<PAGE>
As filed with the Securities and Exchange Commission on April 10, 2000.
Registration No. 333-32966
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
GSI Lumonics Inc.
(Exact Name of Registrant as Specified in its Charter)
New Brunswick, Canada 38-1859358
(State or Other (I.R.S. Employer
Jurisdiction of Identification
Incorporation or Number)
Organization) ----------------------
105 Schneider Road
Kanata, Ontario, Canada K2K 1Y3
(613) 592-1460
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
Charles D. Winston
39 Manning Road
Billerica, MA 01821
(978) 439-5511
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
With a copy to:
Deborah L. Mark L. Weissler James D. Scarlett Robert A.
Weinstein Milbank, Tweed, Torys Ouimette
LaBarge Weinstein Hadley & McCloy Suite 3000, Torys
Xerox Tower LLP Maritime Life 237 Park Avenue
333 Preston One Chase Tower 20th Floor
Street, Manhattan Plaza P.O. Box 270 New York, NY
11th Floor New York, NY Toronto Dominion 10017
Ottawa, ON K1S 10005 Centre (212) 880-6000
5N4 (212) 530-5000 79 Wellington
(613) 231-3000 Street West
Toronto, ON M5K
1N2
(416) 865-0040
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, please 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,
please check the following box. [_]
----------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum
Title of each Class of Amount Proposed Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(1) per Unit(2) Price(2) Fee(3)
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<S> <C> <C> <C> <C>
Common Shares, no par
value.................. 4,600,000 shares $16.88 $77,625,000 $20,493
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</TABLE>
(1) Includes 600,000 shares to be issued pursuant to the underwriters' over-
allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933.
(3) Previously paid.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated April 10, 2000
The information contained in this prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted.
4,000,000 Common Shares
US$ per share
- --------------------------------------------------------------------------------
GSI Lumonics Inc. is offering 4,000,000 common shares in the United States and
Canada. This is a firm commitment underwriting.
The common shares are listed on the Nasdaq National Market under the symbol
"GSLI" and on The Toronto Stock Exchange under the symbol "LSI." On April 7,
2000, the last reported sale price of the common shares was US$19.50 on the
Nasdaq National Market and Cdn$27.75 on The Toronto Stock Exchange.
Investing in the common shares involves risks. See "Risk Factors" beginning on
page 6.
<TABLE>
<CAPTION>
Per
Share Total
------ ------
<S> <C> <C>
Price to the public............................... US$ US$
Underwriting discount.............................
Proceeds to GSI Lumonics..........................
</TABLE>
GSI Lumonics and the selling shareholders identified in this prospectus have
granted an over-allotment option to the underwriters. Under this option, the
underwriters may elect to purchase a maximum of 305,083 additional shares from
us and 294,917 additional shares from the selling shareholders within 30 days
following the date of this prospectus to cover over-allotments. We will not
receive any of the proceeds from the sale of shares by the selling
shareholders.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
CIBC World Markets Chase H&Q
Needham & Company, Inc.
The date of this prospectus is April , 2000.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................................................... 1
Risk Factors........................................................... 6
Special Note Regarding Forward-Looking Statements...................... 14
Use of Proceeds........................................................ 15
Dividend Policy........................................................ 15
Capitalization......................................................... 16
Price Range of Common Shares........................................... 17
Selected Consolidated Financial Data................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 19
Business............................................................... 27
Management............................................................. 37
Selling Shareholders................................................... 39
Description of Common Shares........................................... 40
Tax Considerations..................................................... 41
Underwriting........................................................... 45
Legal Matters.......................................................... 48
Experts................................................................ 48
Where You Can Find More Information.................................... 48
Documents Incorporated by Reference.................................... 48
Index to Consolidated Financial Statements............................. F-1
</TABLE>
-------------------------
As used in this prospectus, the terms "we," "us," "our," "GSI Lumonics" and
the "Company" mean GSI Lumonics Inc. and its subsidiaries, unless the context
indicates another meaning, and the term "common shares" means our common
shares, no par value. In this prospectus unless stated otherwise, all
references to "US$" or "$" are to U.S. dollars and all references to "Cdn$" are
to Canadian dollars.
Our principal executive offices are located at 105 Schneider Road, Kanata,
Ontario, Canada K2K 1Y3. Our telephone number is (613) 592-1460.
Unless otherwise stated, all information contained in this prospectus assumes
no exercise of the over-allotment option granted to the underwriters.
The underwriters are offering the common shares subject to various conditions
and may reject all or part of any order. The shares should be ready for
delivery on or about , 2000 against payment in immediately available funds.
The following trademarks and trade names of GSI Lumonics are used in this
prospectus: WaferMark(R), LightWriter(R), ScreenCut(R), SoftMark(R),
LuxStar(R), PC-Mark(R), Laserdyne(R), Xymark(R), LaserMark(R) and ScanArray(R).
<PAGE>
Prospectus Summary
This summary highlights information contained in other parts of this
prospectus. Because it is a summary, it may not contain all of the information
that you should consider before investing in our common shares. You should read
the entire prospectus carefully, including "Risk Factors," the consolidated
financial statements and the related notes, and the documents to which we have
referred you, before making an investment decision.
GSI Lumonics Inc.
We design, develop, manufacture and market laser-based advanced manufacturing
systems and components for a wide range of applications including cutting,
drilling, welding, marking, micro-machining, inspection, and optical detection
and transmission. Major markets for these products include the semiconductor,
electronics, automotive, medical/biotechnology and telecommunications
industries. In addition, we sell to other markets such as the aerospace and
packaging industries.
Laser systems offer manufacturers precision, lower production costs, fast
solutions and production line flexibility. Semiconductor manufacturers face
demands for greater throughput, reduced device size, and increased device
complexity, performance, traceability, and quality. They use our laser systems
in several production process steps, including product marking and memory
repair. In the electronics industry, producers of electronic components and
assemblies use our laser systems to support their process requirements.
Features of these laser systems include precision laser spot size, precision
laser power control, high-speed parts handling, and applications adaptability.
We also manufacture laser systems for the automotive, aerospace and certain
other industrial markets which require advanced manufacturing applications,
including cutting, drilling, welding, scribing and machining. In addition, we
design and manufacture precision optics used in fiber optics telecommunications
networks.
We expect capital equipment expenditures by the semiconductor and electronics
industry, fueled by demand for computers, cellular phones and communications
devices, to stimulate demand for laser-based systems. Dataquest, an independent
market research company, estimates that capital spending by the semiconductor
industry will grow from $33.9 billion in 1999 to $74.9 billion in 2002,
representing a compound annual growth rate of 30.2%.
Our competitive advantages include our continuing commitment to technical
advancement, thirty years of applications experience, and our global presence
which consists of eleven operations facilities located in the United States,
Canada and the United Kingdom, as well as a direct sales and service presence
at those locations plus an additional ten offices in Europe and the Pacific
Rim.
We have over 1,000 customers. Our customers in 1999 included: A.T.&S.,
Ericsson, Intel, Kodak, Maxim Integrated Products, Medtronic Physio-Control,
Samsung and Sumitomo Heavy Industries.
We intend to accelerate our growth and increase our market share. The key
elements of our strategy include:
. Invest in laser-based technologies, products and capabilities which
position us as one of the leading competitors in markets that offer strong
profitable growth opportunities, specifically semiconductor, electronics
and automotive;
1
<PAGE>
. Concentrate on high value-added systems that have a global market;
. Enhance our capabilities to supply precision optical components used in
dense wavelength division multiplexing for the fiber optic
telecommunications networks;
. Further strengthen our competencies in technology, manufacturing and
distribution; and
. Acquire complementary products and technologies.
We have built and continue to extend our patent portfolio. We own 85 United
States patents and 52 foreign patents, and currently have 43 United States and
89 foreign patents pending.
Lumonics Inc. was incorporated in 1970 for the purpose of producing lasers for
scientific and research applications. We first became a public company in 1980,
and our common shares were listed on The Toronto Stock Exchange until 1989. In
1989, all of our common shares were acquired by a wholly owned subsidiary of
Sumitomo Heavy Industries, Ltd., and we ceased to be a public company. On
September 28, 1995, we again became a public company, and our shares were again
listed on The Toronto Stock Exchange.
General Scanning Inc. was incorporated in 1968 in Massachusetts. In its early
years, General Scanning developed, manufactured and sold components and
subsystems for high-speed micropositioning of laser beams. Starting in the mid-
to-late 1980s, General Scanning began manufacturing complete laser-based,
advanced manufacturing systems for the semiconductor and electronics markets,
and a number of other applications such as aerospace assembly and medical
recording and imaging.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals
and continued under the name GSI Lumonics Inc. Our shares commenced trading on
the Nasdaq National Market and continued to trade on The Toronto Stock
Exchange.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common shares offered by us........ 4,000,000 shares
Common shares to be outstanding
after this offering............... 38,546,875 shares(1)
Over-allotment option.............. 600,000 shares, to be satisfied first by us
up to 305,083 shares, with the balance of
up to 294,917 shares to be satisfied by the
selling shareholders.
Use of proceeds.................... We intend to use the net proceeds for
capital expenditures, working capital and
general corporate purposes, including
possible future acquisitions. Pending these
uses, the net proceeds will be added to our
cash resources.
Nasdaq National Market symbol...... GSLI
The Toronto Stock Exchange symbol.. LSI
</TABLE>
(1) This share number is based on 34,546,875 common shares outstanding as of
February 29, 2000 and excludes 3,687,425 common shares that are issuable
upon the exercise of currently outstanding options and warrants, and
320,718 common shares reserved for future grant under our option plan.
3
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
You should read the following summary of selected consolidated financial data
together with "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," our
consolidated financial statements and the other information in this prospectus,
as well as the documents incorporated by reference.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals.
We recorded this transaction as a purchase for accounting purposes.
Accordingly, our consolidated financial statements exclude the results of
General Scanning before the merger date and therefore do not provide meaningful
year-to-year comparative information. Note 2 to our consolidated financial
statements includes, for illustrative purposes, unaudited pro forma information
as if the merger had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Sales......................... $274,550 $144,192 $177,328 $153,367 $125,268
Gross profit.................. 95,777 40,673 65,922 60,999 48,031
Operating expenses:
Research and development..... 28,700 12,985 11,993 11,872 7,068
Selling, general and
administrative.............. 64,653 38,191 37,591 32,999 28,385
Amortization of technology
and other intangibles....... 4,070 861 400 381 384
Acquired in-process research
and development............. 14,830 -- -- -- --
Restructuring and other
charges..................... 19,631 2,022 -- -- --
Foreign exchange, interest
and gain on sale of assets.. 1,223 (2,210) (1,048) (634) 854
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................ (37,330) (11,176) 16,986 16,381 11,340
Income taxes provision
(benefit).................... (2,556) (3,260) 5,074 4,635 3,304
-------- -------- -------- -------- --------
Net income (loss)............. $(34,774) $ (7,916) $ 11,912 $ 11,746 $ 8,036
======== ======== ======== ======== ========
Net income (loss) per common
share:
Basic........................ $ (1.14) $ (0.46) $ 0.75 $ 0.83 $ 0.70
Diluted...................... $ (1.14) $ (0.46) $ 0.72 $ 0.78 $ 0.65
======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 30,442 17,079 15,989 14,077 11,521
Weighted average common shares
outstanding and dilutive
potential common shares...... 30,442 17,079 16,454 15,079 12,457
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------------
Actual As adjusted(1)
-------- --------------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital............................ $103,727
Total assets............................... 289,722
Long-term liabilities, including current
portion................................... 10,022
Total shareholders' equity................. 171,730
</TABLE>
- ------------------
(1) The "as adjusted" column reflects the sale by us of 4,000,000 common shares
in this offering at an assumed offering price of $ per share, after
deducting the estimated underwriting discount and offering expenses, and
the application of the net proceeds from the offering.
4
<PAGE>
The following table presents unaudited quarterly data for the quarters ended
December 31, 1999, October 1, 1999, July 2, 1999 and April 2, 1999. We believe
this information is helpful in isolating ongoing trends in our business from
the effects of the merger. This information has been presented on the same
basis as the audited consolidated financial statements appearing elsewhere in
this prospectus. Results of operations for any quarter are not necessarily
indicative of the results to be expected for the entire fiscal year or for any
future period.
Our management believes that the unaudited quarterly data reflected in the
following table contains all adjustments necessary to present fairly the
information included in the table, and that the adjustments made consist of
only normal reoccurring adjustments. Our quarterly operating results are
subject to fluctuation due to a variety of factors, some of which are outside
of our control. Accordingly, you should not rely on our results for any past
quarter as an indication of future performance. Generally, our sales are higher
in the second and fourth quarters of the year.
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------
December 31, October 1, July 2, April 2,
1999 1999 1999 1999
------------ ---------- ------- --------
<S> <C> <C> <C> <C>
Quarterly Consolidated Statement of
Operations Data:
Sales............................... $88,667 $78,041 $69,248 $ 38,594
Gross profit........................ 34,394 30,488 23,376 7,519
Operating expenses:
Research and development........... 8,676 8,104 8,584 3,336
Selling, general and
administrative.................... 17,931 17,704 18,521 10,497
Amortization of technology and
other intangibles................. 1,251 1,251 1,251 317
Acquired in-process research and
development....................... -- -- -- 14,830
Restructuring and other charges.... -- -- -- 19,631
Foreign exchange, interest and gain
on sale of assets................. 182 512 (64) 593
------- ------- ------- --------
Income (loss) before income taxes... 6,354 2,917 (4,916) (41,685)
Income taxes provision (benefit).... 2,115 874 (1,174) (4,371)
------- ------- ------- --------
Net income (loss)................... $ 4,239 $ 2,043 $(3,742) $(37,314)
======= ======= ======= ========
Net income (loss) per common share:
Basic.............................. $ 0.12 $ 0.06 $ (0.11) $ (1.94)
Diluted............................ $ 0.12 $ 0.06 $ (0.11) $ (1.94)
======= ======= ======= ========
Weighted average common shares
outstanding........................ 34,222 34,173 34,167 19,204
Weighted average common shares
outstanding and dilutive potential
common shares...................... 35,755 35,085 34,167 19,204
</TABLE>
5
<PAGE>
Risk Factors
You should carefully consider the following risk factors and other information
contained or incorporated by reference in this prospectus before deciding to
invest in our common shares. Investing in our common shares involves a high
degree of risk. The risks and uncertainties described below may not be the only
ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be harmed, the trading price
of our common shares could decline, and you might lose all or part of your
investment. Please see the "Special Note Regarding Forward-Looking Statements"
on page 14 of this prospectus.
Risks Relating to Our Business
Our customers' cyclical fluctuations may adversely affect our operations, which
may result in volatility or a decrease in the price of our common shares.
Several significant markets for our products have historically been subject to
economic fluctuations due to the substantial capital investment required in the
industries served. In the past, this has led to significant short-term over- or
under-capacity in some markets, particularly in the semiconductor, aerospace
and automotive industries where we generated 23% of our revenues during 1999.
These fluctuations may continue and could have an adverse impact on our
operations.
For example, and most importantly, we sell many of our products to the
semiconductor industry, which is subject to sudden, extreme, cyclical
variations in product supply and demand. The timing, length and severity of
these cycles are difficult to predict. In some cases, these cycles have lasted
more than a year. Semiconductor manufacturers may contribute to these cycles by
misinterpreting the conditions in the industry and over- or under-investing in
semiconductor manufacturing capacity and equipment. We may not be able to
respond effectively to these industry cycles.
Downturns in the semiconductor industry often occur in connection with, or
anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. Industry downturns
have been characterized by reduced demand for semiconductor devices and
equipment, production over-capacity and accelerated decline in average selling
prices. During a period of declining demand, we must be able to quickly and
effectively reduce expenses while continuing to motivate and retain key
employees. Our ability to reduce expenses in response to any downturn in the
semiconductor industry is limited by our need for continued investment in
engineering and research and development and extensive ongoing customer service
and support requirements. In addition, although we order materials and
subassemblies in response to firm orders, the long lead time for production and
delivery of some of our products creates a risk that we may incur expenditures
or purchase inventories for products which we cannot sell. A downturn in the
semiconductor industry could therefore harm our sales and revenues if demand
drops or if our gross margins or our average selling prices decline.
Industry upturns have been characterized by abrupt increases in demand for
semiconductor devices and equipment and production under-capacity. During a
period of increasing demand and rapid growth, we must be able to quickly
increase manufacturing capacity to meet customer demand and hire and assimilate
a sufficient number of qualified personnel. Our inability to ramp up in times
of increased demand could harm our reputation and cause some of our existing or
potential customers to place orders with our competitors rather than us.
We are subject to quarterly fluctuations in operations, and our inability to
anticipate these fluctuations may adversely affect our operations in a given
quarter.
We have experienced and expect to continue to experience significant
fluctuations in our quarterly operating results due to factors like the
following:
. cycles in the markets we serve;
6
<PAGE>
. mix of products sold;
. timing and shipment of significant orders;
. disruption in sources of supply;
. changing market acceptance of new and enhanced products;
. seasonality and changing demand;
. exchange rate fluctuations; and
. length of sales cycles.
We expect our operating results to fluctuate in the future as a result of these
factors and a variety of other factors, including:
. the emergence of new industry standards;
. product obsolescence; and
. economic conditions generally or in various geographic areas where we or
our customers do business.
These factors are difficult or impossible to forecast.
We derive a substantial portion of our sales from products that have a high
average selling price and significant lead times between the initial order and
delivery of the product. The timing and recognition of sales from customer
orders can cause significant fluctuations in our operating results from quarter
to quarter. Gross margins realized on product sales vary depending upon a
variety of factors, including the mix of products sold during a particular
period, negotiated selling prices, the timing of new product introductions and
enhancements and manufacturing costs. A delay in a shipment near the end of a
fiscal quarter or year, due, for example, to rescheduling or cancellations by
customers or to unexpected manufacturing difficulties experienced by us, may
cause sales in a particular period to fall significantly below our expectations
and may materially adversely affect our operations for that period. Our
inability to adjust spending quickly enough to compensate for any sales
shortfall would magnify the adverse impact of that sales shortfall on our
results of operations. In addition, announcements by us or our competitors of
new products and technologies could cause customers to defer purchases of our
existing systems, which could negatively impact our earnings and our financial
position.
As a result of these factors, our operating results may vary significantly from
quarter to quarter. Any shortfall in revenues or net income from levels
expected by securities analysts and investors could cause a decrease in the
trading price of our common shares.
If we cannot protect or lawfully use our proprietary technology, we may not be
able to compete successfully.
We protect our intellectual property through patent filings, confidentiality
agreements and the like. However, these methods of protection are uncertain and
costly. In addition, we may face allegations that we are violating the
intellectual property rights of third parties. These types of allegations are
common in the industry.
Monitoring unauthorized use of our products is difficult. We cannot be certain
that the steps we have taken will prevent unauthorized use of our technology.
The laws of some foreign countries in which our products are or may be
developed, manufactured or sold, including various countries in Asia, may not
protect our products or intellectual property rights to the same extent as do
the laws of the United States and thus make the possibility of piracy of our
technology and products more likely in these countries. If competitors are able
to use our technology, our ability to compete effectively could be harmed.
7
<PAGE>
Claims or litigation could seriously harm our business or require us to incur
significant costs.
We are subject to litigation from time to time, some of which is material to
our business. If, in any of these actions, there is a final adverse ruling
against us, it could seriously harm our business and have a material adverse
effect on our operating results and financial condition, as well as having a
significant negative impact on our liquidity. Among other things, we are
currently subject to the following claims and actions:
Electro Scientific Industries, Inc. v. GSI Lumonics Inc. On March 16, 2000,
Electro Scientific Industries, Inc. filed an action for patent infringement in
the United States District Court for the Central District of California against
us and Dynamic Details Inc., an unrelated party who is one of our customers.
Electro Scientific alleges that we offer to sell, sell and import into the
United States our GS-600 high speed laser drilling system and that Dynamic
Details possesses and uses a GS-600 System. It further alleges that Dynamic
Details' use of our GS-600 laser system infringes on Electro Scientific's U.S.
patent no. 5,847,960 and that we have actively induced the infringement of, and
contributorily infringed on, the patent. Electro-Scientific seeks an
injunction, unspecified damages, trebling of those damages, and attorney fees.
Electro Scientific Industries, Inc. v. General Scanning Inc. In September 1998,
the United States District Court for the Northern District of California
granted a motion for summary judgment in favor of Electro Scientific and
against General Scanning in this case on a claim of infringement and on the
issue of whether Electro Scientific committed inequitable conduct by
intentionally failing to cite prior art to the United States Patent Office in
connection with one of its patents. The court denied our motion for summary
judgment that the patents are invalid due to prior art. During March 1999, the
court granted Electro Scientific's motion for partial summary judgment that
upgrade kits sold by General Scanning for 1.3 micron laser wavelength memory
repair infringe the patents in suit. In April 1999, a federal court jury issued
a verdict that Electro Scientific's U.S. patent no. 5,473,624 was invalid and
that Electro Scientific's U.S. patent no. 5,265,114 was valid and awarded a
$13.1 million damage judgment against us. In July 1999, the court refused
Electro Scientific's requests to increase damages awarded by the jury in April
and for attorney fees but granted interest on the damages. The court also
affirmed the jury's decision to invalidate one of the two patents asserted by
Electro Scientific in the case. We have appealed the decisions on infringement,
the validity of the second patent, and the award of damages. We were required
to post an unsecured bond with the court in order to proceed with the appeal.
No date has been set for arguments.
Robotic Vision, Inc. v. View Engineering, Inc. We are involved in a patent
infringement complaint filed by Robotic Vision Systems, Inc. alleging
infringement of a patent by View Engineering, Inc., our wholly owned
subsidiary. The matter was tried before a judge sitting in the United States
District Court for the Central District of California in November 1999. Robotic
Vision alleged infringement relating to lead inspection machines formerly sold
by View Engineering and sought damages of $60.5 million. In March 2000, the
Court found that Robotic Vision's patent was invalid. Robotic Vision may appeal
the Court's decision. As of the date of this prospectus, Robotic Vision has not
initiated an appeal.
GSI Lumonics Inc. v. BioDiscovery, Inc. On December 10, 1999 we filed suit in
the United States District Court for the District of Massachusetts seeking a
declaration that our QuantArray Microarray Analysis Software does not infringe
any copyright owned by BioDiscovery, Inc. or its president. BioDiscovery, Inc.
is a manufacturer of microarray quantification software under the name
ImaGene(R). We had previously distributed ImaGene(R) software under a non-
exclusive arrangement with BioDiscovery, but subsequently developed our own
software when BioDiscovery refused to develop necessary enhancements to stay
abreast of industry trends, especially in the field of multi-channel scanning.
On December 21, 1999, BioDiscovery's president responded to our action for
declaratory judgment by filing a separate suit in the United States District
Court for the Southern District of California, alleging that we reverse
engineered his software, and additionally sued us for copyright infringement.
We have applied to the California court to seek the prompt dismissal of the
California action in favor of our prior pending action. In the matter before
the United States District Court for the District of Massachusetts, the court
denied BioDiscovery's president's motion to dismiss and has scheduled the trial
for May 2000.
8
<PAGE>
Potential Claims. In 1994, a party commenced legal proceedings in the United
States against a number of United States manufacturing companies, including
companies that have purchased systems from us. The plaintiff has alleged that
certain equipment used by these manufacturers infringes patents claimed to be
held by the plaintiff. We are not a defendant in any of the proceedings.
However, several of our customers have notified us that, if the party
successfully pursues infringement claims against them, they may require us to
indemnify them to the extent that any of their losses can be attributed to
systems we sold to them.
We depend on limited source suppliers which could cause substantial
manufacturing delays and additional cost if a disruption of supply occurs.
We obtain some components from a single source. We also rely on a limited
number of independent contractors to manufacture subassemblies for some of our
products. If suppliers or subcontractors experience difficulties that result in
a reduction or interruption in supply to us or fail to meet any of our
manufacturing requirements, our business would be harmed until we are able to
secure alternative sources. These components and manufacturing services may not
continue to be available to us at favorable prices, if at all.
The loss of key personnel could negatively impact our operations.
Our business and future operating results depend in part upon our ability to
attract and retain qualified management, technical, sales and support personnel
for our operations on a worldwide basis. Competition for qualified personnel is
intense, and we cannot guarantee that we will be able to continue to attract
and retain qualified personnel. Availability of qualified technical personnel
varies from country to country and may affect our operations in some parts of
the world. Our operations could be negatively affected if we lose key
executives or employees or are unable to attract and retain skilled executives
and employees as needed. In particular, if our growth strategies are
successful, we may not have sufficient operational personnel to manage that
growth and may not be able to attract the personnel needed. In addition, we do
not maintain insurance to protect against the loss of key executives or
employees. Our future growth and operating results will depend on:
. our ability to continue to broaden our senior management group;
. our ability to attract, hire and retain skilled employees; and
. the ability of our officers and key technical employees to continue to
expand, train and manage our employee base.
We must introduce new and enhanced products on a timely basis, or we may not be
able to compete successfully.
The markets for our products experience rapidly changing technologies, evolving
industry standards, frequent new product introductions and short product life
cycles. Developing new technology is a complex and uncertain process requiring
us to be innovative and to accurately anticipate technological and market
trends. We may have to manage the transition from older products in order to
minimize disruption in customer ordering patterns, avoid excess inventory and
ensure adequate supplies of new products. We may not successfully develop,
introduce or manage the transition to new products. Failed market acceptance of
new products or problems associated with new product transitions could harm our
business.
If we fail to adequately invest in research and development, we may be unable
to compete effectively.
We have limited resources to allocate to research and development, and must
allocate our resources among a wide variety of projects. Because of intense
competition in the industries in which we compete, the cost of
9
<PAGE>
failing to invest in strategic products is high. If we fail to adequately
invest in research and development, we may be unable to compete effectively in
the markets in which we operate.
A loss of major customers could adversely affect us.
Our ten largest customers represented approximately 26% of sales during 1999. A
loss of one or more of these or other large customers could have an adverse
effect on our business.
We face competition or potential competition from companies with greater
resources than ours, and, if we are unable to compete effectively with these
companies, our market share may decline and our business could be harmed.
The industries in which we operate are highly competitive. We face substantial
competition from established competitors, some of which have greater financial,
engineering, manufacturing and marketing resources than we do. Our competitors
can be expected to continue to improve the design and performance of their
products and to introduce new products. Furthermore, competition in our markets
could intensify, or our technological advantages may be reduced or lost as a
result of technological advances by our competitors. Their greater capabilities
in these areas may enable them to:
. better withstand periodic downturns;
. compete more effectively on the basis of price and technology;
. more quickly develop enhancements to and new generations of products; and
. more effectively retain existing customers and obtain new customers.
In addition, new companies may in the future enter the markets in which we
compete, further increasing competition in those markets.
We believe that our ability to compete successfully depends on a number of
factors, including:
. performance of our products;
. quality of our products;
. reliabilty of our products;
. cost of using our products;
. our ability to ship products on the schedule required;
. quality of the technical service we provide;
. timeliness of the services we provide;
. our success in developing new products and enhancements;
. existing market and economic conditions; and
. price of our products as compared to our competitors' products.
We may not be able to compete successfully in the future, and increased
competition may result in price reductions, reduced profit margins, loss of
market share, and an inability to generate cash flows that are sufficient to
maintain or expand our development of new products.
10
<PAGE>
Operating in foreign countries exposes us to increased risks.
In addition to operating in the United States, Canada and the United Kingdom,
we have sales and service offices in France, Germany, Italy, Japan, Singapore,
Hong Kong, Korea, Taiwan, Malaysia and the Philippines. We may in the future
expand into other international regions. Because of the scope of our
international operations, we are subject to the following risks which could
materially impact our results of operations:
. foreign exchange rate fluctuations;
. longer payment cycles;
. greater difficulty in collecting accounts receivable;
. utilization of different systems and equipment; and
. difficulties in staffing and managing foreign operations and diverse
cultures.
In addition, changes in government policies could negatively affect our
operating results due to:
. increased regulatory requirements;
. higher taxation;
. currency conversion limitations;
. restrictions on the transfer of funds;
. the imposition of, or increase in, tariffs; or
. limitations on imports or exports.
We may need additional funds to finance our future growth, and if we are unable
to obtain such funds, we may not be able to expand our business as planned.
We may require additional capital to finance our future growth and fund our
ongoing research and development activities. Our capital requirements depend on
many factors, including acceptance of, and demand for, our products, and the
extent to which we invest in new technology and research and development
projects.
To the extent that our existing sources of liquidity and cash flow from
operations are insufficient to fund our activities, we may need to raise
additional funds. If we raise additional funds through the issuance of equity
securities, the percentage ownership of our existing shareholders would be
diluted. If we finance our capital requirements with debt we may incur
significant interest costs. Additional financing may not be available to us
when needed or, if available, it may not be available on terms favorable to us.
Our business may be harmed by acquisitions we complete in the future.
We plan to continue to pursue additional acquisitions. Our identification of
suitable acquisition candidates involves risks inherent in assessing the
values, strengths, weaknesses, risks and profitability of acquisition
candidates, including the effects of the possible acquisition on our business,
diversion of our management's attention and risks associated with unanticipated
problems or latent liabilities. If we are successful in pursuing future
acquisitions, we may be required to expend significant funds, incur additional
debt or issue additional securities, which may negatively affect our results of
operations and be dilutive to our shareholders. If we spend significant funds
or incur additional debt, our ability to obtain financing for working capital
or other purposes could decline, and we may be more vulnerable to economic
downturns and competitive pressures. We
11
<PAGE>
cannot guarantee that we will be able to finance additional acquisitions or
that we will realize any anticipated benefits from acquisitions that we
complete. Should we successfully acquire another business, the process of
integrating acquired operations into our existing operations may result in
unforeseen operating difficulties and may require significant financial
resources that would otherwise be available for the ongoing development or
expansion of our existing business.
We have significant fixed costs which are not easily reduced if revenues fall
below expectations.
Our expense levels are based in part on our future revenue expectations. Many
of our expenses, particularly those relating to capital equipment and
manufacturing overhead, are relatively fixed. If we do not meet our sales
goals, we may be unable to rapidly reduce these fixed costs. Our ability to
reduce expenses is further constrained, because we must continue to invest in
research and development to maintain our competitive position and to maintain
service and support for our existing global customer base. Accordingly, if we
suffer an unexpected downturn in revenue, our inability to reduce fixed costs
rapidly could increase the adverse impact on our results of operations.
