may
request effectively to assign and transfer to SPHUSA any of the Transferred
Assets.

4. Regarding Certain Consents. Nothing in this Agreement shall be
construed as an attempt to assign any contract, agreement, permit, franchise or
claim included in the Transferred Assets that is, by its terms or in law,
nonassignable without the consent of the other party or parties thereto, unless
such consent shall have been given, or as to which all the remedies for the
enforcement thereof enjoyed by SPI would not, as a matter of law, pass to SPHUSA
as an incident of the assignments provided for by this Agreement. In order,
however, to provide SPHUSA the full realization and value of every contract,
agreement, permit, franchise and claim of the character described in the
preceding sentence, SPI, on and after the date hereof by itself or by its
agents, shall, at the request and expense and under the direction of SPHUSA in
the name of SPI or otherwise as SPHUSA shall specify and as shall be permitted
by law, take all such reasonable action (including, without limitation, the
appointment of SPHUSA as attorney-in-fact for SPI) and do or cause to be done
all such things as shall in the opinion of SPHUSA be necessary or proper (a) to
assure that the rights and obligations of SPI under such contracts, agreements,
permits, franchises and claims shall be preserved for the benefit of SPHUSA and
(b) to facilitate receipt of the consideration to be received by SPHUSA in and
under every such contract, agreement, permit, franchise and claim, which
consideration SPI shall hold for the benefit of, and upon request of SPHUSA
shall deliver to, SPHUSA.

5. Costs, Expenses and Taxes. Except as otherwise provided in this
Agreement, SPI will pay all expenses incurred in connection with this Agreement
and the transactions contemplated hereby, including (a) all accounting, legal
and appraisal fees and (b) all personal and real property transfer taxes.

6. Representations and Warranties. SPI expressly disclaims any
representations or warranties as to the condition or status (financial or
otherwise) of the Transferred Assets or SPI's right, title or interest in or to
the Transferred Assets.

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<PAGE> 3
7. Indemnification by SPHUSA. SPHUSA hereby agrees to reimburse,
indemnify, defend, save and hold harmless SPI and its officers, directors,
employees and agents (each a "SPHUSA Indemnified Person"), from and against any
and all claims, demands, damages, liabilities, losses, costs, expenses,
assessments, settlement payments and judgments of any nature whatsoever
(including, without limitation, incidental, indirect, special or consequential
damages, reasonable attorneys' fees and other costs and expenses incident to any
actual or threatened claim, suit, action or proceeding), arising before, on or
after the date hereof suffered, sustained, incurred or required to be paid by
such SPHUSA Indemnified Person because of or that result from, relate to or
arise out of the Assumed Liabilities.

8. Indemnification by SPI. SPI hereby agrees to reimburse, indemnify,
defend, save and hold harmless SPHUSA and its affiliates (excluding SPI and its
subsidiaries) and their respective officers, directors, employees and agents
(each a "SPI Indemnified Person") from and against against any and all claims,
demands, damages, liabilities, losses, costs, expenses, assessments, settlement
payments and judgments of any nature whatsoever (including, without limitation,
incidental, indirect, special or consequential damages, reasonable attorneys'
fees and other costs and expenses incident to any actual or threatened claim,
suit, action or proceeding), arising before, on or after the date hereof
suffered, sustained, incurred or required to be paid by such SPI Indemnified
Person because of or that result from, relate to or arise out of the businesses
or operations of the LOG.

9. Effective Time. The transfer of the Transferred Assets and
assumption of the Assumed Liabilities hereunder shall be effective as of the
close of business of the LOG on August 29, 1997.

10. 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
assigns.

11. 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.

12. 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.

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<PAGE> 4
13. 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.

14. 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.

15. Entire Agreement. This Agreement and the schedules and exhibits
hereto, each of which is hereby incorporated in this Agreement, contain 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,
undertakings and inducements, whether express or implied, oral or written, among
the parties hereto with respect thereto.

16. 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.

17. 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.

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<PAGE> 5
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 HOLDINGS
USA, INC.

By: /s/ Lennart F. Rappe
-------------------------------------
Name: Lennart F. Rappe
Title: Treasurer

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<PAGE> 1
EXHIBIT 21.1

LIST OF SUBSIDIARIES OF SPECTRA-PHYSICS LASERS, INC.

NAME JURISDICTION OF
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION
---------- ---------------
Opto Power Corporation Delaware

Spectra-Physics Laser Data Systems, Inc. Delaware

Spectra-Physics France S.A. France

Spectra-Physics GmbH Germany

Spectra-Physics K.K. Japan

Spectra-Physics Lasers B.V. Netherlands

Spectra-Physics Lasers Ltd. United Kingdom

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-1 of
our report dated October 18, 1997, except for Note 12, for which the date is
October 21, 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
October 21, 1997

<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>