We do not have long-term contracts with most of our customers and therefore
there is no assurance of future sales.
Our agreements with customers generally do not provide any assurance of future
sales. Accordingly:
. our customers can cease purchasing our products at any time without
penalty;
. our customers are free to purchase products from our competitors;
. we are exposed to competitive price pressure on each order; and
. our customers are not required to make minimum purchases.
Sales are typically made pursuant to individual purchase orders and may occur
with short lead times. If we are unable to fulfill these orders in a timely
manner, we may lose future sales and customers.
Our operations are subject to environmental laws that may expose us to
liabilities for noncompliance.
We are subject to a variety of governmental regulations relating to the use,
storage, discharge, handling, manufacture and disposal of toxic or other
hazardous chemical by-products of, and water used in, our manufacturing
processes. Environmental claims against us or our failure to comply with any
present or future regulations could result in:
.the assessment of damages or imposition of fines against us;
.the suspension of production of our products; or
.the cessation of our operations.
New regulations could require us to acquire costly equipment or to incur other
significant expenses. Our failure to control the use or adequately restrict the
discharge of hazardous substances could subject us to future liabilities, which
could negatively impact our earnings and financial position.
Risks Relating to this Offering and the Market for our Common Shares
Our share price may be volatile.
The stock markets on which our common shares are traded have fluctuated widely
in the past. The securities of many technology companies, including our own,
have experienced substantial price and volume fluctuations.
12
<PAGE>
These broad market fluctuations may adversely affect the market price of our
common shares. More specifically, the trading price of our common shares could
fluctuate in response to:
. quarterly variations in our operations and financial results;
. announcements by us or our competitors of technological innovations, new
products, new contracts or acquisitions;
. general conditions in the markets we serve; and
. systemic fluctuations in the stock markets.
Enforcement of United States legal judgments outside the United States may be
difficult.
We are a corporation existing under the laws of the Province of New Brunswick,
Canada. Several of our current directors and officers, and several experts
named in this prospectus, are residents of Canada, and all, or a substantial
portion of, their assets and a substantial part of our assets are located
outside the United States. Consequently, it may be difficult for United States
investors to effect service of process within the United States on such person
or to realize, in the United States, on judgments rendered against us or these
persons based on the civil liability provisions of the United States federal
securities laws. In addition, there is substantial doubt as to the
enforceability in Canada against us or these persons, in original actions or in
actions for enforcement of judgments of United States courts, of liabilities
based solely upon the United States federal securities laws. No treaty exists
between the United States and Canada for the reciprocal enforcement of foreign
court judgments.
Management has discretion in spending our proceeds from this offering.
We have broad discretion in allocating our proceeds from this offering. You
will not have the opportunity to evaluate the economic, financial or other
information on which we base our decision on how to use the proceeds we receive
from this offering.
13
<PAGE>
Special Note Regarding Forward-Looking Statements
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These forward-looking
statements include, among other things, statements concerning our product
development plans, use of proceeds, projected capital expenditures, liquidity
and business strategy. These statements may be found under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Forward-looking
statements typically are identified by use of terms such as "believes,"
"estimates," "expects," "intends," "may," "will," "should" or "anticipates" or
the negative forms of these expressions, although some forward-looking
statements are expressed differently. You should be aware that our actual
results could differ materially from those contained in the forward-looking
statements due to a number of factors, including the matters discussed under
"Risk Factors" and in other sections of this prospectus, which address various
factors that could cause our actual results to differ from those set forth in
the forward-looking statements.
14
<PAGE>
Use of Proceeds
We estimate that the net proceeds from the sale of the 4,000,000 common shares
we are offering will be approximately $ million. If the underwriters fully
exercise the over-allotment option, the net proceeds will be approximately $
million. "Net proceeds" is what we expect to receive after we pay the
underwriting discount and other estimated expenses for this offering. For the
purpose of estimating net proceeds, we are assuming that the public offering
price will be $ per share.
We expect to use the net proceeds for working capital and general corporate
purposes, which may include the purchase of equipment and the expansion of
facilities. We also may use a portion of the net proceeds to acquire or invest
in businesses, technologies, products or services that are complementary to our
business. We are not currently in discussions regarding any material
acquisitions or investments and have no agreements or commitments to complete
any such material transaction. Pending our uses of the proceeds, we intend to
invest the net proceeds of this offering primarily in short-term, investment-
grade, interest-bearing instruments.
If the selling shareholders sell any common shares in connection with the
underwriters' exercise of their over-allotment option, all of the net proceeds
from the sale of those common shares by those selling shareholders will go to
the selling shareholders. We will not receive any proceeds from the sale of
those shares.
Dividend Policy
We have never declared cash dividends on our common shares. We anticipate that
we will retain earnings to support operations and to finance the growth and
development of our business. Therefore, we do not expect to pay cash dividends
in the foreseeable future.
15
<PAGE>
Capitalization
The following table shows our capitalization at December 31, 1999, on an actual
basis and as adjusted to reflect the sale of the 4,000,000 common shares that
we are offering, assuming the over-allotment option is not exercised, at an
assumed per share offering price of $ , after deducting the underwriting
discount and estimated offering expenses, and the application of the net
proceeds from the offering.
<TABLE>
<CAPTION>
December 31, 1999
----------------------
As
Actual adjusted
--------- ---------
(in thousands)
<S> <C> <C>
Debt
Bank indebtedness, due on demand(1)................... $ 23,100 $
Japanese yen term loans maturing October 31, 2000(2).. 3,917
Mortgage loan(2)...................................... 1,508
-------- --------
Total debt.......................................... 28,525
-------- --------
Stockholders' equity
Common shares: no par value; unlimited number of
shares authorized,
34,298,942 shares issued and outstanding, actual;
38,298,942 shares issued and outstanding, as
adjusted............................................. 222,865(3)
Deficit............................................... (44,225)
Accumulated other comprehensive income................ (6,910)
--------- --------
Total shareholders' equity.......................... 171,730
-------- --------
Total capitalization(4)................................. $200,255 $
======== =========
</TABLE>
- ------------------
(1) See note 7 to the consolidated financial statements.
(2) See note 8 to the consolidated financial statements.
(3) Does not include 3,978,000 common shares issuable upon exercise of
outstanding options granted under our stock option plans or up to 70,818
common shares that may be issued for outstanding warrants as of December
31, 1999. Subsequent to December 31, 1999, 93,000 additional options have
been issued under our stock option plan.
(4) See note 17 to the consolidated financial statements for our obligations
under operating leases.
16
<PAGE>
Price Range of Common Shares
Our common shares are quoted on the Nasdaq National Market under the symbol
"GSLI" and on The Toronto Stock Exchange under the symbol "LSI."
The following table gives, for the periods indicated, the high ask and low bid
prices of our common shares as reported on the Nasdaq National Market in U.S.
dollars and The Toronto Stock Exchange in Canadian dollars.
<TABLE>
<CAPTION>
Toronto
Stock
Nasdaq Exchange
price range price range
US$ Cdn$
--------------- -------------
High Low High Low
------- ------- ------ ------
<S> <C> <C> <C> <C>
2000:
First quarter................................. $29.375 $ 8.250 $40.00 $ 7.60
Second quarter through April 7, 2000.......... 19.688 14.250 28.59 20.50
1999:
First quarter................................. $ 6.375 $ 4.500 $10.50 $ 6.75
Second quarter................................ 4.875 3.250 7.25 5.00
Third quarter................................. 6.875 3.813 10.25 5.60
Fourth quarter................................ 11.250 4.188 16.20 7.60
1998:
First quarter................................. -- -- $27.75 $21.50
Second quarter................................ -- -- 23.00 11.80
Third quarter................................. -- -- 13.75 7.50
Fourth quarter................................ -- -- 9.10 6.50
</TABLE>
The closing price of the shares on April 7, 2000 was US$19.50 on the Nasdaq
National Market and Cdn$27.75 on The Toronto Stock Exchange.
The following table gives in Canadian dollars the exchange rates for the United
States dollar, determined based on publicly available information from the
Federal Reserve Bank of New York for the calendar years 1999 and 1998.
<TABLE>
<CAPTION>
Cdn$ per US$
---------------
1999 1998
------- -------
<S> <C> <C>
High......................................................... $1.5300 $1.5770
Low.......................................................... 1.4440 1.4075
End of period................................................ 1.4440 1.5375
Average...................................................... 1.4827 1.4898
</TABLE>
The average exchange rate is calculated on the last business day of each month
for the applicable period.
On April 7, 2000, the noon buying rate in New York for cable transfers in
Canadian dollars was US$1.00 = Cdn$1.4574 as certified for customer purposes by
the Federal Reserve Bank of New York.
17
<PAGE>
Selected Consolidated Financial Data
This section presents our selected historical consolidated financial data. You
should read carefully the consolidated financial statements included in this
prospectus, including the notes to the consolidated financial statements. The
selected consolidated data in this section is not intended to replace the
consolidated financial statements.
We derived the consolidated statement of operations data for the years ended
December 31, 1999, December 31, 1998 and December 31, 1997 and the consolidated
balance sheet data as of December 31, 1999 and December 31, 1998 from the
audited consolidated financial statements in this prospectus. Those
consolidated financial statements were audited by Ernst & Young LLP, our
independent auditors. We derived the consolidated statement of operations data
for the years ended December 31, 1996 and December 31, 1995 and consolidated
balance sheet data as of December 31, 1997, December 31, 1996 and December 31,
1995 from audited consolidated financial statements that are not included in
this prospectus.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals.
We recorded this transaction as a purchase for accounting purposes.
Accordingly, the consolidated financial statements exclude the results of
General Scanning before the merger date and therefore do not provide meaningful
year-to-year comparative information. Note 2 to the consolidated financial
statements includes, for illustrative purposes, unaudited pro forma information
as if the merger had occurred on January 1, 1998. Results for 1999 reflect
$34.5 million of restructuring and acquired in-process research and development
expenses related to the merger.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Sales......................... $274,550 $144,192 $177,328 $153,367 $125,268
Gross profit.................. 95,777 40,673 65,922 60,999 48,031
Operating expenses:
Research and development..... 28,700 12,985 11,993 11,872 7,068
Selling, general and
administrative.............. 64,653 38,191 37,591 32,999 28,385
Amortization of technology
and other intangibles....... 4,070 861 400 381 384
Acquired in-process research
and development............. 14,830 -- -- -- --
Restructuring and other
charges..................... 19,631 2,022 -- -- --
Foreign exchange, interest
and gain on sales of assets. 1,223 (2,210) (1,048) (634) 854
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................ (37,330) (11,176) 16,986 16,381 11,340
Income tax provision
(benefit).................... (2,556) (3,260) 5,074 4,635 3,304
-------- -------- -------- -------- --------
Net income (loss)............. $(34,774) $ (7,916) $ 11,912 $ 11,746 $ 8,036
======== ======== ======== ======== ========
Net income (loss) per common
share:
Basic........................ $ (1.14) $ (0.46) $ 0.75 $ 0.83 $ 0.70
Diluted...................... $ (1.14) $ (0.46) $ 0.72 $ 0.78 $ 0.65
======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 30,442 17,079 15,989 14,077 11,521
Weighted average common shares
outstanding and dilutive
potential common shares...... 30,442 17,079 16,454 15,079 12,457
</TABLE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital...................... $103,727 $85,977 $110,895 $71,981 $58,087
Total assets......................... 289,722 159,642 189,180 135,602 122,802
Long-term liabilities, including
current portion..................... 10,022 7,082 9,239 13,820 19,367
Total shareholders' equity........... 171,730 120,757 133,623 88,345 69,442
</TABLE>
18
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read this discussion together with the consolidated financial
statements and other financial information included in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those indicated in
the forward-looking statements. Please see the "Special Note Regarding Forward-
Looking Statements" elsewhere in this prospectus.
Overview
We design, develop, manufacture and market laser-based advanced manufacturing
systems and components for a wide range of applications, including cutting,
welding, drilling, marking, micro-machining, inspection, and optical detection
and transmission. Markets for these products include the semiconductor,
electronics, automotive, medical/biotechnology and telecommunications
industries. In addition, we sell to other markets such as the aerospace and
packaging industries. Our systems sales depend on our customers' capital
expenditures which are affected by business cycles in the markets they serve.
Results of Operations for Fiscal Years Ended December 31, 1999, 1998 and 1997
The following table sets forth items in the consolidated statement of
operations as a percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Sales.................................................... 100.0% 100.0% 100.0%
Cost of goods sold....................................... 65.1 71.8 62.8
Gross profit............................................. 34.9 28.2 37.2
Research and development................................. 10.5 9.0 6.8
Selling, general and administrative...................... 23.5 26.5 21.2
Amortization of technology and other intangibles......... 1.5 0.6 0.2
Acquired in-process research and development............. 5.4 -- --
Restructuring and other changes.......................... 7.2 1.4 --
----- ----- -----
Income (loss) from operations............................ (13.2) (9.3) 9.0
Interest income, net..................................... -- 1.1 0.6
Gain on sale of assets................................... 0.6 -- --
Foreign exchange translation gains (losses).............. (1.0) 0.4 --
----- ----- -----
Income (loss) before income taxes........................ (13.6) (7.8) 9.6
Income tax provision (benefit)........................... (0.9) (2.3) 2.9
----- ----- -----
Net income (loss)........................................ (12.7)% (5.5)% 6.7%
===== ===== =====
</TABLE>
19
<PAGE>
The following table sets forth sales in millions of dollars to our primary
markets for 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ------------
Increase Increase
(decrease) (decrease)
% of over % of over % of
Sales Total prior year Sales Total prior year Sales Total
------ ----- ---------- ------ ----- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Semiconductor........... $ 34.5 13% 146% $ 14.0 10% (63)% $ 38.1 21%
Electronics............. 67.9 25 120 30.8 21 11 27.7 16
Automotive.............. 12.0 5 (12) 13.6 9 (27) 18.7 11
Aerospace............... 15.0 5 15 13.1 9 (26) 17.7 10
Packaging............... 11.9 4 (12) 13.5 9 (1) 13.7 8
Components.............. 33.4 12 351 7.4 5 28 5.8 3
Medical/Biotechnology... 50.3 18 1,098 4.2 3 20 3.5 2
Emerging................ 10.3 4 (32) 15.1 11 (13) 17.3 10
Parts and service....... 39.3 14 21 32.5 23 (7) 34.8 19
------ --- ----- ------ --- --- ------ ---
Total................... $274.6 100% 90% $144.2 100% (19)% $177.3 100%
====== === ===== ====== === === ====== ===
</TABLE>
Sales by Market. Our results of operations are affected by external factors
that impact the markets in which we compete. Sales to Japan and the Asia-
Pacific region were impacted by the financial crisis that occurred there in the
fall of 1997 and the effects which extended into 1999. Japan suffered a
recession during the same period, brought about partly by the financial crisis.
The semiconductor equipment business was in a recession from mid-1998 through
the first quarter of 1999.
In 1999, sales increased by 90% due primarily to the merger and improved market
conditions in the second half of the year in some of our markets. Product
prices in some of our markets faced increased competitive pressures during
1999, particularly in the first half of the year, and had a negative effect on
reported gross profit. Sales in 1998 declined 19% overall due to a sharp
decline in the semiconductor market as well as declines of 26% in the
automotive market and 27% in the aerospace market.
The increase in sales during 1999 to the semiconductor industry was due
primarily to the merger between Lumonics and General Scanning. The decline
experienced in the semiconductor market during 1997 continued through 1998 and
into 1999. Excess capacity in semiconductor fabrication plants worldwide
resulted in a 63% decline in 1998 semiconductor sales relative to 1997. The
semiconductor market is cyclical, and the downturn in the industry slowed
demand for our products through this period. The semiconductor equipment
market, however, has been on a slow recovery as reflected in quarterly
improvements in sales during 1999.
Sales to the electronics market grew in each quarter in 1999. This increase was
due primarily to the success of the new GS-600 systems for drilling micro vias,
or precise holes, and increased demand for trim and test systems. During 1998,
sales to the electronics market increased by 11% over 1997, as a result
primarily of increased demand for systems from the printed circuit board
industry, particularly the GS-600.
During 1999, sales to the automotive market declined 12% following a decline of
27% in 1998, each due to lower capital spending by automotive companies.
The increased sales to the aerospace market in 1999 were due primarily to the
merger. Sales to the aerospace market declined by 26% during 1998, due
primarily to a decreased demand for systems from the aerospace sector in North
America. In addition, sales in 1997 were unusually high because we delivered a
$3.5 million order representing the largest advanced laser-based systems we
have ever built.
Packaging market sales declined in 1999 by 12% compared to 1998. Sales in this
market sector were not affected significantly by the merger. Packaging market
sales were essentially flat during 1998 compared to 1997.
20
<PAGE>
Component sales increased in 1999 due primarily to the merger. Sales to the
medical and biotechnology markets increased in 1999 due primarily to the merger
and the increased market acceptance of ScanArray
systems. Sales of systems to our emerging product markets declined in 1999 due
to a decline in consumer products sales and a further decline in sales to the
nuclear energy industry. During 1998, in aggregate dollars, sales to the
emerging products component and medical and biotechnology markets were
essentially flat.
Parts and service full year sales increased 21% for 1999, with about half of
the increase due to the merger. The remaining increase reflects customers'
increased utilization of existing installed systems, as well as the improvement
of parts and service support for the former General Scanning systems. Largely
as a result of the slowdown in the semiconductor market in 1998, parts and
service revenues declined by 7% relative to the previous year.
Sales by Region. We distribute our systems and services via our global sales
and service network and through third-party distributors and agents. Our sales
territories are divided into the following regions: the United States; Canada;
Latin and South America; Europe, consisting of Europe, the Middle East and
Africa; Japan; and Asia-Pacific, consisting of ASEAN countries, China and other
Asia-Pacific countries. The table below shows sales in millions of dollars to
each geographic region for 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- ------------
Increase Increase
(decrease) (decrease)
% of over prior % of over prior % of
Sales total year Sales total year Sales total
------ ----- ---------- ------ ----- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States........... $143.0 52% 133% $ 61.3 43% (33)% $ 91.8 52%
Canada.................. 10.8 4 30 8.3 6 (14) 9.7 5
Latin and South America. 1.6 -- 167 0.6 -- (63) 1.6 1
Europe.................. 65.3 24 62 40.4 28 21 33.4 19
Japan................... 32.6 12 104 16.0 11 (19) 19.8 11
Asia-Pacific............ 21.3 8 21 17.6 12 (16) 21.0 12
------ --- --- ------ --- --- ------ ---
Total................. $274.6 100% 90% $144.2 100% (19)% $177.3 100%
====== === === ====== === === ====== ===
</TABLE>
Sales increases in 1999 in all regions were due primarily to the merger.
Economic conditions in Japan have depressed our sales in that country during
the past few years. Before the merger, the Japanese market was served primarily
by our largest distributor and significant shareholder, Sumitomo Heavy
Industries, Ltd., which accounted for $11.7 million of 1999 sales, $15.5
million of 1998 sales and $18.9 million of 1997 sales. In October 1999, we
purchased part of this distribution business from Sumitomo to broaden our
direct sales and service in Japan.
Backlog. We define backlog as unconditional purchase orders or other
contractual agreements for products for which customers have requested delivery
within the next twelve months. Backlog was approximately $83 million on
December 31, 1999 compared to $29 million on December 31, 1998. On a pro forma
basis, as if the merger had occurred at the beginning of the fiscal period,
backlog was $59 million at December 31, 1998.
Gross Profit Margin. Gross profit margin was 34.9% in 1999, 28.2% in 1998 and
37.2% in 1997. Gross profit margin in 1999 was affected by increased sales of
higher margin products, varying levels of capacity utilization at our
manufacturing plants and warranty settlements on large custom systems and
printers. Gross profit margin in 1998 was lower due to declines in sales of
higher margin products, lower capacity utilization, cost overruns on large and
custom systems and costs associated with consolidating facilities.
21
<PAGE>
Research and Development Expenses. Research and development expenses, net of
government assistance, for 1999 were 10.5% of sales or $28.7 million (excluding
the $14.8 million merger related in-process research and development charge),
compared with 9.0% of sales or $13.0 million in 1998 and 6.8% of sales or $12.0
million in 1997. The increase in 1999 was due primarily to the merger. During
1999, research and development activities focused on products targeted at the
electronics, semiconductor, biotechnology, aerospace and automotive markets.
During 1998, research and development activities focused on products targeted
at the aerospace and electronics markets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to 23.5% of sales in 1999 due primarily to
operating efficiencies realized from the merger and increased sales. In 1998,
in dollar terms, selling, general and administrative expenses were essentially
the same as 1997.
Amortization of Technology and Other Intangibles. Amortization of technology
and other intangibles increased to 1.5% of sales or $4.1 million in 1999 as a
result of amortizing intangible assets acquired in the merger.
Restructuring and Other Charges. During 1999, we took a charge of $19.6 million
to accrue for employee severance, leased facility and related costs associated
with the closure of our plant in Oxnard, California and other facilities
worldwide. These costs resulted from restructuring and integration of
operations following the merger. The Oxnard manufacturing operation shutdown
was completed during December 1999. Other integration activities included
incurring exit costs for some product lines, reducing redundant resources
worldwide, and abandoning redundant sales and service facilities. The remaining
accrual is $10.1 million at December 31, 1999. During 1998, we took a
restructuring charge of $2.0 million for severance costs associated with a
downsizing of our global workforce.
Acquired In-Process Research and Development Costs. During 1999, we wrote off
$14.8 million of in-process research and development costs acquired in the
merger.
Interest Income. Net interest income was $0.1 million in 1999 compared with
$1.6 million or 1.1% of sales in 1998 and $1.0 million or 0.6% in 1997. The
decrease in net interest income in 1999 was due to higher average debt balances
and lower average cash and investments balances compared to 1998. The increase
in 1998 was a result of interest accrued for a full year on the investment of
proceeds received from the public issuance of two million shares in May 1997,
which raised $35.7 million.
Income Taxes. The effective rate of recovery for taxes for 1999 was 6.8% of
income before taxes, compared with an effective rate of recovery of 29.2% for
1998. In 1997, we had an effective tax rate of 29.9%. Our recovery rate in 1999
reflects the non-deductibility for tax purposes of acquired in-process research
and development costs arising from the merger and the non-recognition of the
tax benefit from losses in certain countries where future use of the losses is
uncertain. Our 29.2% recovery rate in 1998 derives primarily from our ability
to carry back current losses against prior year profits to recover taxes paid
in prior years. In addition, our annual effective tax rate is generally less
than the Canadian statutory tax rate as tax rates in many of the countries
where we operate are lower than the Canadian statutory rate.
Net Income (Loss). The net loss during 1999 was $34.8 million compared with a
net loss of $7.9 million in 1998 and a net income of $11.9 million in 1997. The
net loss during 1999 was due primarily to one-time restructuring and acquired
in-process research and development charges related to the merger offset in
part by improved operating margins. The net loss in 1998 was due primarily to
decreased sales volumes, gross margin erosion and downsizing activities.
Quarterly Results of Operations
The following tables present unaudited quarterly data for the quarters ended
December 31, 1999, October 1, 1999, July 2, 1999 and April 2, 1999. We believe
this information is helpful in isolating ongoing trends in our business
22
<PAGE>
from the effects of the merger. This information has been presented on the same
basis as the audited consolidated financial statements appearing elsewhere in
this prospectus. Revenues from operations for any quarter are not necessarily
indicative of the results to be expected for the entire fiscal year or for any
future period.
Our quarterly operating results are subject to fluctuation due to a variety of
factors, some of which are outside of our control. Accordingly, you should not
rely on our results for any past quarter as an indication of future
performance. Generally, our sales are higher in the second and fourth quarters
of the year.
This table reflects all adjustments, consisting only of all normal recurring
accruals, necessary in the view of management to fairly present results of
operations.
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------
December 31, October 1, July 2, April 2,
1999 1999 1999 1999(1)
------------ ---------- ------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Quarterly Statement of Operations
Data:
Sales............................... $88,667 $78,041 $69,248 $ 38,594
Gross profit........................ 34,394 30,488 23,376 7,519
Operating expenses:
Research and development........... 8,676 8,104 8,584 3,336
Selling, general and
administrative.................... 17,931 17,704 18,521 10,497
Amortization of technology and
other intangibles................. 1,251 1,251 1,251 317
Acquired in-process research and
development....................... -- -- -- 14,830
Restructuring and other charges.... -- -- -- 19,631
Foreign exchange, interest and gain
on sale of assets................. 182 512 (64) 593
------- ------- ------- --------
Income (loss) before income taxes... 6,354 2,917 (4,916) (41,685)
Income taxes provision (benefit).... 2,115 874 (1,174) (4,371)
------- ------- ------- --------
Net income (loss)................... $ 4,239 $ 2,043 $(3,742) $(37,314)
======= ======= ======= ========
Net income (loss) per common share:
Basic.............................. $ 0.12 $ 0.06 $ (0.11) $ (1.94)
Diluted............................ $ 0.12 $ 0.06 $ (0.11) $ (1.94)
======= ======= ======= ========
Weighted average common shares
outstanding........................ 34,222 34,173 34,167 19,204
Weighted average common shares
outstanding and dilutive potential
common shares...................... 35,755 35,085 34,167 19,204
</TABLE>
The following table sets forth sales in millions of dollars to our primary
markets for the quarters ended December 31, 1999, October 1, 1999, July 2, 1999
and April 2, 1999.
<TABLE>
<CAPTION>
Three months ended
------------------------------------------
December 31, October 1, July 2, April 2,
1999 1999 1999 1999(1)
------------- ----------- ------- --------
(in millions)
<S> <C> <C> <C> <C>
Quarterly revenues by market:
Semiconductor...................... $12.5 $ 9.3 $ 9.0 $ 3.7
Electronics........................ 26.1 16.1 15.7 10.0
Automotive......................... 4.9 3.4 2.1 1.6
Aerospace.......................... 1.4 5.7 6.0 1.9
Packaging.......................... 2.3 4.0 2.4 3.2
Components......................... 10.3 11.5 7.9 3.7
Medical/Biotechnology.............. 17.9 14.6 14.6 3.2
Emerging........................... 1.5 3.3 2.8 2.7
Parts and services................. 11.8 10.1 8.8 8.6
----- ----- ----- -----
Total........................... $88.7 $78.0 $69.3 $38.6
===== ===== ===== =====
</TABLE>
- ------------------
(1) Includes General Scanning from March 22, 1999, the date of the merger of
General Scanning and Lumonics.
Beginning in 1999, financial conditions in Japan and the Asia-Pacific region
began to improve. During the first half of 1999, the semiconductor equipment
industry emerged from a recession. Activity increased in the front end of the
fabrication process resulting in an increase in orders for wafer marking. In
the second half of the
23
<PAGE>
year, activity increased in the back end of the fabrication process resulting
in increased sales of laser markers. Electronic equipment demand was stirred by
consumer demand for cellular phones. Late in the fall, activity increased in
the auto industry as shown by a $12 million order we received from Tower
Automotive to be delivered during 2000.
Our sales were $88.7 million in the fourth quarter of 1999 compared to $78.0
million in the third quarter of 1999, an increase of 14%. The increase in sales
quarter to quarter was due primarily to increased levels of orders and revenues
from the semiconductor and electronics market. For the three months ended
December 31, 1999, sales to these two markets totalled $38.6 million, compared
to $25.4 million for the three months ended October 1, 1999.
Sales in the third quarter of 1999 were $78.0 million compared to $69.3 in the
second quarter of 1999, an increase of 13%. The increase in sales quarter to
quarter was due primarily to increased orders from the components market. For
the three months ended October 1, 1999, sales to the components markets
totalled $11.5 million compared to $7.9 million for the three months ended July
2, 1999.
Sales in the second quarter of 1999 were $69.3 million compared to $38.6
million in the first quarter of 1999, an increase of 80%. The increase in sales
quarter to quarter was due primarily to the merger.
Gross profit margins were 38.8% in the fourth quarter of 1999, 39.1% in the
third quarter, 33.8% in the second quarter and 19.5% in the first quarter. The
gross profit margin in the fourth quarter reflected increased warranty expense
accrued related to emerging market products. This factor outweighed the
benefits from improved product mix and higher capacity utilization. Third
quarter gross profit margin increased, benefiting from a more favorable product
mix, volume leverage and consolidation of manufacturing operations. Second
quarter gross profit margin reflected the first full quarter of combined
General Scanning and Lumonics results and the favorable mix of relatively high
margin systems from General Scanning's product line. Gross profit margin in the
first quarter reflected reduced sales volumes, pricing pressures, inventory
provisions and an unfavorable product mix, related primarily to our operations
prior to the merger in March 1999.
Liquidity and Capital Resources
Cash and cash equivalents totaled $25.3 million at December 31, 1999 compared
to $24.2 million at December 31, 1998 and $56.8 million at December 31, 1997.
During 1999, we used $4.4 million in operating activities. The net loss, after
adjustment for non-cash items, resulted in the use of cash of $6.7 million in
1999. Accounts receivable used a further $14.4 million, which was more than
offset by inventories, other current assets and current liabilities providing
$16.7 million. In 1998 we used $6.9 million to fund operations. In 1998, the
net loss of $7.9 million, after adjustment for non-cash items, resulted in the
use of cash of $3.3 million in 1998. Accounts receivable provided $14.4 million
in cash during the year, offset by an $8.3 million increase in inventory and a
reduction of $6.4 million in accounts payable and other current liabilities.
During 1997, a net $5.3 million was used in operating activities, including
$21.0 million in non-cash working capital, consisting mainly of an increase in
accounts receivable from shipments late in the fourth quarter.
In 1999, we used $0.9 million in investing activities, including $7.3 million
of purchases and $8.2 million of maturities of short-term investments. During
the year, we generated $3.9 million from the sale of business assets and
invested $6.2 million in property, plant and equipment. At the date of merger,
General Scanning added $4.7 million in cash and cash equivalents, offset by
merger costs of $3.3 million. The acquisition of the Sumitomo distribution
business added $0.1 million in cash, offset by $0.4 million cash to acquire the
company.
In 1998, we used a total of $11.3 million in cash in investing activities.
These activities included $43.5 million of purchases of short-term investments,
$47.1 million of maturities of short-term investments, $13.6 million in
24
<PAGE>
capital expenditures and $1.2 million to acquire Meteor Optics Inc. Capital
expenditures in 1998 included $6.3 million to complete the expansion of
manufacturing facilities in Rugby, England that began in 1997 and approximately
$1.5 million to purchase and equip a second optics facility in Nepean, Canada.
Cash flows used in investing activities totaled $9.3 million in 1997, including
$80.2 million of purchases of short-term investments, $79.4 million of
maturities of short-term investments, and $8.7 million in capital expenditures.
Capital expenditures included $4.2 million of costs incurred in the expansion
and modernization of the facility in Rugby, England and $4.5 million invested
in machinery and equipment at other locations.
Cash flow provided by financing activities was $5.4 million for the year ended
December 31, 1999 compared to cash used in financing activities of $10.6
million in 1998 and $42.8 million provided by financing activities in 1997. The
increase in cash in 1999 relates primarily to a $7.5 million increase in bank
indebtedness less $2.6 million of payments of long-term debt. Changes during
1998 were due primarily to $7.9 million reduction in bank indebtedness, $2.3
million used to repay long-term debt and $0.6 million used to repurchase and
cancel 94,900 common shares. Changes during 1997 were due primarily to $7.7
million increase in bank indebtedness, $2.5 million used to repay long-term
debt, $35.7 million raised through a public offering of 2 million common shares
and $1.9 million raised from the exercise of stock options.
Term loans from Sumitomo made in 1990 and 1991 are repayable in 10 equal semi-
annual installments, which commenced in April 1996. We made two payments in
1999 totaling $2.6 million and two payments in 1998 totaling $2.3 million. At
December 31, 1999, Sumitomo debt, which is due in 2000, was $3.9 million. In
addition, we have a loan balance of $1.5 million, also due in 2000, under a
mortgage on property in California.
We have credit facilities of approximately $40 million denominated in Canadian
dollars, U.S. dollars, British pounds and Japanese yen (1998--$20 million).
Actual bank indebtedness is due on demand and bears interest based on prime
which resulted in an effective average rate of 4.98% in 1999 (1998--7%). At
December 31, 1999, we had unused and available demand lines of credit amounting
to approximately $19 million (1998--$9 million).
Accounts receivable and inventories have been pledged as collateral for the
bank indebtedness under general security agreements. The borrowings require us
to maintain specified financial ratios and conditions. We are currently in
compliance with those ratios and conditions.
We believe that existing cash balances, together with cash generated from
operations and available bank lines of credit, will be sufficient to satisfy
anticipated cash needs to fund working capital and investments in facilities
and equipment for the next two years.
Currency Exchange Matters
We have substantial sales and expenses in currencies other than U.S. dollars.
As a result we have exposure to foreign exchange fluctuations, which may be
material.
Market Risk Disclosure
Interest Rate Risk. Our exposure to market risk associated with changes in
interest rates relates primarily to our debt obligations and short-term
investments. We do not use derivative financial instruments in our investment
portfolio. We do not actively trade derivative financial instruments but may
use them to manage interest rate positions associated with our debt
instruments. We currently have three such contracts outstanding, two of which
convert yen denominated interest on long term debt into U.S. dollar denominated
interest and one contract which converts yen denominated interest on long term
debt into Canadian dollar denominated interest.
Credit Risk. There is no concentration of credit risk related to our position
in trade accounts receivable other than the amount due from Sumitomo. Credit
risk, with respect to trade receivables, is minimized because of the
25
<PAGE>
diversification of our operations, as well as our large customer base and its
geographical dispersion. We are exposed to credit-related losses with respect
to the positive fair value of our swap contracts described below in the event
of non-performance by the two banks acting as counterparties to the swap
contracts. We do not expect either counterparty to fail to meet its
obligations.
Foreign Currency Risk. We have a foreign currency hedging program using
currency forwards and currency options to hedge exposure to foreign currencies.
The goal of the hedging program is to manage risk associated with fluctuations
in the value of the foreign currency. We do not currently use currency forwards
or currency options for trading purposes. We currently have three contracts
outstanding, two of which convert yen denominated obligations into U.S. dollar
obligations and one contract which converts yen denominated obligations into
Canadian dollar obligations.
Update on Year 2000 Compliance
We have not experienced material problems related to the Year 2000. We are not
aware of customers having related problems with system products manufactured by
us. We are also not aware of any significant problems in receiving payments on
customer receivables due to Year 2000 problems. In addition, we are not aware
of any significant vendor performance issues due to Year 2000 problems
identified. We have not experienced significant internal operations problems
related to Year 2000. We intend to maintain efforts to identify possible
problems related to Year 2000 with internal systems, customers and vendors.
Recent Pronouncements
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin #101 on revenue recognition which is effective for our
current fiscal year. We believe this bulletin will not have a significant
impact on our reported sales.
26
<PAGE>
Business
We design, develop, manufacture and market laser-based advanced manufacturing
systems and components for a wide range of applications, including cutting,
drilling, welding, marking, micro-machining, inspection, and optical detection
and transmission. Major markets for these products include the semiconductor,
electronics, automotive, medical/biotechnology and telecommunications
industries. In addition, we sell to other markets such as the aerospace and
packaging industries.
Corporate History
Lumonics Inc. was incorporated in 1970 for the purpose of producing lasers for
scientific and research applications. We first became a public company in 1980,
and our common shares were listed on The Toronto Stock Exchange until 1989. In
1989, all of our common shares were acquired by a wholly owned subsidiary of
Sumitomo Heavy Industries, Ltd., and we ceased to be a public company. On
September 28, 1995, we again became a public company, and our shares were
listed on The Toronto Stock Exchange. At December 31, 1999, Sumitomo owned
17.7% of our outstanding shares.
General Scanning Inc. was incorporated in 1968 in Massachusetts. In its early
years, General Scanning developed, manufactured and sold components and
subsystems for high-speed micropositioning of laser beams. Starting in the mid-
to-late 1980s, General Scanning began manufacturing complete laser-based,
advanced manufacturing systems for the semiconductor and electronics markets as
well as a number of other applications such as aerospace, assembly and medical
recording and imaging.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals
and continued as a New Brunswick corporation under the name GSI Lumonics Inc.
Our shares commenced trading on the Nasdaq National Market and continued to
trade on The Toronto Stock Exchange. Immediately following the merger, the
General Scanning shareholders and the Lumonics shareholders each, as a group,
owned approximately 50% of the combined company's common shares.
Industry Overview
Laser-based systems are used in many different applications such as material
processing, medical therapy, instrumentation, research, telecommunications,
optical storage, entertainment, image recording, inspection, measurement and
control, bar-code scanning and other end uses.
Industrial lasers are generally used in the machine-tool, automotive,
semiconductor and electronics industries. We expect capital equipment
expenditures by the semiconductor and electronics industry, fueled by demand
for computers, cellular phones and communications devices, to stimulate demand
for laser-based systems. Dataquest, an independent market research company,
estimates that capital spending by the semiconductor industry will grow from
$33.9 billion in 1999 to $74.9 billion in 2002, representing a compound annual
growth rate of 30.2%.
Industrial users of lasers generally demand high-speed, highly durable laser
sources which have reliable output power. These lasers must be easily and
flexibly integrated into the customers' production process. Lasers are used for
four main material processing applications: cutting, drilling, welding and
marking.
Laser Cutting. Laser cutting is fast, flexible and high-precision, as it can be
used to cut complex contours on flat, tubular and three-dimensional materials.
The laser source can be easily programmed by a computerized numerical
controller and is able to process many different kinds of materials such as
steel, aluminum, brass, copper, wood, glass, ceramics and plastics at various
thicknesses. Additionally, laser cutting technology is a non-contact, no-wear
process which is easy to integrate into an automated production line. Principal
markets for laser cutting are the semiconductor, electronics, automotive and
aerospace industries.
27
<PAGE>
Laser Drilling. Lasers drill holes at production rates that are difficult to
achieve using conventional processes. In industrial applications, lasers drill
virtually all types of metals, nonmetals, organic graphite-reinforced
composites, and metal matrix composites. Hole shape and size can be controlled
by the laser system software to produce round, oval or rectangular holes. In
electronics applications, blind micro via drilling is best accomplished with
lasers. These holes measure from 25 to 250 microns and are drilled into printed
circuit boards at a speed of up to 1,800 holes per second. End user
applications for these boards include cellular phones, pagers, base stations,
automotive components and other devices.
Laser welding. Laser welding is non-contact, easy to automate, provides high
process speed and results in narrow-seamed, high quality welds which require
little, if any, post-processing machining. Because there is low heat input into
the material being processed and therefore minimal part damage or distortion,
parts can be accurately machined before welding. Additionally, because laser
welding is non-contact based, the process is not subject to tool wear. As with
lasers used for cutting applications, lasers can be used to weld a wide variety
of materials of different thickness. Principal markets served are electronics,
medical, automotive and aerospace.
Laser marking. With the increasing need for source traceability, component
identification, and product tracking as a means to reduce product liability and
prevent falsification, industrial manufacturers are increasingly demanding
variable code marking systems capable of applying serialized alphanumeric,
graphic or bar code identifications directly onto their manufactured
components. Laser marking offers several advantages which are desirable in
industrial applications. Lasers can mark a wide variety of metal and non-metal
(for example, wood, glass and plastics) surfaces at high speeds without contact
by changing the surface structure of the material or by engraving. Laser
marking systems are reliable, flexible, fast, produce permanent marks and,
because they are computer controlled, may be easily integrated into the
customer's production process. Given that laser marking is contact-free, it
does not subject the item being marked to any mechanical stress.
Principal applications for laser marking have been in the semiconductor and
electronics industries, as well as automotive industry. In the semiconductor
and electronics industries, lasers are used to mark electrical components such
as contactors and relays, and assembled components such as integrated circuits,
printed circuit boards and keyboards. With the increase in marking speed in
recent years, laser marking of integrated circuits has decreased in cost,
improving the price and performance characteristics of this technology and
therefore increasingly displacing alternative methods such as ink-based marking
installations.
Corporate Strategy
We intend to accelerate growth and increase market share. The key elements of
our strategy include:
. Invest in laser-based technologies, products and capabilities which
position us as one of the leading competitors in markets that offer strong
profitable growth opportunities, specifically semiconductor, electronics
and automotive;
. Concentrate on high value-added systems that have a global market;
. Enhance our capabilities to supply precision optical components used in
dense wavelength division multiplexing for the fiber optic
telecommunications networks;
. Further strengthen our competencies in technology, manufacturing and
distribution; and
. Acquire complementary products and technologies.
Consistent with our strategy, we plan to divest product lines that are no
longer strategic. These actions will allow us to redirect capital to
opportunities in our strategic markets including semiconductor, electronics,
automotive and telecommunications. We are considering alternatives for our
nonstrategic product lines, including a product line that serves the medical
market.
28
<PAGE>
In 2000, we plan to take specific actions to strengthen our position in our
strategic markets:
. Semiconductors. We are developing and plan to introduce, in the second half
of 2000, a new technology platform for memory repair, an application for
our manufacturing systems. We estimate the market for memory repair systems
is between $80 million and $100 million of which we currently have less
than a 15% share.
. Electronics. We plan to enhance our market position in printed circuit
board manufacturing processes, including solder paste inspection, via
drilling and thick film trimming by investing significantly in research and
development. We believe that demand for products such as telecommunications
equipment, cell phones and pagers will drive demand for our newly developed
products.
. Automotive. We believe that new manufacturing techniques in the automotive
industry are well suited to the use of our high power laser technology.
Applications such as welding dissimilar materials, welding aluminum,
cutting hydroformed parts and welding tailored blanks are gaining
acceptance with automotive manufacturers. We are currently developing the
next generation of high power laser systems for introduction in late 2000
to serve this market.
. Telecommunications. With the recent acceleration in the construction of
fiber optic networks, demand for our precision optic products has increased
significantly. In 1999, we began to enhance our capability to supply
precision optical components used in dense wavelength division multiplexing
for fiber optic telecommunication networks.
Products and Services
Semiconductor Market
Our laser systems are used in numerous production process steps within the
semiconductor industry, which is characterized by ever increasing demands on
throughput, reduced device size and increased device complexity, performance,
traceability and quality. Semiconductor devices are used in a variety of
products including automotive electronics, consumer products, personal
computers, communications products, appliances and medical instruments.
Laser Trim and Test Systems. These systems enable production of electronic
circuits by precisely tuning the performance of linear and mixed signal
devices. Tuning is accomplished by adjusting various component parameters with
selective laser cuts, while the circuit is under test, thereby achieving the
desired electrical performance. These systems combine material handling, test
stimulus, temperature control and laser trim subsystems to form turnkey
production process packages.
Permanent Marking Systems. We provide products to support the product marking
requirements of the semiconductor industry. WaferMark laser systems are used
for marking of silicon wafers at the front end of the semiconductor process,
aiding process control and device traceability. These systems incorporate
advanced robotics and proprietary process control technology to provide debris
free marking of high-density silicon wafers along automated production lines.
We also supply systems for die marking of wafers. Our automated wafer marking
system supports individual bare die traceability marks. The system incorporates
a tightly coupled vision system for automated wafer identification and mark
alignment on each die. Complete system operation is managed with software for
intuitive process monitoring and automated wafer map downloading through a
single graphical user interface. Additional semiconductor device marking
capabilities, such as in-tray marking of integrated circuits, are supported by
our HM, LM, and LightWriter series of laser marker products.
Memory Repair Systems. Dynamic random access memory chips are critical
components in the active memory portion of computers and a broad range of other
digital electronic products. First-pass manufacturing yields are typically low
at the start of production of a new generation of higher capacity devices.
Laser
29
<PAGE>
processing is used to raise production yields to acceptable economic levels.
Our memory repair laser systems allow semiconductor manufacturers to
effectively disconnect defective or redundant circuits in a memory chip with
accurately positioned and power modulated laser pulses. This improves the yield
of usable components per treated wafer, effectively lowering the cost per unit
produced.
Electronics Market
Producers of electronic components and assemblies, particularly surface mount
technology assemblies, have a number of our laser systems available to support
their process requirements. Features of these systems include precision laser
spot size, laser power control, high-speed parts handling, and applications
adaptability.
Printed Circuit Board Processing Systems. Our laser systems are used in various
process steps in the production of printed circuit boards and flex circuits.
Our GS series of products, which is capable of drilling micro vias at very high
speeds in every type of material commonly used for printed circuit board
fabrication, supports the miniaturization trend within the industry. Our
ScreenCut systems are used for cutting stencils as an alternative or, in some
cases, a complement to the traditional photochemical machining process.
Surface Mount Measurement Systems. Our surface mount measurement products are
used in the manufacture of printed circuit board assemblies. In the manufacture
process, surface-mount solder, in paste form, is stenciled onto the circuit
board with a screen printer, and components are then placed in their respective
positions on the board by automated equipment. Our systems use our patented
three-dimensional scanning laser data acquisition technology, to inspect either
solder paste depositions or component placement accuracy.
Thick Film Laser Processing Systems. Our laser systems are used in the
production of thick film resistive components for surface mount technology
electronic circuits, known as chip resistors, as well as more general-purpose
hybrid thick film electronic circuits.
Permanent Marking Systems. We offer a broad line of laser marking systems for
printed circuit boards and other electronic components. These systems place
permanent high-contrast marks in any combination of text, barcodes, or 2D cell
codes on even the highest density circuit boards using an industry standard
interface. We manufacture many other component marking systems which have found
wide acceptance in the electronics market. Among the features offered by these
systems are speed, accuracy, power control, wide field marking and application
specific control software.
Welding Systems. Our laser welding systems produce welds that would be
difficult or impossible for conventional welding systems to produce. The
system's low heat input avoids damage or distortion to surrounding components.
In addition, our proprietary control software promotes reliable laser output
and consistent weld quality. Our laser welding systems, with laser beams
deliverable through flexible fiber optics, are used in the electronics industry
for welding micro components in the manufacture of televisions, computers, hard
disk drives and related applications.
Metrology Systems. Our metrology products are automated, non-contact,
dimensional coordinate measurement systems which provide micron-accurate
measurements of component parts and assemblies for electronics,
telecommunications and computer manufacturers.
Automotive, Aerospace and Other Industrial Markets
We manufacture laser systems for the automotive, aerospace and other industrial
markets for advanced manufacturing applications including cutting, drilling,
welding, scribing and machining. Our laser systems can be controlled and
directed with precision and used in a wide spectrum of applications. Lasers
offer lower production costs, fast solutions and flexibility on the production
line. In addition to lasers, systems may include precision optics, fiber
optics, control software, robotics, machine vision, motion control and parts
handling.
30
<PAGE>
Welding, Cutting and Drilling Systems. Our AM Series of high power solid-state
laser systems produce continuous and modulated power with throughput speeds and
power flexibility to achieve cutting and high speed, deep penetration welding
in reflective materials. These systems are often integrated with customers'
robotic systems in various applications, including:
. processing of dissimilar materials such as zinc coated materials and
aluminum in the automotive industry, including welding aluminum, cutting
hydroformed parts and welding tailored blanks;
. processing reflective and difficult materials in the manufacture of
airframes and turbines in the aerospace industry; and
. deep penetration welding for energy and petrochemical applications.
Our JK Series laser systems incorporate advanced solid-state laser technology
to produce efficient, reliable, dependable and accurate production systems.
These systems operate at uniform energy density, offer improved process
efficiency and require less energy. These systems use our patented power
supply, allowing a wide range of applications, including drilling cooling holes
in jet engine turbo fans and welding automotive parts such as ignition
components, fuel injector assemblies and smog detection sensors. They also
permit high speed, repetitive processing which maximizes production rates. Our
JK Series can be readily linked with robotics systems to provide manufacturers
with a flexible production tool.
Our Laserdyne systems provide fully integrated motion and laser control on
multi-axis, articulated machines. These systems incorporate proprietary control
software and permit high speed, precision processing of large parts where the
workpiece cannot be in motion during processing. Our Laserdyne systems are used
in the manufacture and repair of jet aircraft engines, and the trimming of
aerospace and automobile stampings and other large formed parts. They can also
be integrated with automated guided vehicles and conveyor systems.
Permanent Marking Systems. Our LaserMark and HM systems provide marking
capabilities for automotive, aerospace and other industrial markets.
Optical and Other Components
Telecommunications. We design and manufacture precision optical components used
in dense wavelength division multiplexing technology for increasing the
bandwidth of fibre optic networks. These networks have been used mostly for
"long-haul' inter-city applications and, more recently, over short-range
"metro' applications using optical add drop multiplexing. Our products select,
shift or interleave very precise wavelengths of light, thereby increasing the
bandwidth and efficiency of dense wavelength division multiplexing systems.
These products require highly precise polishing and measurement technology to
produce these components to exacting specifications that are critical to their
performance.
Specialty Optical Components. Our specialty optical components are used
primarily for high performance lasers used in lithography, industrial
processing and medical applications.
Scanning Components and Subsystems. We produce optical scanners, scanner
subsystems, and diode-pumped solid state lasers. These are used in a variety of
applications including materials processing, test and measurement, alignment,
inspection, displays, graphics, vision, rapid prototyping, and medical
applications such as dermatology and ophthalmology.
Other Markets and Products
Biotechnology. Our laser-based fluorescence imaging systems address a great
variety of microarray applications including gene expression, genotyping,
mapping, high-throughput screening and drug discovery. The ScanArray biochip
analysis system measures the fluorescent intensity at each DNA grid spot
facilitating, at high speed, the analysis of the expression level of a
particular gene.
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<PAGE>
Printing Products. We produce a variety of printing products. Thermal printers
are used in end products such as defibrillators, patient care monitors, and
cardiac pacemaker programmers. We also produce specialty printing products.
Film Imaging Systems. We produce laser imaging and digitizing equipment for use
with data sets from computer assisted tomography, magnetic resonance imaging or
nuclear medicine equipment.
Package Coding. Our Xymark systems provide marking for packaging, medical
devices, pharmaceuticals and other consumer products. Depending on the
application, a variety of laser marking techniques, including steered beam, dot
matrix, and flash, are used to apply laser marks on a wide variety of metals,
plastics, paper and ceramics at high speed, without contact or ink. These
systems are reliable, flexible, and adaptable and allow the user to incorporate
off-the-shelf graphics and font software.
Customers
We have over 1,000 customers, many of whom are among the largest global
participants in their industries. Many of our customers participate in several
market segments. These customers include:
<TABLE>
<CAPTION>
Semiconductor Electronics Automotive Other
- --------------------- --------------- --------------------- ------------------
<S> <C> <C> <C>
Anadigics A.T.&S. Audi 3M
Analog Devices Bosch Chrysler AB Dick
Cypress Semiconductor Celestica Ford Bell Helicopter
Dominion
Semiconductor Ericsson General Motors Boeing
Flip Chip
Semiconductor Hadco Harley Davidson Cardiac Pacemakers
IBM Hewlett Packard Honda Ciba
Intel IBM Magna Corning
Maxim Jabil Circuits Magnetti-Marelli General Electric
Micron Kyocera Pico Industrial Tools Gillette
Mitsubishi Lucent Tower Automotive Glaxo
Motorola Matsushita Toyota Kodak
National
Semiconductor Motorola TRW Automotive Lockheed
Powerchip
Semiconductor Nippon Denso Medtronic
Samsung Nortel Northrop Grumman
Texas Instruments Philips Pratt & Whitney
Toshiba SDL Rolls Royce
Seagate Vickers
SGS Thomson
Siemens
Toshiba
Vishay
</TABLE>
Marketing, Sales and Customer Support
We believe that our marketing, sales and customer support organizations are
important to our long-term growth and give us the ability to respond rapidly to
the needs of our customers. Our product line managers have worldwide
responsibility for determining product strategy based on their knowledge of the
industry, customer requirements and product performance. These managers have
direct contact with customers and, working with the sales and customer service
organizations, develop and implement strategic and tactical plans aimed at
serving the needs of existing customers as well as identifying new
opportunities based on the market's medium-to-long term requirements.
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<PAGE>
We direct our worldwide advanced manufacturing systems sales activities from
the United States. Sales management for components is based in Massachusetts.
Field offices are located close to key customers to maximize sales and support
effectiveness. In Europe, we maintain offices in the United Kingdom, Germany,
France and Italy, and in the Asia-Pacific region, in Hong Kong, Japan, Korea,
Malaysia, the Philippines, Singapore and Taiwan. Our direct sales organization
is augmented by selected independent distributors and agents who sell our
products in areas such as Eastern Europe, People's Republic of China, Australia
and Latin America.
We provide 24-hour, 365-day-a-year service support to our advanced
manufacturing systems customers. Our service support organization is based in
Livonia, Michigan; Munich; and Hong Kong for the North American, European, and
Asia-Pacific regions, respectively. This support includes field service
personnel who reside close to concentrations of customer sites. These field
service and in-house technical support personnel receive ongoing training with
respect to our laser-based systems, maintenance procedures, laser-operating
techniques and processing technology. Many of our distributors also provide
customer service and support. In order to minimize disruption to customers'
manufacturing operations, we provide same or next day delivery of replacement
parts worldwide from three regional replacement parts logistics centers.
Competition
We face substantial competition in several markets from both established
competitors and potential new market entrants. Significant competitive factors
include product functionality, performance, size, flexibility, cost, market
presence, customer satisfaction, customer support capabilities and breadth of
product line. We believe that we compete favorably on the basis of each of
these factors.
Competition for our products is concentrated in certain markets and fragmented
in others. In laser-based processing systems for the semiconductor and
electronics markets, we compete primarily with a few large companies such as
Electro Scientific Industries and NEC. In laser-based marking systems there are
several significant competitors such as Excel Technology and Rofin-Sinar as
well as a large number of smaller companies that compete with us on a limited
geographic, industry-specific or application-specific basis. In automotive and
industrial markets, we compete with Trumpf-Haas, Prima, Robomatix, and Unitek.
In other markets, we compete with CTI, a unit of Excel Technology, in scanning
components and with several companies in optical components.
We also compete with manufacturers of non-laser products in applications such
as welding, drilling, cutting and marking. We believe that, as industries
continue to modernize, seek to reduce production costs and require more precise
and flexible manufacturing, the features of laser-based systems will become
more desirable than systems incorporating conventional manufacturing techniques
and processes.
We expect our competitors to continue to improve the design and performance of
their products. There is a risk that our competitors will develop enhancements
to, or future generations of, competitive products that will offer superior
price or performance features, or that new processes or technologies will
emerge that render our products less competitive or obsolete. Increased
competitive pressure could lead to lower prices for our products, adversely
affecting business.
Manufacturing
We perform internally those manufacturing functions that enable us to maintain
control over critical portions of the production process and outsource other
portions of the production process. This approach has led to
33
<PAGE>
changes in our manufacturing organization as we move attention from the
management of internal production processes to the management of supplier
quality and production. The retained internal activity is focused on module
integration and testing with particular emphasis on our customers'
applications. We believe we achieve a number of competitive advantages from
this integration, including the ability to achieve lower costs and higher
quality, bring new products and product enhancements more quickly and reliably
to market, and produce sophisticated component parts not available from other
sources.
We manufacture at eleven facilities: four near Boston, Massachusetts, one each
in Arizona, California, and Minnesota, two near Ottawa, Canada, and two in the
United Kingdom. Each of our manufacturing facilities has co-located
manufacturing, manufacturing engineering, marketing and product design
personnel. We believe that this organizational proximity greatly accelerates
development and entry into production of new products and aids economical
manufacturing. Many of our products are manufactured under ISO 9001
certification.
We are subject to a variety of governmental regulations related to the
discharge or disposal of toxic, volatile, or otherwise hazardous chemicals used
on our premises. We believe we are in material compliance with these
regulations and have obtained all necessary environmental permits to conduct
our business.
Research and Development
We devote significant resources to development programs directed at creating
new products, product enhancements and new applications for existing products,
as well as funding research into formative market opportunities. The markets we
serve are generally characterized by rapid technological change and product
innovation. We believe that continued timely development of new products and
product enhancements to serve both existing and new markets is necessary to
remain competitive.
We carry out our research and development activities in multiple locations
around the world. We also maintain links with leading industrial, government
and university research laboratories worldwide. We work closely with customers
and institutions to develop new or extended applications of our technology.
We maintain significant expertise in the following core technologies:
Lasers: both gas and solid-state, designed to produce efficient, reliable and
accurate laser sources in a broad range of configurations for material
processing applications.
Precision Optics: design and manufacturing process capability for production of
laser quality lenses, mirrors of high dynamic rigidity, high performance
mirrors and lens coatings.
Mechanics: design of large laser-based advanced manufacturing systems and small
precision servo mechanisms and optical scanners, typically associated with a
broad spectrum of laser systems.
Electronics: design of wide bandwidth power amplifiers and high signal-to-noise
ratio and low thermal drift signal detection circuits; design and manufacture
of analog servo controllers with low electromagnetic interference circuitry.
Software: development of real-time control of servomechanisms, process system
control and machine interfaces.
Inspection: design of non-contact measurement probes, systems and related
software.
Systems Design and Integration: leveraging our core technologies to produce
highly efficient and effective application-specific manufacturing solutions
typically based on lasers and their interaction with materials including
integration with robotics systems.
34
<PAGE>
Patents and Intellectual Property
Our intellectual property includes copyrights, patents, proprietary software,
technical know-how and expertise, designs, process techniques and inventions.
We own 85 United States and 52 foreign patents; in addition, applications are
pending for 43 United States and 89 foreign patents. We have also been licensed
under a number of patents in the United States and foreign countries. There can
be no assurance as to the degree of protection offered by these patents or as
to the likelihood that patents will be issued for pending applications.
We also rely on trade secret protection for our confidential and proprietary
information. We routinely enter into confidentiality agreements with our
employees and consultants. There is a risk that these agreements will not
provide meaningful protection of our proprietary information in the event of
misappropriation or disclosure.
Human Resources
At December 31, 1999, we had 1,581 employees in the following areas:
<TABLE>
<CAPTION>
Number of
employees Percentage
--------- ----------
<S> <C> <C>
Production and operations............................... 565 36%
Customer service........................................ 204 13%
Sales, marketing and distribution....................... 314 20%
Research and development................................ 299 19%
Administration.......................................... 199 12%
----- ---
Total................................................. 1,581 100%
===== ===
</TABLE>
Legal Proceedings
Electro Scientific Industries, Inc. v. GSI Lumonics, Inc. On March 16, 2000,
Electro Scientific Industries, Inc. filed an action for patent infringement in
the United States District Court for the Central District of California against
us and Dynamic Details Inc., an unrelated party who is one of our customers.
Electro Scientific alleges that we offer to sell, sell and import into the
United States our GS-600 high speed laser drilling system and that Dynamic
Details possesses and uses a GS-600 System. It further alleges that Dynamic
Details' use of our GS-600 laser system infringes on Electro Scientific's U.S.
patent no. 5,847,960 and that we have actively induced the infringement of, and
contributorily infringed on, the patent. Electro Scientific seeks an
injunction, unspecified damages, trebling of those damages, and attorney fees.
We were aware of this patent in March, 1999, and first investigated the matter
at that time. We intend to vigorously defend this claim and, based on our
investigation of the patent to date, we believe that we will prevail.
Electro Scientific Industries, Inc. v. General Scanning Inc. In September 1998,
the United States District Court for the Northern District of California
granted Electro Scientific's motions for summary judgment against General
Scanning in this case on a claim of patent infringement and on the issue of
whether Electro Scientific committed inequitable conduct by intentionally
failing to cite prior art to the U.S. Patent Office in connection with one of
its patents. The court denied our motion for summary judgment that the patents
are invalid due to prior art. During March 1999, the Court granted Electro
Scientific's motion for partial summary judgment that upgrade kits, sold by
General Scanning for 1.3 micron laser wavelength memory repair, infringe the
patents in suit. In April 1999, a federal court jury issued a verdict that
Electro Scientific's patent no. 5,473,624 was invalid, and that Electro
Scientific's patent no. 5,265,114 was valid, and awarded a $13.1 million damage
judgment against us. In July 1999, the court refused Electro Scientific's
requests to increase damages awarded by the jury in April, and for attorney
fees, but granted interest on the damages. We have recorded a provision during
the three months ended April 2, 1999 of approximately $19 million to reflect
the amount of the damages award plus accrued interest and related costs. The
court also affirmed the jury's decision to invalidate one of the two patents
asserted by Electro Scientific in the case. We have appealed the decisions on
infringement, the validity of the second patent, and the award of damages. We
were required to post an unsecured bond with the court in order to proceed with
the appeal. No date has been set for arguments.
35
<PAGE>
Robotic Vision Systems, Inc. v. View Engineering, Inc. This action involves a
complaint by Robotic Vision Systems, Inc. alleging infringement of a patent by
View Engineering, Inc., our wholly owned subsidiary. The matter was tried
before a judge sitting in the United States District Court for the Central
District of California in November 1999. Robotic Vision alleged infringement
relating to lead inspection machines formerly sold by View and sought damages
of $60.5 million. In March 2000, the Court found that Robotic Vision's patent
was invalid. Robotic Vision may appeal the Court's decision. As of the date of
this prospectus, Robotic Vision has not initiated an appeal.
If we lose on one or more of these claims there could be a material adverse
effect on our operating results and/or financial condition.
GSI Lumonics Inc. v. BioDiscovery, Inc. On December 10, 1999 we filed suit in
the United States District Court for the District of Massachusetts seeking a
declaration that our QuantArray Microarray Analysis Software does not infringe
any copyright owned by BioDiscovery, Inc. or its president. BioDiscovery, Inc.
is a manufacturer of microarray quantification software under the name
ImaGene(R). We had previously distributed ImaGene(R) software under a non-
exclusive arrangement with BioDiscovery, but subsequently developed our own
software when BioDiscovery refused to develop necessary enhancements to stay
abreast of industry trends, especially in the field of multi-channel scanning.
On December 21, 1999, BioDiscovery's president responded to our action for
declaratory judgment by filing a separate suit in the United States District
Court for the Southern District of California, alleging that we reverse
engineered his software, and additionally sued us for copyright infringement.
We have applied to the California court to seek the prompt dismissal of the
California action in favor of our prior pending action. In the matter before
the United States District Court for the District of Massachusetts, the court
denied BioDiscovery's president's motion to dismiss and has scheduled the trial
for May 2000. We believe that the claim in this action is without merit.
Potential Claim. As we have disclosed since 1994, a party has commenced legal
proceedings in the United States against a number of U.S. manufacturing
companies, including companies that have purchased systems from us. The
plaintiff has alleged that certain equipment used by these manufacturers
infringes patents claimed to be held by the plaintiff. We are not a defendant
in any of the proceedings. However, several of our customers have notified us
that, if the party successfully pursues infringement claims against them, they
may require us to indemnify them to the extent that any of their losses can be
attributed to systems we sold to them. We do not believe that the outcome of
these claims will have a material adverse effect on us, but there is a risk
that these claims, or similar claims, may have a material adverse effect on our
financial condition or results of operations.
36
<PAGE>
Management
The following table sets forth information with respect to our executive
officers and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Paul F. Ferrari......... 69 Chairman of the Board of Directors
Charles D. Winston...... 59 President and Chief Executive Officer and Director
Desmond J. Bradley...... 43 Vice President, Finance and Chief Financial Officer
Patrick D. Austin....... 48 Vice President, Sales, Advanced Manufacturing Systems
John W. George.......... 57 Vice President, Customer Support, Advanced Manufacturing Systems
Michael R. Kampfe....... 50 Vice President, Operations, Advanced Manufacturing Systems
Felix Stukalin.......... 39 Vice President, Components
Linda Palmer............ 48 Vice President, Human Resources
Kurt A. Pelsue.......... 46 Vice President, Technology
Victor H. Woolley....... 58 Vice President, Business Development
Richard Black........... 66 Director
Woodie Flowers ......... 56 Director
Byron O. Pond........... 63 Director
Benjamin J. Virgilio.... 60 Director
William B. Waite........ 62 Director
</TABLE>
Mr. Ferrari has been an independent consultant since 1991. Previously, he was
Vice President of Thermo Electron Corporation from 1988 to 1991 and was
Treasurer of Thermo Electron Corporation from 1967 to 1988. He also serves as a
Director of Thermedics Inc. and ThermoTrex Inc.
Mr. Winston has served as our Chief Executive Officer since March 1999 and as
President since November 1999. He previously served as President and Chief
Executive Officer of General Scanning, commencing in September 1988. Mr.
Winston served as a Director of General Scanning from 1989 until the merger.
Mr. Bradley has held his current position since October 1994. From September
1993 until October 1994, Mr. Bradley was Vice President, Finance and
Administration of Lumonics. Prior to September 1993, he was Vice President,
Laser Products Division.
Mr. Austin has held his current position since March 1999 and has served as our
Vice President, Sales since January 1996. Prior to that time he was our Vice
President, Market Development and before October 1992 was Vice President, Laser
Marking Division.
Mr. George has held his position since March 1999 and has served as our Vice
President, Customer Support since January 1997. Prior to that time he was
Director, North American Service.
Mr. Kampfe assumed his current role in March 1999. From 1996 to 1999, he was
Vice President and General Manager of General Scanning's optical scanning
products division, and from 1990 through 1996 he served as Vice President and
General Manager of General Scanning's laser graphics division. Mr. Kampfe
joined General Scanning in 1984.
Mr. Stukalin was appointed Vice President, Components in February 2000. He
joined General Scanning in 1994 as Director of Engineering, Components and
assumed the position of General Manager in July 1999.
Ms. Palmer assumed her current role in December 1999, having served as the Vice
President, Integration from March 1999 through December 1999. She had been
General Scanning's Vice President, Human Resources since joining General
Scanning in 1996. Prior to that time, Ms. Palmer served as Director of Human
Resources of Analog Devices.
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<PAGE>
Mr. Pelsue assumed his current position in March 1999, having served since 1997
as Vice President, Corporate Engineering for General Scanning. Before that
time, Mr. Pelsue held numerous senior level engineering assignments within
General Scanning. He joined the firm in 1976.
Mr. Woolley assumed his current role in March 1999, having served as Chief
Financial Officer, Treasurer and clerk of General Scanning since August 1995.
From 1986 to 1995, Mr. Woolley was Vice President and Chief Financial Officer
of Sepracor Inc., a drug development company.
Mr. Black has served as Vice Chairman of Oak Technology, Inc., a developer of
semiconductors and software, since March 1999, as President of Oak from January
1998 to March 1999 and as a Director of Oak since 1988. He has served as
Chairman of the Board of Directors of ECRM Incorporated since 1983. He also
serves as a Director of Altigen Communications, Inc., Morgan Group, Inc.,
Gabelli Funds, Inc., Benedetto Gartland, Inc. and Grand Eagle Companies.
Mr. Flowers is the Pappalardo Professor of Mechanical Engineering at
Massachusetts Institute of Technology. Professor Flowers served as a Professor
of Teaching Innovation at the MIT School of Engineering from 1991 to 1993 and
was Head of the Systems Design Division at MIT from 1989 to 1991. He also
serves as a director of Nypro, Inc. and is a member of the National Academy of
Engineering.
Mr. Pond is Chairman Emeritus of Arvin Industries, Inc., an automotive parts
company. Mr. Pond has been a senior executive with Arvin Industries, Inc. since
1990 serving as its President and Chief Executive Officer from 1993 to 1996 and
its Chairman and Chief Executive Officer from 1996 to 1998.
Mr. Virgilio is the President and Chief Executive Officer of Rea International
Inc., an automotive fuel systems manufacturer. Prior to May 1995, Mr. Virgilio
was a business consultant. Prior to November 1993, he was President and Chief
Executive Officer of A.G. Simpson Limited.
Mr. Waite has been a retired executive since 1995. Prior to September 1995, Mr.
Waite was President and Chief Executive Officer of Siemens Electric Limited.
38
<PAGE>
Selling Shareholders
Certain of our officers and directors may be selling common shares as part of
the underwriters' over-allotment option, if exercised. Under these
arrangements, we will sell the initial 305,083 common shares taken under the
over-allotment option, and the selling shareholders will sell the balance. No
selling shareholder beneficially owns as much as 1% of the common shares. No
selling shareholder will be selling more than 20% of his total holdings,
including all options.
The following table contains information regarding the beneficial ownership of
common shares as of March 20, 2000 with respect to the selling shareholders.
This information provided in the table below with respect to the selling
shareholders has been obtained from the selling shareholders.
<TABLE>
<CAPTION>
Common shares Common
Selling owned prior Common shares shares owned
shareholder Relationship with GSI Lumonics Inc. to offering(1) being offered after offering(2)
- ----------- ------------------------------------- -------------- ------------- -----------------
<S> <C> <C> <C> <C>
Patrick Austin Vice President, Sales, Advanced
Manufacturing Systems 115,834 34,500 81,334
Desmond Bradley Vice President, Finance &
Chief Financial Officer 164,583 40,000 124,583
Charles Gardner General Counsel & Corporate Secretary 15,500 2,500 13,000
John George Vice President, Customer Support,
Advanced Manufacturing Systems 93,000 5,000 88,000
Michael Kampfe Vice President, Operations,
Advanced Manufacturing Systems 145,298 59,769 85,529
Kurt Pelsue Vice President, Technology 114,411 40,000 74,411
Charles Winston President & Chief Executive Officer 235,735 113,148 122,587
------- ------- -------
Total 884,361 294,917 589,444
======= ======= =======
</TABLE>
- ------------------
/1/ Includes currently exercisable options and options that will become
exercisable within 60 days.
/2/Assumes that the underwriters have exercised their over-allotment option to
purchase 600,000 common shares satisfied first by us up to 305,083 common
shares and the balance from the selling shareholders.
39
<PAGE>
Description of Common Shares
We have authority to issue an unlimited number of common shares. As at February
29, 2000, 34,546,875 of our common shares were issued and outstanding. Each
outstanding common share will be entitled to one vote at all meetings of our
shareholders, to participate ratably in any dividends which may be declared by
the board of directors and, in the event of liquidation, dissolution or
winding-up or other distribution of our assets or property, to a pro rata share
of our assets after payment of all our liabilities and obligations.
Shareholders have cumulative voting rights in the election of directors.
Cumulative voting rights permit each shareholder entitled to vote at a meeting
of shareholders to cast a number of votes equal to the number of shares held by
the shareholder multiplied by that number of directors to be elected. The
shareholder is entitled to cast all such votes in favor of one candidate for
director or distribute them among the candidates in any manner.
Shareholder rights plan
On April 12, 1999, our board of directors adopted a shareholders rights plan.
Under this shareholders rights plan, one right has been issued in respect of
each common share outstanding as of that date and one right has been and will
be issued in respect of each common share issued thereafter. Each right, when
exercisable, entitles the holder to purchase one common share from us at the
exercise price of Cdn$200, subject to adjustment and certain anti-dilution
provisions.
The rights are not exercisable and cannot be transferred separately from the
common shares until the "separation time," which is defined as the eighth
business day, subject to extension by the board of directors, after the earlier
of:
. the "stock acquisition date", which is generally the first date of
public announcement that a person or group of affiliated or associated
persons (excluding certain persons and groups) has acquired beneficial
ownership of 20% or more of the outstanding common shares, or
. the date of commencement of, or first public announcement of the intent
of any person or group of affiliated or associated persons to commence,
a take-over bid.
At such time as any person or group of affiliated or associated persons becomes
an "acquiring person," each right will constitute the right to purchase from us
that number of common shares having an aggregate market price on that date
equal to twice the exercise price, for the exercise price, such right being
subject to anti-dilution adjustments.
So long as the rights are not transferable separately from the common shares,
we will issue one right with each new common share issued. The rights could
have certain anti-takeover effects, in that they would cause substantial
dilution to a person or group that attempts to acquire us on terms not approved
by our board of directors.
40
<PAGE>
Tax Considerations
Canadian Tax Considerations
In the opinion of LaBarge Weinstein, our Canadian counsel, the following is a
summary of the principal Canadian federal income tax considerations generally
applicable to a U.S. holder who acquires common shares pursuant to this
offering. In this summary, a "U.S. holder" means a person who, for the purposes
of the Canada-United States Income Tax Convention (1980), is a resident of the
United States and not of Canada and who, for purposes of the Income Tax Act
(Canada) (the "Tax Act"), (1) is neither resident nor deemed to be resident in
Canada, (2) does not use or hold, and is not deemed to use or hold, the common
shares in carrying on a business in Canada, (3) holds such common shares as
capital property, and (4) deals at arm's length with us. Additional
considerations, which are not discussed below, may be relevant to a U.S. holder
that is an insurer carrying on business in Canada and elsewhere.
This summary is based on the current provisions of the Tax Act, the regulations
thereunder, all specific proposals to amend the Tax Act or the regulations
publicly announced by the Minister of Finance (Canada) prior to the date hereof
and counsel's understanding of the current administrative practices of the
Canada Customs and Revenue Agency. The Tax Act contains certain "mark-to-market
rules" relating to securities held by certain financial institutions. This
summary does not take into account those mark-to-market rules, and U.S. holders
that are "financial institutions" for purposes of such rules should consult
their own tax advisors.
This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except as mentioned above, does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account tax legislation or
considerations of any province or territory of Canada, which may differ from
the Canadian federal income tax considerations described herein.
This summary is of a general nature only and is not intended to be, nor should
it be construed to be, legal or tax advice to any particular U.S. holder, and
no representation with respect to the income tax consequences to any particular
U.S. holder is made. Consequently, prospective purchasers should consult their
own tax advisors with respect to their particular circumstances.
Taxation of dividends
Dividends on a common share paid or credited to a U.S. holder will be subject
to Canadian withholding tax at the rate of 25% of the gross amount of such
dividends, although such rate may be reduced under the provisions of an
applicable income tax treaty. Under the Convention, U.S. holders will generally
be subject to a 15% withholding tax on the gross amount of dividends paid or
credited on a common share.
Disposition of offered shares
A U.S. holder of a common share will not be subject to tax under the Tax Act in
respect of any gain realized on the disposition of the common share unless the
common share constitutes or is deemed to constitute "taxable Canadian property"
(as defined in the Tax Act). Taxable Canadian property will generally include
any common share listed on a prescribed stock exchange for purposes of the Tax
Act held by a U.S. holder if, at any time during the five-year period
immediately preceding the disposition of the common share, the U.S. holder,
persons with whom the U.S. holder did not deal at arm's length or the U.S.
holder together with such persons owned or is considered to have owned 25% or
more of the issued shares of any class or series of our shares. Even if a
common share is taxable Canadian property to a U.S. holder, any capital gain
realized by the U.S. holder on a disposition may be exempt from tax under the
Convention.
41
<PAGE>
United States Tax Considerations
The following summary describes the material United States federal income tax
consequences relating to an investment in our common shares as of the date
hereof. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), existing final, temporary and proposed Treasury Regulations,
rulings and judicial decisions, all of which are subject to prospective and
retroactive changes. We will not seek a ruling from the Internal Revenue
Service (the "IRS") with regard to the United States federal income tax
treatment relating to investment in common shares, and, therefore, we cannot
assure you that the IRS will agree with the conclusions set forth below.
This summary does not purport to address all United States federal income tax
consequences that may be relevant to a particular investor, and you may want to
consult your own tax advisor regarding your specific tax situation. This
summary, to the extent that it states matters of law or legal conclusions and
subject to the qualifications herein, represents the opinion of Milbank, Tweed,
Hadley & McCloy LLP, United States counsel to GSI Lumonics. This summary
applies only to holders who hold common shares as capital assets within the
meaning of Code section 1221 and does not address the tax consequences that may
be relevant to investors in special tax situations including, for example:
. life insurance companies,
. tax-exempt entities,
. dealers in securities or currency,
. traders in securities that elect to use a mark-to-market method of
accounting for their securities holding,
. banks or other financial institutions,
. investors that hold our common shares as part of a hedging, integrated,
conversion or construction sale transaction or a straddle,
. holders that own, directly or indirectly, ten percent or more of the total
combined voting power of our common shares, or
. investors whose "functional" currency is not the United States dollar.
Further, this summary does not address the alternative minimum tax consequences
of an investment in common shares or the indirect consequences to holders of
equity interests in entities that own common shares. In addition, this summary
does not address the state, local and foreign tax consequences of an investment
in the common shares.
You are urged to consult your tax advisors regarding the United States federal,
state, local and non-United States income and other tax consequences of
acquiring, holding and disposing of common shares.
Taxation of U.S. Holders
The following discussion applies to you if you are:
. a citizen or resident of the United States,
. a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof,
. an estate, the income of which is subject to United States federal income
tax regardless of its source, or
42
<PAGE>
. a trust if (a) a court within the United States is able to exercise primary
supervision over its administration as described in Code section 7701(a)(30)
or (b) it has a valid election in effect under applicable United States
Treasury regulations to be treated as a United States person.
Distributions on common shares
Distributions made by us with respect to common shares, without reduction for
any Canadian tax withheld, generally will be taxable to you as ordinary income
to the extent paid out of our current or accumulated earnings and profits (as
determined for United States federal income tax purposes). Distributions in
excess of our current or accumulated earnings and profits will be treated first
as a non-taxable return of capital reducing your tax basis in the common
shares. Any such distribution in excess of your tax basis in the common shares
will be treated as capital gain and will be either long-term or short-term
capital gain depending upon whether you have held the common shares for more
than one year. Such income will be includable in your gross income as ordinary
income on the day received by you.
Dividends paid by us generally will not be eligible for the dividends received
deduction available to certain United States corporate shareholders under Code
sections 243 and 245.
The amount of any cash distribution paid in Canadian dollars will equal the
United States dollar value of the distribution, calculated by reference to the
exchange rate in effect on the date the dividends are received. You should not
recognize any foreign currency gain or loss if such foreign currency is
converted into United States dollars on the date received by you. If the
Canadian dollars are not converted into United States dollars on the date of
receipt, however, gain or loss may be recognized upon a subsequent sale or
other disposition of the Canadian dollars. Such foreign currency gain or loss,
if any, will be United States source ordinary income or loss for United States
federal income tax purposes. You will have a basis in the Canadian dollar equal
to the United States dollar value on the date of receipt.
Generally, you will have the option of claiming the amount of Canadian tax
withheld at the source on the distribution of dividends with respect to our
common stock as either a deduction from adjusted gross income or as a credit
against your United States federal income tax liability. If you elect to claim
a credit for such Canadian taxes, the election will be binding for all foreign
taxes paid or accrued by you for the taxable year for which the election is
made. If you claim the standard deduction rather than itemized deductions, you
may not claim a deduction for foreign taxes withheld, but you may claim such
amount as a credit against your United States federal tax liability.
Dividends received with respect to the common shares will be treated as foreign
source income, which may be relevant in calculating your foreign tax credit
limitation. The limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. For this purpose,
dividends paid with respect to the common shares generally will constitute
"passive income" or, in the case of certain holders, "financial services
income." Special rules apply to certain individuals whose foreign source income
during the taxable year consists entirely of "qualified passive income" and
whose creditable foreign taxes paid or accrued during the taxable year do not
exceed $300 ($600 in the case of a joint return). Further, in certain
circumstances, a U.S. holder that (a) has held common shares for less than a
specified minimum period during which it is not protected from risk or loss,
(b) is obligated under a short sale or otherwise to make payments related to
the dividends for posititions in substantially similar or related property or
(c) holds the ordinary shares in arrangements in which the U.S. holder's
expected economic profit, after non-United States taxes, is insubstantial will
not be allowed a foreign tax credit for foreign taxes imposed on dividends paid
on common shares.
Distributions in excess of our current and accumulated earnings and profits
will not give rise to foreign source income, and you will not be able to use
the foreign tax credit arising from any Canadian withholding tax imposed on
such distribution unless such credit can be applied (subject to applicable
limitations) against United States federal income tax due on other foreign
source income in the appropriate category for foreign tax credit purposes.
43
<PAGE>
Sale or exchange of common shares
You will generally recognize capital gain or loss upon the sale or exchange of
the common shares measured by the difference between the amount you receive and
your tax basis in the common shares. Such gain or loss will be long-term
capital gain or loss if the common shares have been held for more than one
year. Non-corporate taxpayers may be subject to reduced rates of tax on long-
term capital gains. In general, any capital gain or loss recognized upon the
sale or exchange of common shares will be treated as United States source
income or loss, for United States foreign tax credit purposes.
Taxation of Non-U.S. Holders
The following discussion applies to you if you are not described in the
previous section.
Distributions on common shares
You generally will not be subject to United States federal income tax or
withholding tax on dividends received from us with respect to common shares
unless such income is considered as effectively connected with the conduct of a
United States trade or business.
Sale or exchange of common shares
You generally will not be subject to United States federal income tax on any
gain realized upon the sale or exchange of common shares, unless:
. such gain is effectively connected with the conduct of a United States trade
or business; or
. if you are an individual, you are present in the United States for 183 days
or more during the taxable year of disposition and certain other conditions
are met.
If you are engaged in a United States trade or business, the income from the
common shares (including dividends and the gain from the sale or exchange
thereof) that is effectively connected with the conduct of such trade or
business will generally be subject to regular United States federal income tax
on such income in the same manner as discussed in the previous section. In
addition, if you are a corporation, your earnings and profits that are
attributable to such effectively connected income (subject to certain
adjustments) may be subject to an additional branch profits tax at a rate of
30% (or such lower rate as may be specified by an applicable treaty).
Backup Withholding and Information Reporting
"Backup" withholding and information reporting requirements may apply to
payments made within the United States of dividends on common stock and to
certain payments of proceeds of a sale or redemption of common shares paid to a
U.S. holder. We, a broker or any paying agent, as the case may be, may be
required to withhold tax from any payment that is subject to backup withholding
at a rate of 31% of such payment if the U.S. holder fails to furnish the U.S.
holder's taxpayer identification number, to certify that the U.S. holder is not
subject to backup withholding or to otherwise comply with the applicable
requirements of the backup withholding rules. Certain U.S. holders, including,
among others, corporations, are not subject to the backup withholding and
information reporting requirements. Any amounts withheld under the backup
withholding rules from a payment to a U.S. holder may generally be claimed as a
credit against such U.S. holder's United States federal income tax liability,
provided that the required information is furnished to the IRS. Treasury
regulations, generally effective for payments made after December 31, 2000,
modify certain of the certification requirements for backup withholding. It is
possible that we and other withholding agents may request a new withholding
certificate from U.S. holders in order to qualify for continued exemption from
backup withholding under Treasury regulations when they become effective.
44
<PAGE>
Underwriting
GSI Lumonics and the selling shareholders have entered into an underwriting
agreement with the underwriters named below. CIBC World Markets Corp., Chase
Securities Inc. and Needham & Company, Inc. are acting as representatives of
the underwriters.
The underwriting agreement provides for the purchase of a specific number of
common shares by each of the underwriters. The underwriters' obligations are
several, which means that each underwriter is required to purchase a specified
number of shares, but is not responsible for the commitment of any other
underwriter to purchase common shares. Subject to the terms and conditions of
the underwriting agreement, each underwriter has severally agreed to purchase
the number of common shares set forth opposite its name below:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
- ----------- ---------
<S> <C>
CIBC World Markets Corp. .............................................
Chase Securities Inc. ................................................
Needham & Company, Inc. ..............................................
BMO Nesbitt Burns Inc. ...............................................
---
Total...............................................................
===
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus, other than those covered by the over-allotment option described
below, if any are purchased. Under the underwriting agreement, if an
underwriter defaults in its commitment to purchase common shares, the
commitments of non-defaulting underwriters may be increased or the underwriting
agreement may be terminated, depending on the circumstances.
This offering is being made concurrently in the United States and all of the
provinces of Canada. The common shares will be offered in the United States
through the underwriters either directly or through their respective U.S.
broker-dealer affiliates or agents. The common shares will be offered in all of
the provinces of Canada by CIBC World Markets Inc., BMO Nesbitt Burns Inc., and
other registered dealers that may be designated by the underwriters. Subject to
applicable law, the underwriters may offer the common shares outside of Canada
and the United States.
The common shares should be ready for delivery on or about , 2000 against
payment in immediately available funds. The representatives have advised us
that the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the common shares to other
securities dealers at such price less a concession of $ per share. The
underwriters may also allow, and such dealers may reallow, a concession not in
excess of $ per share to other dealers. After the common shares are released
for sale to the public, the representatives may change the offering price and
other selling terms at various times.
We and the selling shareholders have granted the underwriters an over-allotment
option. This option, which is exercisable for up to 30 days after the date of
this prospectus, permits the underwriters to purchase a maximum of 600,000
additional common shares, 305,083 common shares to be bought from us first and
294,917 common shares from the selling shareholders to cover over-allotments.
If the underwriters exercise all or part of this option, they will purchase
common shares covered by the option at the offering price that appears on the
cover page of this prospectus, less the underwriting discount. If this option
is exercised in full, the total price to public will be $ , the total proceeds
to us will be $ and the total proceeds to the selling shareholders will be
$ . The underwriters have severally agreed that, to the extent the over-
allotment option is exercised, they will each purchase a number of additional
common shares proportionate to the underwriters' initial amounts reflected in
the foregoing table.
45
<PAGE>
The following table provides information regarding the amount of the discount
to be paid to the underwriters by us and the selling shareholders:
<TABLE>
<CAPTION>
Total Total
without with full
exercise exercise
of over- of over-
Per allotment allotment
Share option option
----- --------- ---------
<S> <C> <C> <C>
GSI Lumonics.......................................... $ $ $
Selling shareholders..................................
------ ------
Total............................................... $ $
====== ======
</TABLE>
We estimate that total expenses of the offering, excluding the underwriting
discount, will be approximately $ . We will pay all expenses of the offering.
GSI Lumonics and the selling shareholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933 and applicable Canadian provincial securities
legislation.
GSI Lumonics, its officers and directors and Sumitomo Heavy Industries Ltd.
have agreed to a 90-day "lock up" with respect to common shares that they
beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for common
shares. This means that, subject to certain exceptions, for a period of 90 days
following the date of this prospectus, GSI Lumonics and such persons may not
offer, sell, pledge or otherwise dispose of these securities without the prior
written consent of CIBC World Markets Corp. CIBC World Markets Corp., however,
may in its sole discretion and at any time without notice, release all or any
portion of the common shares subject to these agreements.
Pursuant to policy statements of the Ontario Securities Commission and the
Commission des valeurs mobilieres du Quebec, the underwriters may not,
throughout the period of distribution, bid for or purchase our common shares.
This restriction is subject to certain exceptions, on the condition that the
bid or purchase not be engaged in for the purpose of creating actual or
apparent active trading in, or raising the price of, the common shares. These
exceptions include a bid or purchase permitted under the by-laws and rules of
The Toronto Stock Exchange relating to market stabilization and passive market
making activities and a bid or purchase made for and on behalf of a customer
where the order was not solicited during the period of distribution.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase common shares before the distribution of
the shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
. Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common
shares, so long as stabilizing bids do not exceed a specified maximum.
. Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the common shares by selling more common
shares than are set forth on the cover page of this prospectus. If a
short position is created in connection with the offering, the
representatives may engage in syndicate covering transactions by
purchasing common shares in the open market. The representatives may also
elect to reduce any short position by exercising all or part of the over-
allotment option.
. Penalty bids--If the representatives purchase common shares in the open
market in a stabilizing transaction or syndicate covering transaction,
they may reclaim a selling concession from the underwriters and selling
group members who sold those common shares as part of this offering.
. Passive market making--Market makers in the common shares who are
underwriters or prospective underwriters may make bids for or purchases
of common shares, subject to limitations, until the time, if ever, at
which a stabilizing bid is made.
46
<PAGE>
Stabilization and syndicate covering transactions may cause the price of the
common shares to be higher than it would be in the absence of such
transactions. The imposition of a penalty bid might also have an effect on the
price of the common shares if it discourages resales of the shares.
Neither GSI Lumonics nor the underwriters make any representation or prediction
as to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market, The
Toronto Stock Exchange or otherwise. If such transactions are commenced, they
may be discontinued without notice at any time.
We have a $13.1 million credit facility with an affiliate of CIBC World
Markets. The amount outstanding to the affiliate is approximately $4 million.
We are not using any part of the proceeds of the offering to repay any amount
payable to the affiliate.
47
<PAGE>
Legal Matters
The validity of the common shares offered by this prospectus will be passed
upon for us by Stewart McKelvey Stirling Scales. Legal matters in connection
with the offering will be passed upon for the underwriters by Torys, New York,
New York.
Experts
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as at December 31, 1999 and 1998 and for each of the three
years ended December 31, 1999 included in this prospectus, as stated in their
report, and incorporated by reference in this prospectus and elsewhere in this
registration statement. Our financial statements and schedule are included and
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
The consolidated financial statements of General Scanning Inc. included in this
prospectus, to the extent and for the periods indicated in their report, have
been audited by Arthur Andersen, LLP and are included in this prospectus in
reliance on the authority of that firm as experts in giving said report.
Where You Can Find More Information
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 with the Securities and Exchange Commission in connection
with this offering. In addition, we file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy the registration statement and any other
documents filed by us at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the Public Reference Room. Our Securities and Exchange
Commission filings are also available to the public at the Securities and
Exchange Commission's internet site at "http://www.sec.gov".
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to our contracts or other documents the reference
may not be complete, and you should refer to the exhibits that are a part of
the registration statement for a copy of the contract or document.
Documents Incorporated by Reference
The Securities and Exchange Commission allows us to "incorporate by reference"
into this prospectus the information we file with it, which means that we can
disclose important information to you by referring you to those documents.
Information incorporated by reference is part of this prospectus. Later
information filed with the Securities and Exchange Commission will update
automatically and supersede this information.
We incorporate by reference the documents listed below and any future filings
made with the Securities and Exchange Commission under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 until this offering is
completed:
. Our Annual Report on Form 10-K for the year ended December 31, 1999, and
. The description of our common shares contained in our registration
statement on Form 8-A declared effective by the Securities and Exchange
Commission on April 2, 1999.
You may request a copy of these filings, at no cost, by writing or telephoning
the following address and telephone number:
GSI Lumonics Inc.
105 Schneider Road,
Kanata, Ontario, Canada
K2K 1Y3
(613) 592-1468
48
<PAGE>
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
GSI Lumonics Inc. Page
- ----------------- ----
<S> <C>
Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as at December 31, 1999 and 1998.............. F-3
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
<CAPTION>
General Scanning Inc.
- ---------------------
<S> <C>
Report of Independent Public Accountants.................................. F-27
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998...................................................... F-28
Consolidated Balance Sheets as of December 31, 1997 and 1998.............. F-29
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998......................................... F-30
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998...................................................... F-31
Notes to Consolidated Financial Statements................................ F-33
</TABLE>
F-1
<PAGE>
AUDITORS' REPORT
To the Stockholders of
GSI Lumonics Inc.
We have audited the consolidated balance sheets of GSI Lumonics Inc. as of
December 31, 1999 and 1998 and the consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements and the schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and Canada. Those standards require that we plan
and perform an audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999 in accordance with
accounting principles generally accepted in the United States.
Ottawa, Canada, Ernst & Young LLP
February 11, 2000 Chartered Accountants
(except with respect
to note 19, which
is as at March 17, 2000)
F-2
<PAGE>
GSI LUMONICS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share amounts)
<TABLE>
<CAPTION>
As of December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents. $ 25,272 $ 24,229
Short-term investments
(note 15)................ 7,342 8,098
Accounts receivable, less
allowance of $3,197
(1998-$311) (notes 3 and
7)....................... 80,448 31,673
Due from related party
(note 14)................ 3,235 3,844
Inventories (notes 4 and
7)....................... 72,727 44,096
Deferred tax assets (note
13)...................... 24,473 3,214
Other current assets (note
6)....................... 2,338 5,091
Current portion of swap
contracts (note 15)........ 1,411 1,076
--------- ---------
Total current assets.... 217,246 121,321
Property, plant and
equipment, net of
accumulated depreciation of
$28,024 (1998--$24,299)
(note 5)................... 45,278 32,209
Long-term portion of swap
contracts (note 15)........ -- 1,076
Other assets (note 6)....... 3,851 964
Goodwill and other
intangible assets, net of
amortization of $8,689
(1998--$2,953)............. 23,347 4,072
--------- ---------
$ 289,722 $ 159,642
========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current
Bank indebtedness (note
7)....................... $ 23,100 $ 7,261
Accounts payable.......... 28,094 5,605
Accrued compensation and
benefits................. 13,709 3,456
Other accrued expenses and
income taxes............. 43,067 15,481
Current portion of
deferred compensation
(note 9)................. 124 --
Current portion of long-
term debt (note 8)....... 5,425 3,541
--------- ---------
Total current
liabilities............ 113,519 35,344
Long-term debt due after one
year (note 8).............. -- 3,541
Deferred income tax
liability (note 13)........ 2,397 --
Deferred compensation, less
current portion (note 9)... 2,076 --
--------- ---------
Total liabilities....... 117,992 38,885
Commitments and
contingencies (note 17)
Stockholders' equity (note
10)
Capital stock, no par
value; Issued common
shares of 34,298,942
(1998--17,056,001)....... 222,865 138,871
Deficit................... (44,225) (9,451)
Accumulated other
comprehensive income..... (6,910) (8,663)
--------- ---------
Total stockholders'
equity................. 171,730 120,757
--------- ---------
$ 289,722 $ 159,642
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. dollars, except share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(note 2)
<S> <C> <C> <C>
Sales............................................. $274,550 $144,192 $177,328
Cost of goods sold................................ 178,773 103,519 111,406
-------- -------- --------
Gross profit...................................... 95,777 40,673 65,922
Operating expenses:
Research and development........................ 28,700 12,985 11,993
Selling, general and administrative............. 64,653 38,191 37,591
Amortization of technology and other
intangibles.................................... 4,070 861 400
Acquired in-process research and development
(note 2)....................................... 14,830 -- --
Restructuring and other charges (note 16)....... 19,631 2,022 --
-------- -------- --------
Income (loss) from operations..................... (36,107) (13,386) 15,938
Gain on sale of assets (notes 2 and 10)......... 1,599 -- --
Interest income, net............................ 89 1,578 1,048
Foreign exchange transaction gains (losses)..... (2,911) 632 --
-------- -------- --------
Income (loss) before income taxes................. (37,330) (11,176) 16,986
Income taxes provision (benefit).................. (2,556) (3,260) 5,074
-------- -------- --------
Net income (loss)................................. $(34,774) $ (7,916) $ 11,912
======== ======== ========
Net income (loss) per common share: (note 10)
Basic........................................... $ (1.14) $ (0.46) $ 0.75
Diluted......................................... $ (1.14) $ (0.46) $ 0.72
Weighted average common shares outstanding
(000's).......................................... 30,442 17,079 15,989
Weighted average common shares outstanding and
dilutive potential common shares (000's)......... 30,442 17,079 16,454
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands of U.S. dollars, except share amounts)
<TABLE>
<CAPTION>
Accumulated
Capital Stock Other
----------------- Comprehensive Comprehensive
# Shares Amount Deficit Income Income Total
-------- -------- -------- ------------- ------------- --------
(000's)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1996................... 14,714 $101,619 $(13,360) $ 86 $ 14,138 $ 88,345
========
Net income.............. 11,912 11,912 11,912
Issuance of capital
stock
--public offering (net
of issue costs)....... 2,000 35,658 35,658
--stock options........ 387 1,901 1,901
Foreign currency
translation
adjustments............ (4,193) (4,193) (4,193)
------ -------- -------- ------- -------- --------
Balance, December 31,
1997................... 17,101 139,178 (1,448) (4,107) $ 7,719 133,623
========
Net loss................ (7,916) (7,916) (7,916)
Issuance of capital
stock
--stock options........ 50 233 233
Repurchase of capital
stock under normal
course issuer bid...... (95) (540) (87) (627)
Foreign currency
translation
adjustments............ (4,556) (4,556) (4,556)
------ -------- -------- ------- -------- --------
Balance, December 31,
1998................... 17,056 138,871 (9,451) (8,663) $(12,472) 120,757
========
Net loss................ (34,774) (34,774) (34,774)
Issuance of capital
stock
--merger with General
Scanning Inc., net.... 17,079 83,528 83,528
--stock options........ 164 466 466
Foreign currency
translation
adjustments............ 1,753 1,753 1,753
------ -------- -------- ------- -------- --------
Balance, December 31,
1999................... 34,299 $222,865 $(44,225) $(6,910) $(33,021) $171,730
====== ======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) for the year.................. $(34,774) $ (7,916) $ 11,912
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Acquired in-process research and development... 14,830 -- --
Gain on sale of assets......................... (1,599) -- --
Depreciation and amortization.................. 15,177 5,600 4,007
Deferred compensation.......................... 78 -- --
Deferred income taxes.......................... (1,704) (1,306) (434)
Unrealized currency exchange loss.............. 1,326 330 241
Changes in current assets and liabilities:
Accounts Receivable............................ (14,448) 14,408 (23,491)
Inventories.................................... 6,084 (8,343) (3,654)
Other current assets........................... 4,540 (3,321) 313
Accounts payable, accrued expenses, and taxes
payable....................................... 6,073 (6,360) 5,821
-------- -------- --------
Net cash (used in) operating activities....... (4,417) (6,908) (5,285)
-------- -------- --------
Cash flows from investing activities:
Merger with General Scanning Inc. (note 2)..... 1,451 -- --
Acquisition of Lumonics Pacific KK (note 2).... (336) -- --
Acquisition of Meteor Optics Inc. (note 2)..... -- (1,158) --
Sale of assets................................. 3,940 -- --
Additions to property, plant and equipment,
net........................................... (6,219) (13,568) (8,412)
Maturity of short-term investments............. 8,208 47,091 79,351
Purchase of short-term investments............. (7,342) (43,522) (80,185)
(Increase) in other assets..................... (609) (102) (43)
-------- -------- --------
Cash (used in) investing activities........... (907) (11,259) (9,289)
-------- -------- --------
Cash flows from financing activities:
Proceeds (payments) of bank indebtedness, net.. 7,502 (7,865) 7,741
Payments on long-term debt..................... (2,617) (2,325) (2,527)
Issue of share capital (net of issue costs).... 466 233 37,560
Repurchase of common shares.................... -- (627) --
-------- -------- --------
Cash provided by (used in) financing
activities................................... 5,351 (10,584) 42,774
Effect of exchange rates on cash and cash
equivalents.................................... 1,016 (3,848) (710)
-------- -------- --------
Increase (decrease) in cash and cash
equivalents.................................... 1,043 (32,599) 27,490
Cash and cash equivalents, beginning of year.... 24,229 56,828 29,338
-------- -------- --------
Cash and cash equivalents, end of year.......... $ 25,272 $ 24,229 $ 56,828
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
1. Significant Accounting Policies
Nature of operations
GSI Lumonics Inc. designs, develops, manufactures and markets laser-based
advanced manufacturing systems and components which are used in applications
such as cutting, welding, drilling, marking, micro-machining, inspection, gene
analysis and optical transmission. Major markets for these products include the
semiconductor, electronics, automotive, medical/biotechnology and
telecommunications industries. In addition, the Company sells to other markets
such as the aerospace and packaging industries. The Company's principal markets
are in the United States, Canada, Europe, Japan and Asia-Pacific.
Basis of presentation and change in reporting currency
These consolidated financial statements have been prepared by the Company in
United States (U.S.) dollars and in accordance with accounting principles
generally accepted in the United States, applied on a consistent basis. Prior
to 1998, the Company prepared and filed its consolidated financial statements
in Canadian dollars.
Basis of consolidation
The consolidated financial statements include the accounts of GSI Lumonics Inc.
and its wholly-owned subsidiaries (the "Company"). Intercompany transactions
and balances have been eliminated.
On March 22, 1999, the Company completed a merger of equals with General
Scanning Inc., Watertown, Massachusetts, a leading manufacturer of laser
systems and components, and printers. The merger transaction has been accounted
for as a purchase for accounting purposes and accordingly, the operations of
General Scanning Inc. have been included in the consolidated financial
statements from the date of merger (see Note 2).
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
Cash equivalents are investments held to maturity and have original maturities
of three months or less. Cash equivalents consist principally of commercial
paper, short-term corporate debt, and banker's acceptances. Cash equivalents
are stated at cost, which approximates their fair value. The Company does not
believe it is exposed to any significant credit risk on its cash equivalents.
Short-term investments
Short-term investments consist principally of banker's acceptances, with
original maturities greater than three months. The Company has classified these
investments as available-for-sale securities and carries them at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and reported as a component of accumulated other
comprehensive income until realized.
F-7
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Inventories
Inventories, which include materials and conversion costs, are stated at the
lower of cost (primarily first-in, first-out) or market.
Property, plant and equipment
Property, plant and equipment are stated at cost. The declining-balance and
straight-line methods determine depreciation and amortization over the
estimated useful lives of the owned assets. Estimated useful lives for
buildings and improvements range from 5 to 39 years and for machinery and
equipment from 3 to 15 years. Leasehold improvements are amortized over the
lesser of their useful lives or the lease term, including option periods
expected to be utilized.
Goodwill and other intangibles
Goodwill consists of the excess of cost over acquired net identifiable assets
for business purchase combinations. Other intangibles include assembled
workforce, trademarks and trade names.
The amortization period for goodwill and other intangibles is determined on a
separate basis for each acquisition. Goodwill and other intangibles are
amortized on a straight-line basis over periods ranging from a minimum of two
to a maximum of ten years from the date of acquisition.
Patents and purchased technology are stated at cost and are amortized on a
straight-line basis over the expected life of the asset, up to 17 years.
Impairment of long-lived assets
The Company regularly assesses the realizability of its long-lived assets in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of. Based on its review, the
Company expects full recovery.
Revenue recognition
The Company recognizes revenues generally at the time of shipment or when
services are provided. For certain long-term contracts, revenues and profits
are recognized using the percentage-of-completion method. The Company accrues
estimated potential product liability and warranty costs, based on the
Company's experience, when revenue is recognized.
Research and product development expense
Research and development costs are charged to expense as incurred and are
reduced by certain related non-refundable government assistance.
Stock based compensation
The Company has elected to continue to apply APB 25 in accounting for its stock
option plans, and immaterial amounts of compensation have been recognized.
F-8
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Foreign currency translation
The financial statements of the parent corporation and its subsidiaries outside
the U.S. have been translated into U.S. dollars in accordance with the
Financial Accounting Standards Board Statement No. 52, Foreign Currency
Translation. Assets and liabilities of foreign operations are translated from
foreign currencies into U.S. dollars at the exchange rates in effect at the
period-end. Revenues and expenses are translated at the average exchange rate
in effect for the period. The resulting translation adjustments are reported as
a separate component of other comprehensive income in stockholders' equity.
Derivative financial instruments
Foreign exchange forward contracts and local currency borrowings are used to
reduce the impact of certain foreign currency balance sheet fluctuations and
foreign currency denominated sales.
Gains and losses from forward contracts that are not hedges of firm commitments
are accrued at each balance sheet date and included in the Consolidated
Statements of Operations as foreign exchange transactions gains (losses).
In certain circumstances, the Company uses currency and interest rate swap
contracts to manage foreign currency exposures and interest rate risk. Payments
and receipts under such swap contracts are recognized as adjustments to
interest expense on a basis that matches them with the fluctuations in the
interest receipts and payments under floating rate financial assets and
liabilities.
Income taxes
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on the differences
between financial reporting and the income tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Comparative figures
Certain comparative figures have been reclassified from statements previously
presented to conform to the presentation of the 1999 financial statements.
Recent Pronouncement
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin #101 on revenue recognition which is effective for the
Company's fiscal period beginning January 1, 2000. The Company believes this
bulletin will not have a significant impact on reported sales.
2. Merger and Acquisitions and Dispositions
On March 22, 1999, the Company completed a merger of equals with General
Scanning Inc., Watertown, Massachusetts, a leading manufacturer of laser
systems and components. Under the terms of the merger, GSI stockholders
received 1.347 shares of common stock in the Company in exchange for each
common share of GSI stock they held. Lumonics shareholders continued to hold
shares of Lumonics Inc., which, following the merger, was renamed GSI Lumonics
Inc. Immediately following the merger, each group of shareholders owned
approximately 50% of the outstanding shares of the Company. The merger
transaction has been accounted for
F-9
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
as a purchase and accordingly, the operations of General Scanning have been
included in the consolidated financial statements from the date of merger. Cash
flow impact of $1,451 thousand from the GSI merger is cash acquired of $4,719
thousand, less merger costs paid of $3,268 thousand. The aggregate purchase
price of $84 million was allocated to General Scanning net identifiable assets,
based on estimated fair values, as follows:
<TABLE>
<S> <C>
Shares purchased(a)................................................ $ 83,074
Options purchased(b) & (c)......................................... 917
--------
Total purchase price............................................. $ 83,991
========
Current assets, including cash of $4,719........................... 69,883
Fixed assets....................................................... 16,110
Acquired technology(d)............................................. 20,017
Other identified intangible assets(e).............................. 4,804
Other long term assets(f).......................................... 3,949
Deferred taxes, net................................................ 14,676
Current liabilities................................................ (55,440)
Long term debt..................................................... (28)
Deferred compensation, net of $117 current portion................. (2,005)
Transaction costs.................................................. (2,805)
In-process research and development(g)............................. 14,830
--------
$ 83,991
========
</TABLE>
- ------------------
(a) 17,079,475 common shares of GSI Lumonics Inc. valued at US$4.864 per share,
in exchange for all 12,679,640 General Scanning outstanding shares of
common stock, on the basis of an exchange ratio of 1.347 shares of GSI
Lumonics Inc. for each share of General Scanning common stock. The total
value assigned to these issued shares is $83,074 thousand. Issue and
registration costs of $463 thousand were charged against capital stock.
(b) 2,051,903 GSI Lumonics Inc. stock options valued at US$0.443 per share
option, total $909 thousand, in exchange for 1,523,314 General Scanning
outstanding stock options.
(c) 70,717 GSI Lumonics Inc. stock options valued at US$0.11 per share option,
total $8 thousand, in exchange for 52,500 General Scanning outstanding
stock warrants.
(d) Acquired technology of $20 million results from an appraisal of General
Scanning intangible assets and is being amortized on a straight line basis
over its useful life of 60 months.
(e) Assembled workforce of $3.4 million and Trademark and trade name of $1.4
million result from an appraisal of General Scanning intangible assets and
are being amortized on a straight-line basis over a ten year period.
(f) Other long term assets includes a note receivable from Robotic Vision
Systems, Inc. (RVSI) of $2,250 thousand, 271,493 shares of RVSI common
stock valued at $764 thousand, and other deposits of $935 thousand.
(g) Acquired in-process research and development of $14.8 million charged
against income in 1999 results from an appraisal of General Scanning
intangible assets.
The purchase price allocation and intangible valuation was based on
management's estimates of the after-tax net cash flows, and differs from
preliminary estimates in interim statements. Specifically, the valuation gave
consideration to the following: a) a fair market premise, excluding any
Company-specific considerations which could result in estimates of investment
value for the subject assets; b) comprehensive due diligence concerning all
potential intangible assets including trademarks, trade names, patents,
copyrights, non-compete agreements, assembled workforce, customer
relationships, and sales channel; c) the value of acquired existing technology,
which was specifically addressed, with a view toward ensuring the relative
allocations to existing technology and in-process research and development were
consistent with the relative contributions of each to the final product; and d)
the allocation to in-process research and development, based on a calculation
that considered only the efforts completed as of the merger date, and only the
cash flow associated with the completed efforts for one generation of the
products currently being developed.
F-10
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
As shown above, the Company recorded a one-time charge of $14.8 million in 1999
for purchased in-process research and development related to thirty in-process
projects. The charge is related to the portion of the value of these projects,
excluding the contribution of existing technology, that were not yet
technically feasible, had no alternative future use and for which successful
development was uncertain. Management's conclusion that the in-process
development effort had no alternative future use was reached in consultation
with engineering personnel from both GSI and Lumonics.
To conform with United States generally accepted accounting principles and to
reflect the purchase accounting method used to transact the merger, results for
the first 11 weeks of 1999 and all of 1998 are those of Lumonics only.
Therefore, the results of 1998 and 1997 do not provide a meaningful basis for
comparison with 1999, although they are provided in the financial statements
attached. The following pro forma results of operations have been prepared
using the purchase method of accounting as if the merger had occurred at the
beginning of each fiscal period.
<TABLE>
<CAPTION>
Pro forma combined
(unaudited)
Year ended December 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Sales............................................. $ 295,009 $ 325,109
=========== ===========
Net loss.......................................... $ (41,726) $ (11,233)
=========== ===========
Net loss per common share:
Basic........................................... $ (1.22) $ (0.33)
Diluted......................................... $ (1.22) $ (0.33)
Weighted average common shares outstanding........ 34,177 34,030
Weighted average common shares outstanding and
dilutive potential common shares................. 34,177 34,030
</TABLE>
On October 4, 1999 the Company acquired all outstanding shares of Lumonics
Pacific KK, a subsidiary of Sumitomo Heavy Industries Ltd. of Tokyo Japan. The
purchase price of $1,305 thousand was comprised of a cash consideration of $439
thousand (cash flow impact of $336 thousand is net of $103 thousand in cash
acquired) that was paid upon closing, and debt of $866 thousand, plus agreed
interest. The debt will be settled in two equal installments, the first due
April 4, 2000, and the second on October 4, 2000 and is included in other
accrued expenses and income taxes as at December 31, 1999. This transaction has
been accounted for as a purchase.
In June 1998, the Company acquired, for cash consideration of $1,158 thousand,
all outstanding shares of Meteor Optics Inc., a fiber-optics manufacturer based
in the United States. This transaction has been accounted for as a purchase.
Net tangible assets had no significant value, and the purchase price has been
allocated to goodwill and is being amortized over 10 years.
In December, 1999 the Company completed the sale of the OLT precision alignment
system product line to Virtek Vision International Inc. (Virtek) of Waterloo,
Ontario. Under the terms of the sale, GSI Lumonics received cash of $2,366
thousand as well as a 10% royalty on Virtek's sales of these systems to the
aerospace industry for three years in exchange for the operating assets of the
OLT product line. GSI Lumonics recorded a gain of $699 thousand on this sale
during December 1999.
F-11
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
3. Accounts Receivable
Accounts receivable include unbilled receivables on long-term contracts of $0
(1998--$5,531 thousand).
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------- -------
<S> <C> <C>
Raw materials................................................ $26,011 $ 9,123
Work-in-process.............................................. 17,005 14,062
Finished goods............................................... 29,711 20,911
------- -------
Total inventories.......................................... $72,727 $44,096
======= =======
</TABLE>
5. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cost:
Land, buildings and improvements....................... $ 36,435 $ 26,290
Machinery and equipment................................ 36,867 30,218
-------- --------
Total cost........................................... 73,302 56,508
Accumulated depreciation................................. (28,024) (24,299)
-------- --------
Net property, plant and equipment.................... $ 45,278 $ 32,209
======== ========
</TABLE>
6. Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1999 1998
------ ------
<S> <C> <C>
Short term other assets:
Income tax recoverable....................................... $ -- $3,201
Prepaid expenses............................................. 2,338 1,890
------ ------
Total...................................................... $2,338 $5,091
====== ======
Long term other assets:
Note receivable.............................................. $2,250 $ --
Deferred income taxes........................................ -- 912
Deposits and other........................................... 1,601 52
------ ------
Total...................................................... $3,851 $ 964
====== ======
</TABLE>
F-12
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
7. Bank Indebtedness
The Company has credit facilities of approximately $40 million which are
denominated in Canadian dollars, US dollars, Pound sterling and Japanese yen
(1998--$20 million). Actual bank indebtedness is due on demand and bears
interest based on prime which resulted in an effective average rate 4.98% for
fiscal 1999 (1998--7%). As at December 31, 1999, the Company had unused and
available demand lines of credit amounting to approximately $19 million (1998--
$9 million).
Accounts receivable and inventories have been pledged as collateral for the
bank indebtedness under general security agreements. The borrowings require,
among other things, the Company to maintain specified financial ratios and
conditions. As at December 31, 1999, the Company was in compliance with those
ratios and conditions.
8. Long-term Debt
Current portion of long-term debt
Long-term debt includes a mortgage payable at 10 3/8% interest, assumed as part
of the merger with General Scanning Inc., collateralized by the related land
and building, maturing in March 2000, at which time the remaining principal of
$1,508 thousand will be payable.
The Company has a long-term loan from Sumitomo Heavy Industries, Ltd., a
significant shareholder, all of which is repayable in Japanese yen. The
relevant foreign exchange rates were:
<TABLE>
<CAPTION>
December
31,
-----------
1999 1998
----- -----
<S> <C> <C>
$1 Canadian = Japanese yen....................................... 70.3 73.8
$1 US = Japanese yen............................................. 102.1 113.0
</TABLE>
The Company has entered into currency and interest rate swap contracts which
oblige it to pay Canadian dollars and receive Japanese yen, and pay U.S.
dollars and receive Japanese yen, on the dates principal and interest payments
are due. The terms of these contracts are described in Note 15.
Long term debt is comprised of:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Sumitomo Heavy Industries, Ltd., Japanese yen term loans,
interest payable semi-annually at 5.43% with semi-annual
principal payments, maturing October 31, 2000........... $ 3,917 $ 7,082
Silicon Valley Bank, mortgage principal due March 1,
2000.................................................... 1,508 --
Less current portion..................................... (5,425) (3,541)
------- -------
Total.................................................. $ -- $ 3,541
======= =======
</TABLE>
Total cash interest paid on all debt during the year ended December 31, 1999
was $1,155 thousand (1998--$899 thousand; 1997--$1,112 thousand).
F-13
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
9. Deferred Compensation
Certain officers and employees may defer payment of a portion of their
compensation until termination of employment or later. Interest on the
outstanding balance is credited quarterly at the prime rate, which averaged
8.01% during the year ended December 31, 1999. The portion of deferred
compensation estimated to be due within one year is included in current
liabilities.
10. Stockholders' Equity
Capital stock
The authorized capital of the Company consists of an unlimited number of common
shares without nominal or par value.
Accumulated other comprehensive income
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130") effective January 1, 1998. SFAS
No. 130 requires that all non-owner changes in equity, such as the change in
foreign currency translation adjustments, be separately classified in the
financial statements and that the accumulated balance of other comprehensive
income be reported separately from deficit in the equity section of the balance
sheet. Any unrealized holding gains and losses on securities held available-
for-sale are excluded from earnings and reported as a component of accumulated
other comprehensive income until realized, in accordance with SFAS 115.
During 1999, the Company sold securities held for sale and the realized gain of
$900 thousand has been included in the results of operations. Accumulated other
comprehensive income at end of year includes only unrealized foreign currency
translation gains and losses.
Net income (loss) per common share
Basic income (loss) per common share was computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the year.
For diluted income per common share, the denominator also includes dilutive
outstanding stock options and warrants determined using the treasury stock
method.
Common and common equivalent share disclosures are:
<TABLE>
<CAPTION>
Year ended December
31,
--------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Weighted average common shares outstanding............. 30,442 17,079 15,989
Dilutive potential common shares....................... -- -- 465
------ ------ ------
Diluted common shares.................................. 30,442 17,079 16,454
====== ====== ======
Options and warrants excluded from diluted income per
common share as their effect would be anti-dilutive... 3,978 2,004 290
====== ====== ======
</TABLE>
F-14
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Shareholder rights plan
On April 12, 1999, the Board of Directors adopted a Shareholders Rights Plan
(the "Plan"). Under this Plan one Right has been issued in respect of each
common share outstanding as of that date and one Right has been and will be
issued in respect of each common share issued thereafter. Under the Plan, each
Right, when exercisable, entitles the holder to purchase from the Company one
common share at the exercise price of Cdn$200, subject to adjustment and
certain anti-dilution provisions (the "Exercise Price").
The Rights are not exercisable and cannot be transferred separately from the
common shares until the "Separation Time," which is defined as the eighth
business day (subject to extension by the Board) after the earlier of (a) the
"Stock Acquisition Date" which is generally the first date of public
announcement that a person or group of affiliated or associated persons
(excluding certain persons and groups) has acquired beneficial ownership of 20%
or more of the outstanding common shares, or (b) the date of commencement of,
or first public announcement of the intent of any person or group of affiliated
or associated persons to commence, a Take-over Bid. At such time as any person
or group of affiliated or associated persons becomes an "Acquiring Person" (a
"Flip-In Event"), each Right shall constitute the right to purchase from the
Company that number of common shares having an aggregate Market Price on the
date of the Flip-In Event equal to twice the Exercise Price, for the Exercise
Price (such Right being subject to anti-dilution adjustments).
So long as the Rights are not transferable separately from the common shares,
the Company will issue one Right with each new common share issued. The Rights
could have certain anti-takeover effects, in that they would cause substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Board of Directors.
Stock options
The Company has stock option plans providing for the issue of options to
purchase the Company's common shares. Outstanding options vest over periods of
one to four years beginning on the date of grant. The options expire over a
period of two to seven years beginning at the date of grant. Of the 4.7 million
(1998--3.7 million) options authorized under these plans, 408,178 (1998--
103,425) options were available for grant as at December 31, 1999.
The 1995 Stock Option Plan (the "1995 Plan"), as amended, provides for the
issuance of nonqualified and incentive stock options to purchase up to
2,906,000 shares of the Company's common stock, of which 408,178 were available
for future grant at December 31, 1999. Under this plan, options are granted at
the closing price of the Company's common shares on the Toronto Stock Exchange
or in lieu thereof, Nasdaq, on the trading date of the grant. The exercise
period of each option is determined by the Compensation Committee but may not
exceed 10 years. The Company's 1994 Stock Option Plan has terminated; however,
options to purchase 247,325 shares of common stock were outstanding under the
1994 Plan at December 31, 1999.
In conjunction with the merger with General Scanning Inc. the Company adopted
outstanding options held by employees under nonqualified and incentive stock
options, and issued 2,051,903 stock options in exchange.
In July 1999, the Company offered employee option holders an exchange of one
option for each two options outstanding with exercise prices over US$9.00 or
Cdn$13.32. Under this exchange 281,483 options with exercise price of US$4.63
or Cdn$6.95 per share were granted with new vesting schedule, and 562,966
options were cancelled.
F-15
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
which defines a fair value based method of accounting for employee stock
options or similar equity instruments. The Company has elected to continue to
apply APB 25 in accounting for its stock option plans, and immaterial amounts
of compensation have been recognized. Had compensation cost for these plans
been determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts below.
Because the method of accounting under SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
costs may not be representative of that to be expected in future years.
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Net income (loss):
As reported..................................... $(34,774) $(7,916) $11,912
Pro forma....................................... $(36,117) $(8,976) $11,145
Basic net income (loss) per share:
As reported..................................... $ (1.14) $ (0.46) $ 0.75
Pro forma....................................... $ (1.19) $ (0.53) $ 0.70
Diluted income (loss) per share:
As reported..................................... $ (1.14) $ (0.46) $ 0.72
Pro forma....................................... $ (1.19) $ (0.53) $ 0.68
</TABLE>
The fair value of options was estimated at the date of grant using a Black-
Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate........................ 6.7% 4.6% 5.8%
Expected dividend yield........................ -- -- --
Expected lives upon vesting.................... 1.0 years 1.2 years 1.8 years
Expected volatility............................ 60% 40% 30%
Weighted average fair value per share.......... $1.85 $1.00 $3.76
</TABLE>
F-16
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Stock option activity for the years ended December 31, 1999, 1998 and 1997 is
presented below.
<TABLE>
<CAPTION>
Options Weighted avg.
(thousands) exercise price
----------- --------------
<S> <C> <C>
Outstanding at December 31, 1996.................. 951 $ 5.71
Granted........................................... 833 18.40
Exercised......................................... (387) 4.91
Canceled.......................................... (76) 0.34
------ ------
Outstanding at December 31, 1997.................. 1,321 13.15
Granted........................................... 879 5.16
Exercised......................................... (50) 4.72
Canceled.......................................... (146) 15.63
------ ------
Outstanding at December 31, 1998.................. 2,004 9.11
Exchanged in merger with General Scanning......... 2,123 9.86
Granted........................................... 1,627 4.61
Exercised......................................... (164) 3.36
Canceled.......................................... (1,612) 12.66
------ ------
Outstanding at December 31, 1999.................. 3,978 $ 6.71
====== ======
Exercisable at December 31, 1999.................. 1,165 $ 7.64
====== ======
</TABLE>
The following summarizes outstanding and exercisable options outstanding on
December 31, 1999:
<TABLE>
<CAPTION>
Options outstanding Exercisable options
---------------------------------------- --------------------------
Number
Number Weighted Weighted of options Weighted
Range of of options average average exercisable average
exercise prices (000's) remaining life exercise price (000's) exercise price
--------------- ---------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.75 to $ 3.75........ 370 4.9 years $ 2.83 281 $ 2.56
$ 4.25 to $ 4.50........ 809 9.0 years $ 4.41 111 $ 4.46
$ 4.60 to $ 5.00........ 1,175 4.3 years $ 4.75 211 $ 4.85
$ 5.01 to $10.00........ 871 4.6 years $ 6.15 242 $ 8.00
$10.40 to $19.70........ 753 6.8 years $16.40 320 $14.79
----- -----
3,978 1,165
===== =====
</TABLE>
Repurchase of common shares
On April 29, 1998, the Board of Directors authorized a program to repurchase up
to 5% of its issued and outstanding common shares. Pursuant to provisions of
the Agreement and Plan of Merger with General Scanning Inc., the Company
suspended its repurchase program in October 1998. During 1998, the Company
repurchased 94,900 common shares for approximately $627 thousand.
Warrants
In conjunction with the merger with General Scanning Inc. the Company adopted
outstanding warrants for the purchase of common stock issued to non-employee
members of the General Scanning Inc. Board of Directors.
F-17
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
The warrants are subject to vesting as determined by a committee of the Board
of Directors at the date of grant and expire ten years from the date of grant.
During the year ended December 31, 1999, none were granted, exercised or
cancelled. At December 31, 1999, 70,718 warrants, of which 57,248 are
exercisable, remain outstanding at prices ranging from $1.75 to $15.41 per
share.
11. Defined Contribution Plans
The Company has defined contribution employee savings plans in Canada, the
United Kingdom, and the United States. In the United States, the plan is
governed by the provisions of Section 401(k) of the Internal Revenue Code under
which contributions may be made by its United States employees. The Company
matches the contributions of participating employees on the basis of the
percentages specified in each plan. Company matching contributions to the plans
during 1999 were $2.3 million (1998--$1.1 million; 1997--$0.9 million).
12. Defined Benefit Pension Plan
The Company's subsidiary in the United Kingdom maintains a pension plan, known
as the GSI Lumonics Ltd. UK Pension Scheme. The plan has two components: the
Final Salary Plan, which is a defined benefit plan, and the Retirement Savings
Plan, which is a defined contribution plan. Effective April 1997, membership to
the Final Salary Plan was closed. The most recent actuarial valuation of the
plan was performed as at November 30, 1997. The extrapolation as at December 1,
1999 indicates the actuarial present value of the accrued pension benefits and
the net assets available to provide for these benefits, at market value, were
as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Pension fund assets............................................ 13,700 12,000
Accrued pension benefits....................................... 13,700 9,500
</TABLE>
The assumptions used to develop the actuarial present value of the accrued
pension benefits were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Discount rate.............................................. 6.5% 8.5%
Compensation increases rate................................ 5.5% 6.5%
Investment returns assumption.............................. 6.5% 8.5%
Average remaining service life of employees................ 18 years 18 years
</TABLE>
The estimates are based on actuarially computed best estimates of pension asset
long-term rates of return and long-term rate of obligation escalation.
Variances between these estimates and actual experience are amortized over the
employees' average remaining service life.
Pension expense under this plan during fiscal 1999 was $520 thousand (1998--
$670 thousand; 1997--$500 thousand).
F-18
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
13. Income Taxes
Details of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Current
Canadian.......................................... $ 724 $ 1,687 $2,513
International..................................... (1,576) (3,641) 2,995
------- ------- ------
(852) (1,954) 5,508
Deferred
Canadian.......................................... (2,084) (247) 384
International..................................... 380 (1,059) (818)
------- ------- ------
(1,704) (1,306) (434)
------- ------- ------
Income tax provision (benefit)..................... $(2,556) $(3,260) $5,074
======= ======= ======
</TABLE>
The income tax provision (benefit) reported differs from the amounts computed
by applying the Canadian rate to income (loss) before income taxes. The reasons
for this difference and the related tax effects are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Expected Canadian tax rate....................... 44.6% 44.6% 44.0%
Expected income tax provision (benefit).......... $(16,649) $(4,984) $7,474
Non-deductible research and development and other
expenses........................................ 4,325 -- --
International tax rate differences............... 3,461 (97) (868)
Losses and temporary timing differences the
benefit of which has not been recognized........ 5,374 1,377 577
Previously unrecognized losses and timing
differences..................................... (569) (161) (807)
Settlement of Canadian and foreign tax matters... -- (423)
Other items...................................... 1,502 605 (879)
-------- ------- ------
Reported income tax provision (benefit).......... $ (2,556) $(3,260) $5,074
======== ======= ======
</TABLE>
F-19
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and tax
reporting purposes. Significant components of the Company's deferred tax assets
and liabilities as at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Deferred tax assets
Operating tax loss carryforwards........................... $12,468 $6,539
Compensation related deductions............................ 2,312 --
Tax credits............................................... 2,431 582
Restructuring and other accrued liabilities............... 13,452 1,312
Deferred revenue............................................ 1,834 1,231
Inventory.................................................. 3,702 734
Other...................................................... 227 535
------- ------
Total deferred tax assets................................... 36,426 10,933
Valuation allowance for deferred tax assets................. (9,756) (5,731)
------- ------
Net deferred tax assets..................................... 26,670 5,202
------- ------
Deferred tax liabilities
Book and tax differences on fixed assets................... 824 1,076
Intangibles................................................ 3,770 --
------- ------
Net deferred income tax asset............................... $22,076 $4,126
======= ======
</TABLE>
The Company has provided a valuation allowance against losses in subsidiaries
with an inconsistent history of taxable income and loss due to the uncertainty
of their realization. In addition, the Company has provided a valuation
allowance on net operating loss carryforwards and tax credits related to its
wholly-owned subsidiary, View Engineering, Inc., due to the uncertainty of
their realizability as a result of limitations on their utilization in
accordance with certain US tax laws and regulations.
As at December 31, 1999, the Company had loss carryforwards of approximately
$34 million available to reduce future years' income for tax purposes. Of this
amount, approximately $8.5 million expires by the end of 2005 and a further
$7.5 million expires by the end of 2019, with the remainder carried forward
indefinitely.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $3,133 thousand at December 31, 1999. The Company has not
recorded a provision for withholding tax on undistributed earnings of foreign
subsidiaries, as the Company currently has no plans to repatriate those
earnings.
Income taxes paid during 1999 were $810 thousand (1998--$2,316 thousand; 1997--
$2,531 thousand).
14. Related Party Transactions
In addition to matters discussed elsewhere, the Company had the following
transactions with related parties. The Company recorded sales revenue from
Sumitomo Heavy Industries, Ltd., a significant shareholder, of $11.7 million in
the twelve months ended December 31, 1999 (1998--$15.5 million; 1997 $18.9
million) at amounts and terms approximately equivalent to third party
transactions. Transactions with Sumitomo are at normal trade terms. The balance
sheet reflects receivables from Sumitomo as due from related party.
F-20
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
15. Financial Instruments
Short-term investments
At December 31, 1999, the Company had $7,342 thousand invested in short-term
investments denominated in both U.S. and Canadian dollars with maturity dates
between January 13, 2000 and February 23, 2000. At December 31, 1998, the
Company had $8,098 thousand invested in short-term investments denominated in
Canadian dollars.
Derivative financial instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. The Company is in the
process of quantifying the impacts of adopting SFAS 133 on its financial
statements and has not determined the timing of or method of adoption of SFAS
133.
The Company does not actively trade derivative financial instruments but uses
them to manage foreign currency and interest rate positions associated with its
debt instruments. The terms of these derivative contracts match the terms of
the underlying debt instruments and are generally used to reduce financing
costs. The Company currently has three such contracts outstanding, two of which
convert yen denominated debt to U.S. dollar denominated debt and one contract
which converts a yen denominated debt into Canadian dollars.
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of the year-end fair value of significant financial instruments,
including debt. The Company believes, based upon current terms, that the
carrying value of its debt approximates its fair value.
<TABLE>
<CAPTION>
December 31,
-------------
1999 1998
------ ------
<S> <C> <C>
Long term debt, including current portion:
Sumitomo Heavy Industries, Ltd., Japanese yen term loans..... $3,917 $7,082
Favorable value of swaps:
To convert 100 million yen (1998--200 million yen) to U.S.
$683, (1998--U.S. 1,365), semi-annual interest at the six-
month LIBOR less 1.56%...................................... 296 406
To convert 150 million yen (1998--300 million yen) to
Canadian $1,163 (1998--Cdn $2,326), semi-annual interest at
the three month bankers acceptance rate less 1.62%.......... 669 1,136
To convert 150 million yen (1998--300 million yen) to U.S.
$1,023 (1998--U.S. $2,046), interest payable semi-annually
at 8.20%.................................................... 446 610
------ ------
Favorable Value of swaps...................................... 1,411 2,152
------ ------
Economic Value................................................ $2,506 $4,930
====== ======
</TABLE>
F-21
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
The Company is exposed to credit-related losses with respect to the positive
fair value of the swap contracts in the event of non-performance by the
Canadian Imperial Bank of Commerce and the Industrial Bank of Japan as
counterparties. The Company does not expect any counterparties to fail to meet
their obligations.
As of December 31, 1999 and 1998, the Company had no foreign exchange forward
contracts.
16. Restructuring and Other Charges
A charge of $19.6 million was taken during the three months ended April 2, 1999
to accrue employee severance of $5.6 million, leased facility and related costs
of $4 million associated with the closure of the plant in Oxnard, California
and redundant facilities worldwide, and costs of $10 million associated with
restructuring and integration of operations as a result of the merger. The
Oxnard manufacturing operations shut down was completed during December 1999.
Other integration activities included exit costs for some product lines,
reducing redundant resources worldwide, and abandoning redundant sales and
service facilities. During 1999, severance was paid to 130 employees in various
locations worldwide. Actual costs for employee severance for some activities
have been less than estimated in the accrual due to redeployment of personnel
and voluntary terminations. In addition, some facility exit costs and other
integration costs have been less than originally estimated. These reductions
are reflected in a $2.1 million reversal of restructuring charges during the
three months ended December 31, 1999. Offsetting this reduction is an
additional charge of $2.1 million for leased facilities costs in Oxnard, and
elsewhere worldwide, additional employee severance costs worldwide, and other
integration costs. The following table summarizes activity during the year
ended December 31, 1999.
<TABLE>
<CAPTION>
Total Severance Facilities Integration
----- --------- ---------- -----------
(in millions)
<S> <C> <C> <C> <C>
Charge during Q1 1999... $19.6 $5.6 $4.0 $10.0
1999 actions............ (9.5) (2.4) (0.2) (6.9)
Reversals during Q4
1999................... (2.1) (0.8) (1.1) (0.2)
Charge during Q4 1999... 2.1 0.4 1.2 0.5
----- ---- ---- -----
Accrual remaining
December 31, 1999...... $10.1 $2.8 $3.9 $ 3.4
===== ==== ==== =====
</TABLE>
The remaining accrual is for further reduction of redundant resources
worldwide, including severance for approximately 160 employees. It is expected
that most actions will be completed by end of 2000, but certain leased facility
costs will take longer to resolve due to the nature of the lease commitments.
17. Commitments and Contingencies
Operating leases
The Company leases certain equipment and facilities under operating lease
agreements that expire through 2013. The facility leases require the Company to
pay real estate taxes and other operating costs. For the year ended December
31, 1999 lease expense was approximately $4,666 thousand (1998--$1,923
thousand; 1997--$1,645 thousand).
F-22
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Minimum lease payments under operating leases expiring subsequent to December
31, 1999 are:
<TABLE>
<S> <C>
2000................................................................ $ 4,849
2001................................................................ 4,041
2002................................................................ 3,327
2003................................................................ 2,595
2004................................................................ 2,535
Thereafter.......................................................... 7,602
-------
Total minimum lease payments........................................ $24,949
=======
</TABLE>
Recourse receivables
In Japan, where it is customary to do so, the Company discounts certain
customer notes receivable at a bank with recourse. The Company's maximum
exposure was $2,961 thousand at December 31, 1999. The book value of the
recourse receivables approximates fair value. During 1999, the Company received
cash proceeds relating to the discounted receivables of $6,661 thousand.
Legal proceedings and disputes
A provision of $19 million was recorded during the three months ended April 2,
1999 to accrue damages and legal fees, through to appeal, relating to Electro
Scientific Industries, Inc. v. General Scanning Inc., USDC Case No. C-96-4628,
and is reflected as a reduction in net assets acquired at the time of merger.
In October 1998 the U.S. District Court for the Northern District of California
issued a decision on motions for summary judgment in an action filed against
General Scanning Inc. for alleged patent infringement concerning U.S. Patent
Nos. 5,265,114 and 5,473,624. The Court granted Electro Scientific's motions
for summary judgment on infringement and on the issue of whether Electro
Scientific committed inequitable conduct by intentionally failing to cite prior
art to the U.S. Patent Office in connection with one of its patents. The Court
denied General Scanning Inc.'s motion for summary judgment that the Electro
Scientific patents are invalid due to prior art. During March 1999, the Court
granted Electro Scientific's motion for partial summary judgment that upgrade
kits, sold by General Scanning for 1.3 micron laser wavelength memory repair,
infringe the Electro Scientific patents in suit. The referenced patents cover
the use of 1.32 micron wavelength lasers in the repair of memory chips and
semiconductors with imbedded memory. In April 1999 a federal court jury issued
a verdict that Electro Scientific's patent 5,473,624 was invalid, and that
Electro Scientific's patent 5,265,114 was valid, and awarded a $13.1 million
damage judgment. A federal district court judge ruled on several post-trial
matters in July 1999. The Court refused Electro Scientific's requests to
increase damages awarded by the jury in April, and for attorney fees, but
granted interest on the damages. The Court also affirmed the jury's decision to
invalidate one of the two patents asserted by Electro Scientific in the case.
The Company has appealed the decisions on infringement, the validity of the
second patent and the award of damages. The Company was required to post an
unsecured bond with the court in order to proceed with the appeal. No date has
been set for arguments. At GSI Lumonics' request, the U.S. Patent and Trademark
Office ("PTO") has agreed to reexamine ESI's Patent No. 5,265,114, indicating
in its November 18, 1999 Order that information not previously considered
raised "a substantial new question of patentability." The PTO reexamination is
a separate proceeding from GSI Lumonics' pending appeal of the ESI judgement.
GSI Lumonics intends to present evidence in the reexamination that may
invalidate ESI's 114 patent. The outcome is not determinable at this time.
Robotic Vision Systems, Inc. v. View Engineering, Inc., USDC Case No. 95-7441.
This case involves a patent infringement complaint by Robotic Vision Systems,
Inc. ("RVSI") alleging infringement of U.S. Patent
F-23
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
No. 5,463,227 by View Engineering, Inc. ("View"), a wholly-owned subsidiary of
General Scanning Inc. The matter was tried before a judge sitting in the United
States District Court for the Central District of California in November 1999,
and the parties are currently awaiting the court's decision. RVSI alleges
infringement relating to lead inspection machines sold by View and seeks
damages of $60.5 million. In settlement of separate litigation with RVSI in
June 1998, arising from General Scanning Inc.'s acquisition of View in August
1996, General Scanning Inc. agreed not to compete in the field of semiconductor
interconnection inspection. During the first six months of 1998, sales by
General Scanning Inc. of all products used in semiconductor lead
interconnection inspection which involved products relating to the alleged
infringement totaled approximately 2% of General Scanning Inc.'s total sales.
GSI Lumonics believes that RVSI's claims in the above action are without merit
and GSI Lumonics Inc. is vigorously defending these proceedings. However, if
RVSI prevails on one or more of its claims and damages are awarded, there could
be a material adverse effect on GSI Lumonics Inc.'s operating results and/or
financial condition. The outcome is not determinable at this time.
Commencement of Copyright Infringement Declaratory Judgement Action. On
December 10, 1999 GSI Lumonics Inc. filed suit in the United States District
Court for the District of Massachusetts seeking a declaration that GSI
Lumonics' QuantArray(R) Microarray Analysis Software does not infringe any
copyright owned by BioDiscovery, Inc. or its president, Soheil Shams.
BioDiscovery, Inc. is a manufacturer of microarray quantification software
under the name ImaGene(R). GSI Lumonics previously distributed ImaGene(R)
software under a non-exclusive arrangement with BioDiscovery, but subsequently
developed its own software when BioDiscovery refused to develop necessary
enhancements to stay abreast of industry trends, especially in the field of
multi-channel scanning. GSI Lumonics felt compelled to file suit to resolve
these copyright issues and is confident in its position. On December 21, 1999,
BioDiscovery and its President, Soheil Shams, responded to the GSI Lumonics'
declaratory judgement action by filing a separate suit in the Federal Court in
Los Angeles, CA, alleging that GSI Lumonics reverse engineered software and
also sued for copyright infringement. GSI Lumonics has applied to the
California court to seek the prompt dismissal of the California action in favor
of its prior pending action. In the matter before the United States District
Court for the District of Massachusetts, the court denied BioDiscovery's motion
to dismiss and has scheduled the trial for May 2000. The outcome is not
determinable at this time.
Other. As the Company has disclosed since 1994, a party has commenced legal
proceedings in the United States against a number of U.S. manufacturing
companies, including companies that have purchased systems from GSI Lumonics
Inc. The plaintiff in the proceedings has alleged that certain equipment used
by these manufacturers infringes patents claimed to be held by the claimant.
While GSI Lumonics Inc. is not a defendant in any of the proceedings, several
of GSI Lumonics Inc.'s customers have notified GSI Lumonics Inc. that, if the
party successfully pursues infringement claims against them, they may require
GSI Lumonics Inc. to indemnify them to the extent that any of their losses can
be attributed to systems sold to them by GSI Lumonics Inc. While GSI Lumonics
does not believe that the outcome of these claims will have a material adverse
effect upon GSI Lumonics, there can be no assurance that any such claims, or
any similar claims, would not have a material adverse effect upon GSI Lumonics'
financial condition or results of operations.
Risks and uncertainties
The Company has experienced, and may continue to experience, fluctuations in
operating results due to a variety of factors, including: the rate of growth of
the markets for laser systems and components; industry cycles in target
markets; market acceptance of the Company's products and those of its
competitors;
F-24
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
development and promotional expenses relating to the introductions of new
products or new versions of existing products; changes in pricing policies by
the Company and its competitors; the timing of the receipt of orders from major
customers; the timing of shipments and economic conditions in foreign markets.
Certain of the components and materials included in the Company's laser systems
and optical products are currently obtained from single source suppliers. There
can be no assurance that a disruption of this outside supply would not create
substantial manufacturing delays and additional cost to the Company.
There is no concentration of credit risk related to the Company's position in
trade accounts receivable other than the amount due from Sumitomo Heavy
Industries, Ltd., a related party. Credit risk, with respect to trade
receivables, is minimized because of the diversification of the Company's
operations, as well as its large customer base and its geographical dispersion.
18. Segment Information
GSI Lumonics Inc. designs, develops, manufactures and markets laser-based
advanced manufacturing systems and components. The laser systems and components
are used in highly automated environments for applications such as cutting,
drilling, welding, marking, micro machining, inspection and coding a wide range
of products and materials in the automotive, electronics, semiconductor,
packaging, medical and aerospace industries. The printers are used in the
medical and photo-finishing industries. The Company's principal markets are in
the United States, Canada, Europe, Japan and Asia-Pacific.
During the three months ended December 31, 1999, the Company re-evaluated its
reportable segments and concluded it has one reportable segment. In classifying
operational entities into a particular segment, the Company aggregated
businesses with similar economic characteristics, products and services,
production processes, customers and methods of distribution.
Geographic segment information
The Company attributes revenues to geographic areas on the basis of the
customer location. Long-lived assets are attributed to geographic areas in
which Company assets reside.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers:
Canada................... $ 10,782 4% $ 8,264 6% $ 9,750 5%
USA...................... 143,034 52% 61,269 42% 91,835 52%
Europe................... 65,296 24% 40,427 28% 33,385 19%
Japan.................... 32,648 12% 15,987 11% 19,806 11%
Asia-Pacific, other...... 22,790 8% 18,245 13% 22,552 13%
-------- -------- --------
Total................... $274,550 100% $144,192 100% $177,328 100%
======== ======== ========
Long-lived assets:
Canada................... $ 7,726 $ 9,567 $ 11,307
US....................... 42,424 5,548 5,342
Europe................... 17,484 20,848 10,757
Japan.................... 591 -- --
Asia-Pacific, other...... 400 318 301
-------- -------- --------
Total................... $ 68,625 $ 36,281 $ 27,707
======== ======== ========
</TABLE>
F-25
<PAGE>
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
19. Subsequent Events
On March 16, 2000, Electro Scientific Industries, Inc. filed an action for
patent infringement in the United States District Court for the Central
District of California against the Company and Dynamic Details Inc., an
unrelated party who is one of the Company's customers. Electro Scientific
alleges that the Company offers to sell and import into the United States our
GS-600 high speed laser drilling system and that Dynamic Details possesses and
uses a GS-600 System. They further allege that Dynamic Details infringes on
Electro Scientific's U.S. patent no. 5,847,960 and that the Company has
actively induced the infringement of, and contributorily infringed on, the
patent. Electro Scientific seeks an injunction, an unspecified amount of
damages, trebling of those damages, and attorney fees. The Company intends to
vigorously defend this claim and, based on its investigation of the patent to
date, it believes that it will prevail. The outcome is not determinable at this
time.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
General Scanning Inc.:
We have audited the accompanying consolidated balance sheets of General
Scanning Inc. (a Massachusetts corporation) and subsidiaries as of December 31,
1997 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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 financial position of General Scanning Inc. and
subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 1999
(except with respect to the matter
discussed in Note 12, as to which
the date is March 22, 1999, and the
matters discussed in Note 10(c), as to
which the date is November 18, 1999)
F-27
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Laser systems and components.......... $ 131,867 $ 154,536 $ 148,141
Printers.............................. 24,666 26,994 33,256
----------- ----------- -----------
Total sales......................... 156,533 181,530 181,397
----------- ----------- -----------
Cost of sales:
Laser systems and components.......... 71,038 79,850 78,951
Printers.............................. 13,815 14,955 18,580
----------- ----------- -----------
Total cost of sales................. 84,853 94,805 97,531
----------- ----------- -----------
Gross profit:
Laser systems and components.......... 60,829 74,686 69,190
Printers.............................. 10,851 12,039 14,676
----------- ----------- -----------
Total gross profit.................. 71,680 86,725 83,866
----------- ----------- -----------
Operating expenses:
Research and product development...... 18,400 22,302 26,873
Selling, general and administrative... 39,475 46,169 51,049
Restructuring, litigation and other
charges.............................. -- -- 7,654
Acquired in-process research and
development.......................... -- 10,600 --
----------- ----------- -----------
Total operating expenses............ 57,875 79,071 85,576
----------- ----------- -----------
Income (loss) from operations........... 13,805 7,654 (1,710)
Merger expenses......................... (1,950) -- (900)
Interest income (expense), net.......... 272 464 (454)
Foreign exchange transaction gains
(losses)............................... (159) (507) 191
----------- ----------- -----------
Income (loss) before income taxes....... 11,968 7,611 (2,873)
Income tax provision (benefit).......... 5,367 2,502 (999)
----------- ----------- -----------
Net income (loss)....................... $ 6,601 $ 5,109 $ (1,874)
----------- ----------- -----------
Foreign currency translation adjustment. (139) (305) 370
Change in unrealized gain (loss) on
marketable equity securities........... -- -- (736)
----------- ----------- -----------
Comprehensive income (loss)............. $ 6,462 $ 4,804 $ (2,240)
=========== =========== ===========
Basic income (loss) per common share.... $ 0.56 $ 0.42 $ (0.15)
=========== =========== ===========
Diluted income (loss) per common share.. $ 0.53 $ 0.40 $ (0.15)
=========== =========== ===========
Weighted average common shares
outstanding............................ 11,774,000 12,065,387 12,583,993
=========== =========== ===========
Weighted average common shares
outstanding and dilutive potential
common shares.......................... 12,476,237 12,656,763 12,583,993
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-28
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
As of December
31,
------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,418 $ 6,145
Accounts receivable, less allowance of $1,203 in 1997 and
$2,295 in 1998........................................... 44,425 35,431
Inventories............................................... 34,051 34,887
Deferred income taxes..................................... 7,857 11,518
Other current assets...................................... 1,517 1,183
-------- --------
Total current assets..................................... 96,268 89,164
-------- --------
Property, plant and equipment, net......................... 14,611 14,973
Other assets............................................... 437 3,445
Intangible assets, net of amortization of $1,863 in 1997
and $2,239 in 1998........................................ 3,726 3,150
-------- --------
$115,042 $110,732
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and current portion of long-term
debt..................................................... $ 4,169 $ 4,722
Current portion of deferred compensation.................. 582 757
Accounts payable.......................................... 12,775 7,667
Accrued expenses.......................................... 16,079 16,992
-------- --------
Total current liabilities................................ 33,605 30,138
-------- --------
Long-term debt due after one year.......................... 1,530 1,543
Deferred compensation, less current portion................ 1,678 1,326
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000
shares; issued and outstanding--none..................... -- --
Common stock, $.01 par value; authorized 15,000,000
shares; issued 12,791,796 in 1997 and 13,032,549 in 1998. 128 130
Additional paid-in capital................................. 48,788 50,522
Retained earnings.......................................... 30,794 28,920
Cumulative translation adjustment.......................... (892) (522)
Unrealized (loss) on marketable equity securities.......... -- (736)
Treasury stock, at cost; 366,073 shares.................... (589) (589)
-------- --------
Total stockholders' equity................................ 78,229 77,725
-------- --------
$115,042 $110,732
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-29
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Unrealized Treasury
Common Stock loss on stock
--------------- Additional Cumulative marketable ------------
$.01 Par paid-in Retained translation equity
Shares value capital earnings adjustment securities Shares Cost
------ -------- ---------- -------- ----------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 11,968 $119 $41,587 $19,084 $(448) $ -- (366) $(588)
Net income.............. -- -- -- 6,601 -- -- -- --
Stock option and warrant
exercises, including
tax effects............ 278 3 2,070 -- -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (139) -- -- --
------ ---- ------- ------- ----- ----- ---- -----
Balance, December 31,
1996................... 12,246 122 43,657 25,685 (587) -- (366) (588)
Net income.............. -- -- -- 5,109 -- -- -- --
Stock option and warrant
exercises, including
tax effects............ 471 5 3,132 -- -- -- -- --
Fractional shares from
View Engineering, Inc.
merger................. -- -- -- -- -- -- -- (1)
Shares issued in
acquiring Reel-Tech,
Inc.................... 75 1 1,999 -- -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (305) -- -- --
------ ---- ------- ------- ----- ----- ---- -----
Balance, December 31,
1997................... 12,792 128 48,788 30,794 (892) -- (366) (589)
Net loss................ -- -- -- (1,874) -- -- -- --
Stock option and warrant
exercises, including
tax effects............ 241 2 1,734 -- -- -- -- --
Unrealized loss on
marketable equity
securities............. -- -- -- -- -- (736) -- --
Cumulative translation
adjustment............. -- -- -- -- 370 -- -- --
------ ---- ------- ------- ----- ----- ---- -----
Balance, December 31,
1998................... 13,033 $130 $50,522 $28,920 $(522) $(736) (366) $(589)
====== ==== ======= ======= ===== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-30
<PAGE>
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998
------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 6,601 $ 5,109 $(1,874)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities--
Acquired in-process research and development...... -- 10,600 --
Depreciation and amortization..................... 3,180 3,941 5,113
Deferred compensation............................. 347 367 (177)
Deferred income taxes............................. (646) (3,837) (3,661)
Subordinated note and equity securities received
for non-competition agreement and technology
license pursuant to litigation settlement........ -- -- (3,750)
Changes in current assets and liabilities, net of
effects of Reel-Tech, Inc. acquisition--
Accounts receivable............................... (9,444) (13,659) 9,896
Inventories....................................... (1,119) (6,271) (683)
Other current assets.............................. 2 (42) 455
Accounts payable and accrued expenses............. (592) 6,977 (4,405)
------- -------- -------
Net cash provided by (used in) operating
activities........................................ (1,671) 3,185 914
------- -------- -------
Cash flows from investing activities:
Purchase of Reel-Tech, Inc. (1)................... -- (12,446) --
Additions to property, plant and equipment, net... (6,902) (5,335) (4,985)
Decrease (increase) in other assets............... 15 20 164
------- -------- -------
Net cash (used in) investing activities.......... (6,887) (17,761) (4,821)
------- -------- -------
Cash flows from financing activities:
Proceeds from notes payable to banks and others.... 13,633 16,662 35,859
(Payments) on notes payable to banks and others... (15,567) (15,087) (35,859)
Net (payments) on long-term debt.................. (7) (19) (19)
Stock option and warrant exercises, including tax
effects.......................................... 2,073 3,136 1,736
------- -------- -------
Net cash provided by financing activities........ 132 4,692 1,717
------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents....................................... 386 647 (83)
------- -------- -------
Increase (decrease) in cash and cash equivalents... (8,040) (9,237) (2,273)
Cash and cash equivalents, beginning of period..... 25,695 17,655 8,418
------- -------- -------
Cash and cash equivalents, end of period........... $17,655 $ 8,418 $ 6,145
======= ======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for--
Interest.......................................... $ 862 $ 478 $ 566
======= ======== =======
Income taxes...................................... $ 4,834 $ 4,485 $ 151
======= ======== =======
(1) Acquisition of Reel-Tech, Inc.:
Net assets and in-process research and development
acquired......................................... $ -- $(14,446) $ --
Issuance of common stock.......................... -- 2,000 --
------- -------- -------
Net cash used to acquire business.................. $ -- $(12,446) $ --
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
GENERAL SCANNING INC.
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
97Q1 97Q2 97Q3 97Q4 98Q1 98Q2 98Q3 98Q4
------- ------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Laser systems and
components............ $31,109 $37,504 $40,515 $45,408 $44,504 $39,753 $31,877 $32,007
Printers............... 6,608 5,210 7,041 8,135 6,068 9,319 10,163 7,706
------- ------- ------- ------- ------- ------- ------- -------
Total sales........... 37,717 42,714 47,556 53,543 50,572 49,072 42,040 39,713
------- ------- ------- ------- ------- ------- ------- -------
Gross profit:
Laser systems and
components............ 15,012 17,527 19,810 22,337 21,757 19,377 13,561 14,495
Printers............... 3,061 2,291 3,031 3,656 2,745 3,984 4,402 3,545
------- ------- ------- ------- ------- ------- ------- -------
Total gross profit.... 18,073 19,818 22,841 25,993 24,502 23,361 17,963 18,040
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and product
development........... 4,952 4,978 6,126 6,246 7,461 7,269 6,139 6,004
Selling, general and
administrative........ 10,321 11,103 11,357 13,388 13,385 14,447 12,211 11,006
Restructuring,
litigation and other
charges............... -- -- -- -- -- 5,060 717 1,877
Acquired in-process
research and
development........... -- -- -- 10,600 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 15,273 16,081 17,483 30,234 20,846 26,776 19,067 18,887
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. 2,800 3,737 5,358 (4,241) 3,656 (3,415) (1,104) (847)
Merger (expenses)....... -- -- -- -- -- -- -- (900)
Interest income
(expense), net......... 98 165 135 66 (34) (240) (104) (76)
Foreign exchange
transaction gains
(losses)............... (110) 11 (227) (181) (82) 62 115 96
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... 2,788 3,913 5,266 (4,356) 3,540 (3,593) (1,093) (1,727)
Income taxes............ 978 1,367 1,685 (1,528) 1,239 (1,261) (382) (595)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 1,810 $ 2,546 $ 3,581 $(2,828) $ 2,301 $(2,332) $ (711) $(1,132)
======= ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
common share........... $ 0.15 $ 0.21 $ 0.30 $ (0.23) $ 0.18 $ (0.19) $ (0.06) $ (0.09)
======= ======= ======= ======= ======= ======= ======= =======
Diluted income (loss)
per common share....... $ 0.15 $ 0.20 $ 0.28 $ (0.23) $ 0.18 $ (0.19) $ (0.06) $ (0.09)
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding and
dilutive potential
common shares.......... 12,465 12,553 12,739 12,310 12,870 12,571 12,637 12,656
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
F-32
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Significant Accounting Policies
Nature of operations
General Scanning Inc. develops, manufactures and sells its products on a
worldwide basis through two industry segments: laser systems and components;
and printers. The laser systems and components segment provides products for a
wide range of applications in the automotive, electronics, semiconductor,
medical and aircraft industries. The Company's core technological expertise
which is employed in each of these applications is high speed micropositioning
and precise power control of lasers, as well as 2D and 3D image processing. The
printer segment provides printers for the medical and photo-finishing
industries.
Basis of presentation
The consolidated financial statements include the accounts of General Scanning
Inc. and its wholly-owned subsidiaries (the "Company"). Significant
intercompany accounts and transactions have been eliminated in consolidation.
In August 1996, the Company acquired View Engineering, Inc. ("View") by issuing
1,437,060 shares of General Scanning Inc. common stock (after giving effect to
certain adjustments at the closing) in exchange for all of View's outstanding
shares of capital stock, accrued preferred dividends and the net value of
warrants and options. View uses laser image processing technology to serve
applications requiring precision inspection, measurement and process control.
The transaction has been accounted for as a pooling of interests for accounting
purposes and, accordingly, the accompanying consolidated financial statements
include the accounts of View for all periods presented. Merger expenses include
primarily brokers' fees and legal and accounting costs.
On November 28, 1997, the Company acquired the assets of Reel-Tech, Inc. for
$14.4 million, which consisted of $12.4 million of cash and 75,118 shares of
General Scanning Inc. common stock. Reel-Tech is an integrator of electronics
components handling systems for marking, lead inspection, parts sorting and
parts packaging. The transaction was accounted for as a purchase for accounting
purposes and, accordingly, the operations of Reel-Tech have been included in
the consolidated financial statements from the date of acquisition. Goodwill
arising from the transaction of $3.1 million is being amortized on a straight-
line basis over a 10-year period. Results of operations would not have changed
materially for 1997 or 1996 if Reel-Tech had been acquired on January 1, 1996.
Upon consummation of the Reel-Tech acquisition, the Company immediately
expensed $10.6 million representing purchased in-process technology that had
not yet reached technological feasibility and had no alternative future use.
The value was based on an independent appraisal and was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects, and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the purchased in-process technology.
The in-process projects were expected to be commercially viable on dates
ranging from the end of calendar year 1998 through calendar year 1999.
Expenditures to complete these projects were expected to total approximately
$3.2 million (see Note 11).
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
F-33
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Risks and uncertainties
The Company has experienced, and may continue to experience, fluctuations in
operating results due to a variety of factors, including: the rate of growth of
the markets for laser systems and components and printers; market acceptance of
the Company's products and those of its competitors; development and
promotional expenses relating to the introductions of new products or new
versions of existing products; changes in pricing policies by the Company and
its competitors; the timing of the receipt of orders from major customers; the
timing of shipments and economic conditions in foreign markets.
Certain of the components and materials included in the Company's laser systems
and optical products are currently obtained from single source suppliers. There
can be no assurance that a disruption of this outside supply would not create
substantial manufacturing delays and additional cost to the Company.
Cash and cash equivalents
Cash and cash equivalents include cash in banks and highly liquid investments
having original maturity dates not exceeding three months. The investments are
stated at cost, which approximates their fair value. The Company does not
believe it is exposed to any significant credit risk on its cash and cash
equivalents.
Inventories
Inventories, which include materials and conversion costs, are stated at the
lower of cost (primarily first-in, first-out) or market. Inventories consist of
the following:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Purchased parts.............................................. $14,992 $15,901
Work-in-process.............................................. 8,127 7,358
Finished goods............................................... 10,932 11,628
------- -------
Total inventory............................................ $34,051 $34,887
======= =======
</TABLE>
Depreciation and amortization
Depreciation and amortization are determined by the straight-line and
declining-balance methods over the estimated useful lives of the owned assets.
Estimated useful lives for buildings and improvements range from 5 to 31 years,
and for machinery and equipment from 3 to 15 years. Leasehold improvements are
amortized over the lesser of their useful lives or the lease term, including
option periods expected to be utilized.
Other Assets
Other assets at December 31, 1998 consist primarily of a subordinated note of
$2.25 million and common stock of $764 thousand, received as part of a
litigation settlement during 1998 (see Note 11). The subordinated note
F-34
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
is carried at face value, which approximates fair market value. The common
stock is considered to be available for sale and is carried at fair value based
on quoted market price. The difference between the cost and market value of the
common stock is recorded as "Unrealized gain (loss) on marketable equity
securities" in the accompanying consolidated financial statements.
Foreign currency
Assets and liabilities of foreign operations are translated from foreign
currencies into U.S. dollars at the exchange rates in effect at the period-end.
Revenues and expenses are translated at the average exchange rate in effect for
the period. The resulting translation adjustments are recorded as a component
of stockholders' equity.
Foreign exchange forward contracts and local currency borrowings are used to
reduce the impact of certain foreign currency balance sheet fluctuations. Gains
and losses from the forward contracts that are not hedges of firm commitments
are accrued at each balance sheet date and included in the Consolidated
Statements of Operations as foreign exchange transaction gains (losses). At
December 31, 1998, the Company had contracts to exchange foreign currencies
(yen, French francs and Deutsche marks) for U.S. dollars totaling $4.7 million
maturing through April, 1999. The fair value of losses from these contracts was
approximately $0.3 million at December 31, 1998, which is based on the market
price of offsetting forward exchange contracts at December 31, 1998.
To the extent the Company utilizes foreign exchange forward contracts, it
purchases them from major financial institutions for terms that have not
exceeded six months.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. The Company is in the
process of quantifying the impacts of adopting SFAS 133 on its financial
statements and has not determined the timing of or method of adoption of SFAS
133.
Income (loss) per share of common stock
In 1997, the Company adopted SFAS No. 128, Earnings per Share. Amounts reported
herein for 1996 as "Diluted income per common share" are the same as those
reported previously as "Net income per common and common equivalent share
outstanding." Basic income (loss) per common share was computed by dividing net
income (loss) by the weighted average number of common shares outstanding
during the year. For diluted income per common share, the denominator also
includes dilutive outstanding stock options and warrants determined using the
treasury stock method.
F-35
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Common and common equivalent share disclosures are:
<TABLE>
<CAPTION>
Year ended December
31,
--------------------
1996 1997 1998
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Weighted average common shares outstanding............. 11,774 12,065 12,584
Dilutive potential common shares....................... 702 592 --
------ ------ ------
Diluted common shares.................................. 12,476 12,657 12,584
====== ====== ======
Options and warrants excluded from diluted income per
common share as their effect would be antidilutive.... 76 104 1,252
====== ====== ======
</TABLE>
Revenue recognition
The Company recognizes product revenues generally at the later of the time of
shipment or when substantially all terms and conditions of the sale have been
met. For certain long-term contracts, revenues and profits are recognized using
the percentage-of-completion method. The Company provides for estimated
warranty costs at the time of revenue recognition.
Research and product development expense
Expenditures for research and development of products and manufacturing
processes are expensed as incurred.
Interest
Interest expense in 1998 is net of $280 thousand of interest income. Interest
income in 1997 and 1996 is net of $498 thousand and $845 thousand of interest
expense, respectively.
Impairment of long-lived assets
The Company periodically assesses the realizability of its long-lived assets in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of. Based on its review, the
Company does not believe that any material impairment of its long-lived assets
has occurred.
Comprehensive income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general-purpose financial statements. The statement is effective for fiscal
years beginning after December 15, 1997 and the Company adopted the statement
in 1998.
2. Intangible Assets
Purchase price in excess of the fair market value of tangible assets acquired
is recorded as intangible assets. Such assets arising from the acquisition of
the minority interest in Teradyne Laser Systems, Inc. in 1991 are being
amortized on a straight-line basis over their estimated useful lives of from 3
to 15 years. Goodwill arising in connection with the acquisition of the assets
of Reel-Tech in 1997 is being amortized on a straight-line basis over 10 years.
During 1998, the Company wrote off $178 thousand of net intangible assets
associated with the
F-36
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Reel-Tech assembled workforce when operations were relocated. Amortization
expense was $84 thousand in 1996, $109 thousand in 1997 and $398 thousand in
1998.
3. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(in thousands)
<S> <C> <C>
Cost:
Land, buildings and improvements......................... $ 13,134 $ 13,375
Machinery and equipment.................................. 28,955 33,075
-------- --------
Total cost............................................. 42,089 46,450
Accumulated depreciation................................. (27,478) (31,477)
-------- --------
Net property, plant and equipment...................... $ 14,611 $ 14,973
======== ========
</TABLE>
4. Accrued Expenses
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Accrued compensation and benefits........................... $ 8,448 $ 5,822
Income taxes................................................ 3,404 4,803
Other....................................................... 4,227 6,367
------- -------
Total accrued expenses.................................... $16,079 $16,992
======= =======
5. Debt
Notes payable to banks and current portion of long-term debt
Notes payable to banks and current portion of long-term debt consist of the
following:
<CAPTION>
December 31,
---------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Lines of credit............................................. $ 4,150 $ 4,703
Current portion of long-term debt........................... 19 19
------- -------
Total..................................................... $ 4,169 $ 4,722
======= =======
</TABLE>
The Company's revolving credit agreement with its lending bank was amended on
November 28, 1997. Under its amended terms, the agreement provides for
borrowings of up to $20 million and will expire on
F-37
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
December 31, 1999. Interest on outstanding borrowings is charged at the London
InterBank Offered Rate (LIBOR) plus 1.25% or prime, determined at the time of
borrowing. No such debt was outstanding at December 31, 1998 or 1997. A
commitment fee of 3/8% per annum is paid quarterly in arrears on the unused
portion. Among other restrictions, the agreement requires a minimum level of
tangible net worth and compliance with certain financial covenants.
Under the terms of the revolving credit agreement, the Company's foreign
operations may borrow up to a maximum of $6 million under lines of credit. Such
debt outstanding at December 31, 1998 was denominated in yen with a weighted
average interest rate of 1.6%.
Long-term debt
Long-term debt consists of a mortgage payable at 10 3/8% interest,
collateralized by certain land and building. Interest and principal are payable
at $14,906 per month until maturity in February 2000, at which time the
remaining principal of $1,507,516 will be payable. The portion of principal
payable within one year, which is included in current liabilities, is $19
thousand.
Fair value of financial instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of the year-end fair value of significant financial instruments,
including debt. The Company believes, based upon current terms, that the
carrying value of its debt approximates its fair value.
6. Deferred Compensation
Officers and certain employees may defer payment of their compensation until
termination of employment or later. Interest on the outstanding balance is
credited quarterly at the prime rate. The portion of deferred compensation
estimated to be due within one year is included in current liabilities.
7. Stockholders' Equity
Preferred stock
In August 1995, the stockholders approved an amendment to the Articles of
Organization which authorizes 1,000,000 shares of preferred stock, $.01 par
value. The preferred stock is divisible and issuable into one or more series.
The rights and preferences of the different series may be established by the
Board of Directors without further action by the stockholders. The Board of
Directors is authorized, with respect to each series, to fix and determine,
among other things, (i) the dividend rate, (ii) the liquidation preference,
(iii) whether such shares will be convertible into, or exchangeable for, any
other securities and (iv) whether such shares will have voting rights and, if
so, the conditions under which such shares will vote as a separate class.
Shareholder rights plan
On April 30, 1997, the Board of Directors adopted a Shareholders Rights Plan
(the "Plan") and declared a dividend distribution, payable on May 1, 1997, of
one preferred share purchase right under the Plan (each a "Right") for each
outstanding share of common stock of the Company. Under the Plan, each Right,
when exercisable, entitles the holder to purchase from the Company one ten-
thousandth of a share of the Company's Series A Junior Participating Preferred
Stock at a price of $70 per one ten-thousandth of a Preferred Share,
F-38
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
subject to adjustment and to certain exceptions. The value of the one ten-
thousandth interest in a share of Preferred Stock purchasable upon exercise of
each Right is intended to approximate the value of one share of common stock.
The rights are not exercisable and cannot be transferred separately from the
common stock until the first to occur of (a) 10 business days after a public
announcement that a person or group of affiliated or associated persons
(excluding certain persons and groups) has acquired beneficial ownership of 20%
or more of the outstanding common stock (the date of such an announcement, a
"Shares Acquisition Date"), or (b) 10 business days (subject to extension by
the Board) after the start or announcement of a tender or exchange offer, the
consummation of which would result in beneficial ownership by a person or group
of 20% or more of the outstanding common stock.
Prior to the earlier of (a) the tenth day after the Shares Acquisition Date, or
(b) the expiration of the Rights, the Company may under certain circumstances
redeem the Rights at a price of $0.001 per Right. In certain cases a Right will
entitle the holder to purchase common stock of the Company or an acquiring
company having a value of two times the exercise price of the Right. Under
certain conditions the Company may exchange the Rights for common stock or
preferred stock. The Rights expire on May 1, 2007 unless they are redeemed by
the Company.
So long as the Rights are not transferable separately from the common stock,
the Company will issue one Right with each new share of common stock issued.
The Rights could have certain anti-takeover effects, in that they would cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors.
Stock options
The 1992 Stock Option Plan, as amended in April 1998, provides for the issuance
of nonqualified and incentive stock options to purchase up to 2,000,000 shares
of the Company's common stock, of which 271,194 were available for future grant
at December 31, 1998. Under this plan, options are granted at the fair value
per share as determined by the Board of Directors at the date of grant.
Outstanding options vest over periods of three or four years beginning on the
date of grant and expire ten years from the date of grant. The Company's 1981
Stock Option Plan has terminated; however, options to purchase 72,750 shares of
common stock were outstanding under the 1981 Plan at December 31, 1998.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
which defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation costs for
those plans using the method of accounting prescribed by APB 25. Entities
electing to remain with the accounting in APB 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value based method of accounting defined in the statement had been applied.
The Company has elected to account for its stock-based compensation plans under
APB 25, under which immaterial amounts of compensation have been recognized.
Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts below. Because the method of accounting under SFAS No.
123 has not been applied to options granted prior to January 1, 1995, the
resulting pro forma compensation costs may not be representative of that to be
expected in future years.
F-39
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -------
<C> <S> <C> <C> <C>
Net income (loss) (in thousands): As reported $6,601 $5,109 $(1,874)
Pro forma $6,354 $4,410 $(3,351)
Diluted income (loss) per share: As reported $ 0.53 $ 0.40 $ (0.15)
Pro forma $ 0.51 $ 0.35 $ (0.27)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.3% in 1996, 5.5% in 1997 and 4.7% in
1998; expected dividend yield of zero; expected lives upon vesting of 2 years
in 1998, 4 years in 1997 and 1996; and expected volatility of 50%. The weighted
average fair value per share of options granted was $4.47 in 1996, $6.74 in
1997 and $5.86 in 1998.
Stock option activity for the years ended December 31, 1996, 1997 and 1998 is
presented below.
<TABLE>
<CAPTION>
Wtd. Avg.
Options Ex. Price
--------- ---------
<S> <C> <C>
Outstanding at December 31, 1995........................ 1,080,974 2.81
Granted................................................ 166,250 14.33
Exercised.............................................. (212,810) 2.32
Canceled............................................... (6,250) 7.65
--------- ------
Outstanding at December 31, 1996........................ 1,028,164 4.75
Granted................................................ 287,000 14.78
Exercised.............................................. (449,523) 2.71
Canceled............................................... (11,065) 10.97
--------- ------
Outstanding at December 31, 1997........................ 854,576 9.10
Granted................................................ 973,950 14.56
Exercised.............................................. (215,753) 2.75
Canceled............................................... (70,533) 14.41
--------- ------
Outstanding at December 31, 1998........................ 1,542,240 $13.19
========= ======
Exercisable at December 31, 1998........................ 512,809 $10.48
========= ======
</TABLE>
Additional information regarding the options outstanding at December 31, 1998
follows:
<TABLE>
<CAPTION>
Range of
Exercise No. of Wtd. avg. Wtd. avg. Number Wtd. avg.
prices options exercise price remaining life exercisable exercise price
-------- ------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$2.24-
$5.00 275,425 $ 3.91 6.8 years 157,825 $ 3.13
$ 6.00-
$10.00 311,445 $ 6.53 9.1 years 104,216 $ 6.90
$10.88-
$15.00 327,580 $13.88 8.1 years 155,228 $14.00
$15.13-
$20.00 446,180 $19.76 7.9 years 51,650 $19.73
$20.31-
$32.63 181,610 $21.32 9.3 years 43,890 $22.10
</TABLE>
Warrants
The Company has issued warrants for the purchase of common stock to the
nonemployee members of the Board of Directors. Warrants issued through 1995
vested over periods of three or four years, beginning on the
F-40
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
date of grant, and expire ten years from the date of grant. In 1996, 65,000 of
such warrants were exercised at prices ranging from $1.75 to $2.50 per share,
in 1997, 17,500 of such warrants were exercised at $1.75 per share, and in
1998, 25,000 of such warrants were exercised at prices ranging from $2.36 to
$2.50 per share. At December 31, 1998, 12,500 of such warrants, all of which
are exercisable, remain outstanding at $2.36 per share.
During 1995, the stockholders adopted the 1995 Directors' Warrant Plan and
reserved 100,000 shares for future issuance of warrants to nonemployee
directors under the Plan. The exercise price of such warrants is the fair
market value per share as determined by a committee of the Board of Directors
at the date of grant. The warrants are subject to vesting as determined by such
committee and expire ten years from the date of grant. In 1996, 8,000 such
warrants were granted at an exercise price of $20.75 per share, in 1997, 8,000
such warrants were granted at an exercise price of $13.00 per share, and in
1998, 32,000 such warrants were granted at exercise prices ranging from $14.13
to $20.44 per share. In 1997, 4,000 such warrants were exercised at prices
ranging from $13.00 to $20.75 per share. At December 31, 1998, 40,000 of such
warrants, all of which are exercisable, remain outstanding at exercise prices
ranging from $13.00 to $20.75 per share.
8. Defined Contribution Plan
The Company has a defined contribution employee savings plan under the
provisions of Section 401(k) of the Internal Revenue Code under which
contributions may be made by its domestic employees. The Company matches the
contributions of participating employees on the basis of the percentages
specified in the plan. Company matching contributions to the plan were $1,080
thousand, $1,379 thousand and $1,444 thousand for the years ended December 31,
1996, 1997 and 1998, respectively.
9. Income Taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using the currently enacted tax rates.
The components of income (loss) before income taxes for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
Year ended December
31,
----------------------
1996 1997 1998
------- ------ -------
(in thousands)
<S> <C> <C> <C>
United States........................................ $10,348 $3,860 $(4,095)
Foreign.............................................. 1,620 3,751 1,222
------- ------ -------
Total.............................................. $11,968 $7,611 $(2,873)
======= ====== =======
</TABLE>
F-41
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
The provision (benefit) for income taxes for the years ended December 31
consists of the following:
<TABLE>
<CAPTION>
Year ended December
31,
------------------------
1996 1997 1998
------ ------- -------
(in thousands)
<S> <C> <C> <C>
Current:
Federal and State................................. $5,209 $ 4,165 $ 1,076
Foreign........................................... 804 2,174 1,586
------ ------- -------
Total current.................................... 6,013 6,339 2,662
Deferred.......................................... (646) (3,837) (3,661)
------ ------- -------
Total............................................ $5,367 $ 2,502 $ (999)
====== ======= =======
</TABLE>
The income tax provision (benefit) for the years ended December 31 is different
from that which would be computed by applying the U.S. federal income tax rate
to income (loss) before taxes as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
------------------
1996 1997 1998
---- ----- -----
<S> <C> <C> <C>
U.S. federal statutory tax rate........................ 34.0% 34.0% (34.0)%
State income taxes, net................................ 3.9 6.0 (6.0)
Foreign sales corporation.............................. (3.0) (5.0) (14.9)
Research and development credits....................... (3.3) (10.5) (17.2)
Foreign tax rate differential.......................... 2.1 12.5 28.3
Foreign loss not benefited............................. -- -- 8.9
Merger expenses not deductible for tax purposes........ 4.0 -- 8.9
Change in valuation allowance for View pre-acquisition
losses................................................ 6.8 (6.0) --
Other, net............................................. 0.3 1.9 (8.8)
---- ----- -----
Effective tax rate..................................... 44.8% 32.9% (34.8)%
==== ===== =====
</TABLE>
F-42
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Significant components of deferred income tax assets as of December 31 are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Deferred compensation...................................... $ 814 $ 496
Vacation and sick pay benefit.............................. 576 535
Inventory valuation........................................ 1,577 2,858
Warranty costs............................................. 357 474
Depreciation............................................... (260) (273)
Deferred revenue........................................... -- 411
Operating loss and tax credit carryforwards................ 2,248 3,698
Acquired in-process research and development............... 3,816 3,583
Accounts receivable valuation.............................. 356 1,179
Other...................................................... 621 805
------- -------
Total deferred income tax assets........................... 10,105 13,766
Less valuation allowance................................... (2,248) (2,248)
------- -------
Net deferred income tax assets............................. $ 7,857 $11,518
======= =======
</TABLE>
The Company has provided a valuation allowance of $2,248 thousand as of
December 31, 1997 and 1998 on the net operating loss and tax credit
carryforwards related to its wholly-owned subsidiary, View Engineering, Inc.,
due to the uncertainty of their realizability as a result of limitations on
their utilization in accordance with certain tax laws and regulations. The
operating loss carryforwards expire from 2005 through 2011 and the tax credit
carryforwards expire in 1999 and 2000. Utilization of these operating loss and
tax credit carryforwards is limited to approximately $1.2 million per year. In
addition, the Company has other federal and state tax credit carryforwards of
$1,450 thousand at December 31, 1998 which expire from 2002 through 2013.
10. Commitments and Contingencies
(a) Operating leases
The Company leases certain equipment and facilities under operating lease
agreements that expire through 2008. The facility leases require the Company to
pay real estate taxes and other operating costs. For the years ended December
31, 1996, 1997 and 1998, lease expense was approximately $1,787 thousand,
$1,948 thousand and $2,717 thousand, respectively.
Minimum lease payments under operating leases expiring subsequent to December
31, 1998 are:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1999.......................................................... $ 2,654
2000.......................................................... 2,178
2001.......................................................... 1,741
2002.......................................................... 1,590
2003.......................................................... 1,140
Thereafter.................................................... 3,491
-------
Total minimum lease payments.................................. $12,794
=======
</TABLE>
F-43
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(b) Recourse receivables
In Japan, where it is customary to do so, the Company discounts certain notes
receivable at a bank with recourse. The Company's maximum exposure was $5,668
thousand at December 31, 1998. The fair value of the recourse receivables was
not determinable. The Company received cash proceeds relating to the discounted
receivables of $4,144 thousand, $5,262 thousand and $11,203 thousand during the
years ended December 31, 1996, 1997 and 1998, respectively.
(c) Legal proceedings and disputes, including subsequent events
During April 1999, the Company recorded a provision of $19 million to accrue
damages and legal fees, through to appeal, relating to Electro Scientific
Industries, Inc. v. General Scanning Inc. USDC Case No. C-96-4628. This amount
is not reflected in the Company's consolidated financial statements as of and
for the year ended December 31, 1998.
In September 1998, the U.S. District Court for the Northern District of
California granted Electro Scientific's motions for summary judgment against
General Scanning Inc. in this case on a claim of patent infringement and on the
issue of whether Electro Scientific committed inequitable conduct by
intentionally failing to cite prior art to the U.S. Patent Office in connection
with one of its patents. The court denied the Company's motion for summary
judgment that the patents are invalid due to prior art. During March 1999, the
Court granted Electro Scientific's motion for partial summary judgment that
upgrade kits, sold by General Scanning Inc. for 1.3 micron laser wavelength
memory repair, infringe the patents in suit. In April 1999, a federal court
jury issued a verdict that Electro Scientific's patent 5,473,624 was invalid,
and that Electro Scientific's patent 5,265,114 was valid, and awarded a $13.1
million damage judgment against the Company. In July 1999, the court refused
Electro Scientific's requests to increase damages awarded by the jury in April,
and for attorney's fees, but granted interest on the damages. The court also
affirmed the jury's decision to invalidate one of the two patents asserted by
Electro Scientific in the case. The Company has appealed the decisions on
infringement, the validity of the second patent and the award of damages. The
Company was required to post an unsecured bond with the court in order to
proceed with the appeal. No date has been set for arguments.
Robotic Vision Systems, Inc. v. View Engineering Inc., involves a complaint by
Robotic Vision Systems, Inc. ("RVSI") alleging infringement of a patent by View
Engineering, Inc., a wholly-owned subsidiary of General Scanning Inc. The
matter was tried before a judge sitting in the U.S. District Court for the
Central District of California in November 1999, and the Company is currently
awaiting the court's decision. RVSI alleges infringement relating to lead
inspection machines formerly sold by View and seeks damages of $60.5 million.
In settlement of separate litigation with RVSI in June 1998, arising from
General Scanning Inc.'s acquisition of View in August 1996, General Scanning
Inc. agreed not to compete in the field of semiconductor interconnection
inspections. (See Note 11).
The Company believes that the claims in this action are without merit and are
vigorously defending these proceedings. However, if the Company loses on one or
more of these claims and damages are awarded, there could be a material adverse
effect on the Company's operating results and/or financial condition.
Voxel, a prior customer of the Company, asserted in December 1996 that the
Company may not have met certain product specifications. The Company believes
its product has met the necessary specifications. Pursuant to the dispute
resolution section in the Development Agreement between Voxel and the Company,
the matter was submitted to binding arbitration. In May 1998, a three-member
panel of the American Arbitration Association decided in favor of the Company
with respect to the dispute with Voxel and awarded the Company $1.9 million
plus applicable post-judgement interest. Following the arbitration decision
Voxel filed a voluntary
F-44
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
petition under Chapter 11, which was subsequently converted to a proceeding
under Chapter 7 of the Federal Bankruptcy Code. Net accounts receivable at
December 31, 1997 included approximately $1,012 thousand of billed and unbilled
amounts due from Voxel. As of December 31, 1998, this amount has been written
off.
During 1998, a party commenced legal proceedings in the U.S. District Court for
the District of Arizona against a number of U.S. semiconductor manufacturing
companies, including companies that have purchased systems from the Company.
The complaint alleges that methods used by these manufacturers infringe patents
held by this party. While the Company is not named as a defendant in any of the
proceedings, several of the Company's customers are involved. A few of these
customers have notified the Company of the allegations and have asked the
Company about the actions the Company plans to take in light of patent
indemnification provisions under which the Company's equipment was purchased
for the operations involved in the alleged infringements.
The Company has certain other contingent liabilities resulting from litigation
and claims incidental to its business, including patent infringement suits
relating to products currently sold or expected to be sold by the Company.
Management believes that the probable resolution of such contingencies will not
have a materially adverse effect on the Company's results of operations or
financial position.
11. Restructuring, Litigation and Other Charges
The $7.7 million restructuring, litigation and other charges in 1998 include
$3.7 million relating to the settlement with Robotic Vision Systems, Inc.
("RVSI") and $4.0 million relating to reductions in the Company's cost
structure.
In August 1996, RVSI commenced an action against General Scanning in the United
States District Court for the Eastern District of New York. RVSI claimed that
General Scanning improperly obtained proprietary information from RVSI for the
purpose of obtaining ownership of View and of thwarting RVSI's attempts to
acquire View. The plaintiff was seeking compensatory and punitive damages in an
unspecified amount. In September 1997 and January 1998, that same Court issued
a series of decisions on General Scanning's motion for summary judgment. Claims
were dismissed for: (1) breach of contract, (2) breach of the implied covenant
of good faith and fair dealing, and (3) violations under the Massachusetts
Unfair and Deceptive Business Practices Statute. Claims were not dismissed for:
(1) tortious interference with business relations, (2) fraud of confidential
business information, and (3) unfair competition in contravention of New York
common law.
In June 1998, the Company settled the remaining litigation claims with RVSI.
Under the terms of the settlement, the Company has agreed not to compete and
has granted an exclusive technology license to RVSI in the field of
semiconductor interconnection inspection. RVSI agreed not to compete in the
field of solder paste inspection.
Costs associated with the RVSI settlement were $7.4 million including
unsaleable inventory of $5.1 million, legal fees of $1.3 million, employee
severance of $210 thousand, leased facility costs of $188 thousand and other
related costs of $602 thousand. Partially offsetting these costs is $3.75
million consideration RVSI agreed to pay the Company for the non-competition
agreement and technology license. The consideration consists of a subordinated
note of $2.25 million and 271,493 shares of RVSI common stock valued at $1.5
million at the settlement date based on quoted market price. The subordinated
note bears interest at the prime rate with quarterly pro-rata principal
payments from September 2001 through June 2003. The Company considers the
common stock to be available-for-sale and, accordingly, is recording changes in
its fair market value as a component of stockholders' equity.
F-45
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
In addition, as a result of the RVSI settlement, the Company has not achieved
the expected economic benefits from the purchase of Reel-Tech's in-process
research and development. The Company's original objective in acquiring the
assets of Reel-Tech was to implement a strategy of combining certain functions
performed at the back end of the semiconductor component manufacturing process,
specifically marking, inspection and packaging. The Company planned to combine
its laser marking capability and View Engineering's vision inspection
technology with Reel-Tech's new component parts handling/packaging systems. The
settlement agreement with RVSI limits the Company's ability to offer certain of
these features to its customers. As a result, the in-process research and
development projects at Reel-Tech were discontinued. The resulting impact is
included in the Company's restructuring charges recorded during 1998. The
Company does not expect any future revenue or cash flow from Reel-Tech's in-
process research and development.
Charges of $4.0 million relating to reductions in the Company's cost structure
include $1.4 million of leased facility costs, $178 thousand write-off of net
intangible asset from acquisition of Reel-Tech assembled workforce and $2.4
million for severance of 230 employees. Accruals remaining on the balance sheet
as of December 31, 1998 include $710 thousand for leased facility costs and
$748 thousand related to employee severance.
12. Merger Agreement
On October 27, 1998 the Company and Lumonics Inc. ("Lumonics") entered into an
Agreement and Plan of Merger (the "Agreement") to combine the companies in a
merger of equals transaction. The merger was approved by the stockholders of
each company on March 17, 1999 and was consummated on March 22, 1999. Pursuant
to the terms of the Agreement, a wholly-owned subsidiary of Lumonics was merged
with and into the Company and each outstanding share of the Company was
exchanged for 1.347 shares of GSI Lumonics stock. Upon consummation of the
transaction, the stockholders of General Scanning own approximately 50% of the
combined company.
13. Related Party Transaction
In 1992, the Company's Board of Directors authorized a loan to an officer in
the amount of $160 thousand as a reimbursement for certain relocation expenses.
Under the agreement, as amended, the loan has been forgiven and charged as
compensation expense on a pro-rata basis over the five years ended December 31,
1997.
14. Segment Information
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The new disclosure requirements established
revised standards for public companies relating to the reporting of financial
and descriptive information in financial statements about their operating
segments.
Business segment information
The Company has two reportable segments as set forth in the table below. In
classifying operational entities into a particular segment, the Company
aggregated businesses with similar economic characteristics, products and
services, production processes, customers and methods of distribution. The
accounting policies for segments are the same as the Company's accounting
policies as described in Note 1. There are no transfers
F-46
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
between segments. Management evaluates segment performance based on segment
income (loss) from operations before interest income and expense, foreign
exchange transaction gains (losses), certain non-recurring items such as merger
expenses, and income taxes.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Laser systems and components................. $131,867 $154,536 $148,141
Printers..................................... 24,666 26,994 33,256
-------- -------- --------
Total....................................... $156,533 $181,530 $181,397
======== ======== ========
Income (loss) from operations:
Laser systems and components (1,2)........... $ 11,967 $ 6,075 $ (3,927)
Printers..................................... 4,321 5,034 5,825
Corporate expenses........................... (2,483) (3,455) (3,608)
-------- -------- --------
Total....................................... $ 13,805 $ 7,654 $ (1,710)
======== ======== ========
Total assets:
Laser systems and components................. $ 64,836 $ 91,923 $ 84,795
Printers..................................... 8,150 6,844 8,274
Corporate assets (3)......................... 22,587 16,275 17,663
-------- -------- --------
Total....................................... $ 95,573 $115,042 $110,732
======== ======== ========
Capital expenditures:
Laser systems and components................. $ 5,704 $ 5,244 $ 4,359
Printers..................................... 1,198 91 626
-------- -------- --------
Total....................................... $ 6,902 $ 5,335 $ 4,985
======== ======== ========
Depreciation and amortization:
Laser systems and components................. $ 2,773 $ 3,459 $ 4,707
Printers..................................... 407 482 406
-------- -------- --------
Total....................................... $ 3,180 $ 3,941 $ 5,113
======== ======== ========
</TABLE>
- ------------------
(1) Includes $10,600 charge for acquired in-process research and development in
1997.
(2) Includes $7,654 charges for restructuring, litigation and other charges in
1998.
(3) Consists primarily of cash, cash equivalents and deferred tax assets.
F-47
<PAGE>
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Geographic segment information
The Company attributes revenues to geographic areas on the basis of the
customer bill to location. Long-lived assets are attributed to geographic areas
in which Company assets reside.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1996 1997 1998
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated customers:
US.............................................. $ 91,833 $101,685 $108,677
Europe.......................................... 25,900 30,754 36,120
Japan........................................... 22,100 25,523 19,955
Asia, other..................................... 16,700 23,568 16,645
-------- -------- --------
Total.......................................... $156,533 $181,530 $181,397
======== ======== ========
Long-lived assets:
US.............................................. $ 12,491 $ 13,960 $ 14,338
Europe.......................................... 334 382 370
Japan........................................... 97 78 62
Asia, other..................................... -- 191 203
-------- -------- --------
Total.......................................... $ 12,922 $ 14,611 $ 14,973
======== ======== ========
</TABLE>
Major customers
The Company has revenues in 1998 from two divisions of one customer that
represent $19.6 million or 10.8% of consolidated revenues. The printer and
laser systems/components segments serve these divisions.
F-48
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
- ---------------------------------------------------------------
4,000,000 Common Shares
--------------
PROSPECTUS
--------------
April , 2000
CIBC World Markets
Chase H&Q
Needham & Company, Inc.
- ---------------------------------------------------------------
You should rely only on the information contained or
incorporated by reference in this prospectus. No dealer,
salesperson or other person is authorized to give
information that is not contained in this prospectus. This
prospectus is not an offer to sell nor is it seeking an
offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained
in this prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other expenses of issuance and distribution
The following table sets forth the estimated costs and expenses, other than the
underwriting discounts and commissions, payable in connection with the sale of
the common shares being registered, all of which will be paid by the
registrant.
<TABLE>
<CAPTION>
Amount to be Paid
-----------------
<S> <C>
SEC registration fee..................................... $ 20,493
NASD filing fee.......................................... 8,263
Nasdaq National Market listing fee....................... 17,500
The Toronto Stock Exchange listing fee................... 13,000
Legal fees and expenses.................................. 150,000
Accounting fees and expenses............................. 300,000
Printing and engraving................................... 700,000
Transfer agent fees...................................... 5,000
Miscellaneous............................................ 10,744
----------
Total.................................................. $1,225,000
==========
</TABLE>
Item 15. Indemnification of directors and officers
Subject to section 81 of the Business Corporations Act, New Brunswick, as from
time to time amended, except in respect of an action by or on behalf of the
registrant or Another Body Corporate (as defined below) to procure a judgment
in its favor, the registrant must indemnify each director and officer and each
former director and officer and each person who acts or acted at the
registrant's request as a director or officer of Another Body Corporate, and
his heirs and legal representatives, against all costs, charges and expenses,
including any amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of the Corporation or Another Body Corporate, as the case
may be, if
(a) he acted honestly and in good faith with a view to the best interests
of the registrant; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for believing
that his conduct was lawful.
"Another Body Corporate" as used herein means a body corporate of which the
registrant is or was a shareholder or creditor.
We maintain directors' and officers' liability insurance in the aggregate
principal amount of $35,000,000 subject to a $1,000,000 deductible per loss
payable by us. The premium payable for such insurance is currently $104,000 per
year which is paid by us.
II-1
<PAGE>
Item 16. Exhibits
See Exhibit Index following the Signatures page which is incorporated into this
prospectus by reference.
Item 17. Undertakings
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
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 of 1933, 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 of
1933, 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.
The undersigned registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement 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.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 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 Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Ottawa, Province of Ontario, on April
10, 2000.
GSI Lumonics Inc.
/s/ Charles D. Winston
By: _________________________________
Name: Charles D. Winston
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act, this amendment to the
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Charles D. Winston Chief Executive Officer April 10, 2000
______________________________________ and authorized
Charles D. Winston representative in the
United States (Principal
Executive Officer)
/s/ Desmond J. Bradley* Chief Financial Officer April 10, 2000
______________________________________ (Principal Financial and
Desmond J. Bradley Accounting Officer)
/s/ Richard Black* Director April 10, 2000
______________________________________
Richard Black
/s/ Paul F. Ferrari* Director April 10, 2000
______________________________________
Paul F. Ferrari
/s/ Woodie Flowers* Director April 10, 2000
______________________________________
Woodie Flowers
/s/ Byron O. Pond* Director April 10, 2000
______________________________________
Byron O. Pond
/s/ Benjamin J. Virgilio* Director April 10, 2000
______________________________________
Benjamin J. Virgilio
/s/ William B. Waite* - Director April 10, 2000
______________________________________
William B. Waite
</TABLE>
/s/ Charles J. Gardner
*By: _______________________
Charles J. Gardner
Attorney-in-Fact
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement.
5 Opinion of Stewart McKelvey Stirling Scales with respect to the
validity of securities being offered.
8 Opinion of Milbank, Tweed, Hadley & McCloy LLP with respect to tax
matters.
23.1 Consent of Stewart McKelvey Stirling Scales (included in Exhibit 5).
23.2 Consent of Milbank, Tweed, Hadley & McCloy LLP (included in Exhibit
8).
23.3 Consent of Ernst & Young LLP*
23.4 Consent of Arthur Andersen, LLP*
24 Power of Attorney (included on the signature page of this registration
statement).*
</TABLE>
- ------------------
*Previously filed.
<PAGE>
Exhibit 1.1
4,000,000
Common Shares
GSI Lumonics Inc.
UNDERWRITING AGREEMENT
----------------------
April 11, 2000
CIBC World Markets Corp.
Chase Securities Inc.
Needham & Company, Inc.
c/o CIBC World Markets Corp.
One World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
GSI Lumonics Inc., a corporation organized and existing under the laws
of New Brunswick, Canada (the "Company"), proposes, subject to the terms and
conditions contained herein, to sell to you and the other underwriters named on
Schedule I to this Agreement (the "Underwriters"), for whom you are acting as
Representatives (the "Representatives"), an aggregate of 4,000,000 shares (the
"Firm Shares") of the Company's common shares (the "Common Shares"). All of the
Firm Shares are to be issued and sold by the Company. The respective amounts of
the Firm Shares to be purchased by each of the several Underwriters are set
forth opposite their names on Schedule I hereto. In addition, the Company and
the persons listed on Schedule II hereto (the "Selling Shareholders") propose to
grant to the Underwriters an option to purchase up to an aggregate of 600,000
additional Common Shares (the "Option Shares") from it and the Selling
Shareholders for the purpose of covering over-allotments in connection with the
sale of the Firm Shares. Of the 600,000 Option Shares, up to 296,612 are first
to be sold by the Company and then up to 303,388 are to be sold by the Selling
Shareholders. The Firm Shares and the Option Shares are together called the
"Shares."
The public offering price per share for the Shares and the purchase
price per share for the Shares to be paid by the several Underwriters shall be
agreed upon by the Company, acting on behalf of itself and the Selling
Shareholders, and the Representatives, acting on behalf of the several
Underwriters, and such agreement shall be set forth in a separate written
instrument substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take the form
of an exchange of any standard form of written telecommunication among the
Company, the Selling Shareholders and the Representatives and shall specify such
applicable information as is indicated in Exhibit A hereto. The offering of the
Shares will be governed by this Agreement, as supplemented by the Price
Determination Agreement. From and after the date of the execution and delivery
of the Price
<PAGE>
Determination Agreement, this Agreement shall be deemed to incorporate, and,
unless the context otherwise indicates, all references contained herein to "this
Agreement" and to the phrase "herein" shall be deemed to include, the Price
Determination Agreement.
1. Sale and Purchase of the Shares.
-------------------------------
On the basis of the representations, warranties and agreements
contained in, and subject to the terms and conditions of, this Agreement:
(a) The Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from
the Company, the number of Firm Shares set forth opposite the name of
such Underwriter under the column "Number of Firm Shares to be Purchased
from the Company" on Schedule I to this Agreement, subject to adjustment
in accordance with Section 11 hereof. The purchase price for the Firm
Shares (the "Initial Price") shall be as set out in the Price
Determination Agreement.
(b) The Company and the Selling Shareholders grant to the several
Underwriters an option to purchase, severally and not jointly, all or any
part of the Option Shares at the Initial Price. The number of Option
Shares to be purchased by each Underwriter shall be the same percentage
(adjusted by the Representatives to eliminate fractions) of the total
number of Option Shares to be purchased by the Underwriter as such
Underwriter is purchasing of the Firm Shares. Such option may be
exercised only to cover over-allotments in the sales of the Firm Shares
by the Underwriters and may be exercised in whole or in part at any time
on or before 12:00 noon, New York City time, on the business day before
the Firm Shares Closing Date (as defined below), and from time to time
thereafter within 30 days after the date of this Agreement, in each case
upon written, facsimile or telegraphic notice, or verbal or telephonic
notice confirmed by written, facsimile or telegraphic notice, by the
Representatives to the Company no later than 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date or at least
two business days before the Option Shares Closing Date (as defined
below), as the case may be, setting forth the number of Option Shares to
be purchased and the time and date (if other than the Firm Shares Closing
Date) of such purchase. Such option, if exercised in part, shall first
be satisfied by purchase of Option Shares to be sold by the Company and
then by purchase of Option Shares to be sold by the Selling Shareholders,
on a pro rata basis.
(c) The Company understands that the Underwriters, other than
Nesbitt Burns Inc. ("Nesbitt Burns"), propose to make a public offering
of Shares in the United States and CIBC World Markets Inc. ("CIBC Inc."),
the Canadian affiliate of CIBC World Markets Corp. and Nesbitt Burns,
propose to make a public offering of Shares in Canada, as set out in the
Prospectus (defined below), all as soon as the Representatives deem
advisable after this Agreement has been executed and delivered.
-2-
<PAGE>
CIBC Inc. and Nesbitt Burns shall offer Shares directly in Canada only as
permitted by the Canadian Securities Laws (as hereinafter defined).
2. Delivery and Payment. Delivery by the Company to the
--------------------
Representatives for the respective accounts of the Underwriters, and payment of
the purchase price by certified or official bank check or checks payable in New
York Clearing House (same day) funds or immediately available funds by wire
transfer drawn to the order of the Company for the shares purchased from the
Company, against delivery of the respective certificates therefor to the
Representatives, shall take place at the offices of CIBC World Markets Corp.,
One World Financial Center, New York, New York 10281, or such other location as
agreed to by the Company and the Representatives, at 10:00 a.m., New York City
time, on the fifth business day following the date of this Agreement, or at such
time on such other date, not later than 10 business days after the date of this
Agreement, as shall be agreed upon by the Company and the Representatives (such
time and date of delivery and payment are called the "Firm Shares Closing
Date").
In the event the option with respect to the Option Shares is exercised
in whole or on one or more occasions in part, delivery by the Company and the
Selling Shareholders of the Option Shares to the Representatives for the
respective accounts of the Underwriters and payment of the purchase price
thereof in immediately available funds by wire transfer or by certified or
official bank check or checks payable in New York Clearing House (same day)
funds or immediately available funds by wire transfer to the Company and to the
Selling Shareholders for the shares purchased from the Selling Shareholders
shall take place at the offices specified above of CIBC World Markets Corp., or
such other location as agreed to by the Company and the Representatives, at the
time and on the date (which may be the same date as, but in no event shall be
earlier than, the Firm Shares Closing Date) specified in the notice referred to
in Section 1(b) (such time and date of delivery and payment are called the
"Option Shares Closing Date"). The Firm Shares Closing Date and the Option
Shares Closing Date are called, individually, a "Closing Date" and, together,
the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request, in the
case of the Firm Shares, at least two full business days before the Firm Shares
Closing Date or, in the case of Option Shares, on the day of notice of exercise
of the option as described in Section l(b) and shall be made available to the
Representatives for checking and packaging, at such place as is designated by
the Representatives, on the full business day before the Firm Shares Closing
Date (or the Option Shares Closing Date in the case of the Option Shares).
3. Registration Statement and Prospectus; Public Offering. The
------------------------------------------------------
Company has prepared and filed in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the published
rules and regulations thereunder (the "Rules") adopted by the Securities and
Exchange Commission (the "Commission") a Registration Statement (as hereinafter
defined) on Form S-3 (No. 333-32966), including a preliminary prospectus
relating to the Shares, and such amendments thereof as may have been required to
the
-3-
<PAGE>
date of this Agreement. Copies of such Registration Statement (including all
amendments thereof) and of the related U.S. Preliminary Prospectus (as
hereinafter defined) have heretofore been delivered by the Company to you. The
term "U.S. Preliminary Prospectus" means any preliminary prospectus (as
described in Rule 430 of the Rules) included at any time as a part of the
Registration Statement or filed with the Commission by the Company with the
consent of the Representatives pursuant to Rule 424(a) of the Rules. The term
"Registration Statement" as used in this Agreement means the initial
registration statement (including all exhibits, financial schedules and
information deemed to be a part of the Registration Statement through
incorporation by reference or otherwise), as amended at the time and on the date
it becomes effective (the "Effective Date") including the information (if any)
deemed to be part thereof at the time of effectiveness pursuant to Rule 430A of
the Rules. If the Company has filed an abbreviated registration statement to
register additional Shares pursuant to Rule 462(b) under the Rules (the "462(b)
Registration Statement") then any reference herein to the Registration Statement
shall also be deemed to include such 462(b) Registration Statement. The term
"U.S. Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement at the time of effectiveness; or, if Rule
430A of the Rules is relied on, the term U.S. Prospectus shall also include the
final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules.
The Company also has prepared and filed with the Canadian securities regulatory
authorities in all the provinces of Canada (the "Qualifying Provinces") a
preliminary short form prospectus relating to the Shares (in the English and
French languages, as applicable, including any documents incorporated therein by
reference, the "Canadian Preliminary Prospectus") and has obtained from the
Ontario Securities Commission (the "OSC") a mutual reliance review system
decision document, evidencing that receipts of securities regulatory authorities
in each of the Qualifying Provinces have been issued in respect of the Canadian
Preliminary Prospectus.
In addition, the Company (a) has prepared and filed with the Canadian
securities regulatory authorities in all of the Qualifying Provinces, a final
short form prospectus relating to the Shares (in the English and French
languages, as applicable, including any documents incorporated therein by
reference, the "Canadian Final Prospectus") omitting the PREP Information (as
hereinafter defined) in accordance with the rules and procedures established
pursuant to the Canadian Securities Administrators' National Policy No. 44
(incorporated by reference into Rule 44-1C (In the Matter of Rules for Shelf
Prospectus Offerings and for Pricing Offerings after the Prospectus is
Receipted)) for the pricing of securities after the final receipt for a
prospectus has been obtained (the "PREP Procedures") and (b) will prepare and
file, promptly after the execution and delivery of this Agreement, (i) with the
Canadian securities regulatory authorities in all of the Qualifying Provinces,
in accordance with the PREP Procedures, a supplemented prospectus setting forth
the PREP Information (in the English and French languages, as applicable,
including any documents incorporated therein by reference, the "Canadian
Supplemented Prospectus"). The information, if any, included in the Canadian
Supplemented Prospectus that is omitted from the Canadian Final Prospectus for
which a final receipt has been obtained from the OSC, but that is deemed under
the PREP Procedures to be incorporated by reference into the Canadian Final
Prospectus as of the date of the Canadian Supplemented Prospectus is referred to
herein as the "PREP Information". The Canadian Final
-4-
<PAGE>
Prospectus for which a final receipt has been obtained from the OSC is herein
referred to as the "Canadian Prospectus," except that, if, after the execution
of this Agreement, a Canadian Supplemented Prospectus containing the PREP
Information is thereafter filed with the Canadian securities regulatory
authorities in all of the Qualifying Provinces, the term "Canadian Prospectus"
shall refer to such Canadian Supplemented Prospectus, including the documents
incorporated by reference therein. The U.S. Prospectus and the Canadian
Prospectus in the respective forms used to confirm sales of Shares are
hereinafter collectively referred to as the "Prospectus".
The Company and the Selling Shareholders understand that the
Underwriters propose to make a public offering of the Shares, as set forth in
and pursuant to the U.S. Prospectus, as soon after the Effective Date and the
date of this Agreement as the Representatives deem advisable. The Company and
the Selling Shareholders hereby confirm that the Underwriters and dealers have
been authorized to distribute or cause to be distributed each U.S. Preliminary
Prospectus and Canadian Preliminary Prospectus and are authorized to distribute
the U.S. Prospectus, the Canadian Final Prospectus and the Canadian Supplemented
Prospectus, as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters in each case in
accordance with the rules and regulations governing the distribution in the
United States and Canada.
4. Covenants, Representations and Warranties of the Company. The
--------------------------------------------------------
Company covenants, represents and warrants to each Underwriter as follows:
(a) The Company shall, as soon as possible, comply with the PREP
Procedures and file with the securities regulatory authorities in each of
the Qualifying Provinces the Canadian Supplemented Prospectus relating to
the Shares and otherwise fulfill and comply with, to the satisfaction of
the Representatives, all applicable securities laws in each of the
Qualifying Provinces and the respective regulations and rules under such
laws together with applicable published policy statements of the Canadian
Securities Administrators and the securities regulatory authorities in
the Qualifying Provinces (the "Canadian Securities Laws") required to be
fulfilled or complied with by the Company to enable the Shares to be
lawfully distributed in the Qualifying Provinces through investment
dealers or brokers registered as such in the Qualifying Provinces. These
requirements shall be fulfilled in each of the Qualifying Provinces not
later than 5:00 p.m. (Toronto Time) on the next business day following
the date hereof, or by such later date or dates as may be determined by
the Representatives in their sole discretion.
(b) On the Effective Date, the Registration Statement (in such form
as at the Effective Date) complied, and on the date of the U.S.
Prospectus, the date any post-effective amendment to the Registration
Statement becomes effective, the date any supplement or amendment to the
U.S. Prospectus is filed with the Commission and each Closing Date, the
Registration Statement and the U.S. Prospectus (and any amendment thereof
or supplement thereto) will comply, in all material respects, with
-5-
<PAGE>
the applicable provisions of the Securities Act and the Rules and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder. The Registration
Statement did not, as of the Effective Date, contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and on the Effective Date and the other dates referred to
above neither the Registration Statement nor the U.S. Prospectus nor any
amendment thereof or supplement thereto will contain any untrue statement
of a material fact or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. When any related preliminary prospectus was first filed with
the Commission (whether filed as part of the Registration Statement or
any amendment thereto or pursuant to Rule 424(a) of the Rules) and when
any amendment thereof or supplement thereto was first filed with the
Commission, such preliminary prospectus as amended or supplemented
complied in all material respects with the applicable provisions of the
Securities Act and the Rules and did not contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. Notwithstanding the foregoing, none of the representations
and warranties in this paragraph 4(b) shall apply to statements in, or
omissions from, the Registration Statement or the Prospectus made in
reliance upon, and in conformity with, information herein or otherwise
furnished in writing by the Representatives on behalf of the several
Underwriters expressly for use in the Registration Statement or the
Prospectus. With respect to the preceding sentence, the Company
acknowledges that the only information furnished in writing by the
Representatives on behalf of the several Underwriters for use in the
Registration Statement or the Prospectus are the sections with respect to
"Underwriting" in the U.S. Prospectus and in the Canadian Prospectus
(other than the information therein with respect to the Company's $13.1
million credit facility) and information about orders and delivery on the
inside covers thereof.
(c) The Registration Statement is effective under the Securities
Act; and no stop order preventing or suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the U.S.
Prospectus has been issued; and no proceedings for that purpose have been
instituted or, to the Company's knowledge after due inquiry are
threatened under the Securities Act. Any required filing of the U.S.
Prospectus and any supplement thereto pursuant to Rule 424(b) of the
Rules has been or will be made in the manner and within the time period
required by such Rule 424(b).
(d) The documents incorporated by reference in the Registration
Statement and the U.S. Prospectus, at the time they were filed with the
Commission, complied in all material respects with the requirements of
the Exchange Act and, when read together and with the other information
in the Registration Statement and the U.S. Prospectus, do not contain an
untrue statement of a material fact or omit to state a
-6-
<PAGE>
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading.
(e) The financial statements of the Company (including all notes and
schedules thereto) included or incorporated by reference in the
Registration Statement, the U.S. Prospectus and the Canadian Prospectus
present fairly, in all material respects, the financial position, the
results of operations, the statements of cash flows and the statements of
stockholders' equity and the other information purported to be shown
therein of the Company at the respective dates and for the respective
periods to which they apply in conformity with U.S. generally accepted
accounting principles in the case of the U.S. Prospectus and Canadian
generally accepted accounting principles in the case of the Canadian
Prospectus, consistently applied throughout the periods involved, except
as indicated therein. The summary and selected financial data included
in the U.S. Prospectus and the Canadian Prospectus present fairly the
information shown therein as at the respective dates and for the
respective periods specified; and the summary and selected financial data
have been presented on a basis consistent with the consolidated financial
statements so set forth in or incorporated by reference in the U.S.
Prospectus and the Canadian Prospectus and other financial information.
(f) Ernst & Young LLP and Arthur Andersen LLP, whose reports are
filed with the Commission as a part of the Registration Statement, are
and, during the periods covered by their reports, were independent public
auditors as required by the Securities Act and the Rules.
(g) The Company and each of its subsidiaries other than those
subsidiaries that, in aggregate, total less than 10% of consolidated
revenues and individually are less than 2% of consolidated revenues (the
"Subsidiaries") is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation.
The Company does not control directly or indirectly any entities, other
than the Subsidiaries. The Company and each Subsidiary is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted by it or
location of the assets or properties owned, leased or licensed by it
requires such qualification, except for such jurisdictions where the
failure to so qualify would not have a material adverse effect on the
assets or properties, business, results of operations or financial
condition of the Company and each of its subsidiaries, taken as a whole
(a "Material Adverse Effect"). The Company and each of its Subsidiaries
has all requisite corporate power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, certificates and
permits of and from all governmental or regulatory bodies or any other
person or entity (collectively, the "Permits"), to own, lease and license
its assets and properties and conduct its business, all of which are
valid and in full force and effect, as described in the Registration
Statement and the Prospectus, except where the lack of such Permits,
individually or in the aggregate, would not have a Material Adverse
-7-
<PAGE>
Effect. The Company and each of its Subsidiaries has fulfilled and
performed in all material respects all of its material obligations with
respect to such Permits; and no event has occurred that could reasonably
be expected to result in revocation or termination thereof or results in
any other material impairment of the rights of the Company or any
Subsidiaries, as the case may be thereunder. Except as may be required
under the Securities Act, Canadian Securities Laws and state and foreign
Blue Sky laws, no other Permits are required on the part of the Company
or any Subsidiary to enter into, deliver and perform this Agreement and
to issue and sell the Shares.
(h) The Company and each of its Subsidiaries owns or possesses
adequate and enforceable rights to use all patents, trademarks, trademark
applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how and other similar rights and proprietary
knowledge (collectively, "Intangibles") described in the Prospectus as
being owned by it necessary for the conduct of its business. Except as
expressly set forth in the Registration Statement and the Prospectus or
as otherwise disclosed in writing to the Underwriters, neither the
Company nor any of its Subsidiaries has received any notice of, or is
aware of, any infringement of or conflict with asserted rights of others
with respect to any Intangibles.
(i) The Company and each of its Subsidiaries has good and marketable
title in fee simple to all items of real property and good and marketable
title to all personal property described in the Prospectus as being owned
by it subject to defects that would not result in a Material Adverse
Effect. Any real property and buildings described in the Prospectus as
being held under lease by the Company and each of its Subsidiaries is
held by it under valid, existing and enforceable leases, free and clear
of all liens, encumbrances, claims, security interests and defects,
except such as are described in the Registration Statement and the
Prospectus or would not have a Material Adverse Effect.
(j) Except as expressly set forth in the Registration Statement and
the Prospectus, there are no litigation or governmental proceedings to
which the Company or its Subsidiaries is subject or which is pending or,
to the knowledge of the Company, threatened, against the Company or any
of its Subsidiaries, which, individually or in the aggregate, might
reasonably be expected to have a Material Adverse Effect, adversely
affect the consummation of this Agreement or which is required to be
disclosed in the Registration Statement and the Prospectus that is not so
disclosed.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
described therein (a) there has not been any material adverse change with
regard to the assets or properties, business, results of operations or
financial condition of the Company; (b) neither the Company nor its
Subsidiaries has sustained any loss or interference with its assets,
businesses or properties (whether owned or leased) from fire, explosion,
earthquake,
-8-
<PAGE>
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or any court or legislative or other governmental action,
order or decree which would have a Material Adverse Effect; and (c) since
the date of the latest balance sheet included in the Registration
Statement and the Prospectus, except as reflected therein, neither the
Company nor its Subsidiaries has (i) issued any securities or incurred
any liability or obligation, direct or contingent, for borrowed money,
except such options or shares issued in the ordinary course of business
under existing stock option or similar plans since the date referred to
in the Prospectus, liabilities or obligations incurred in the ordinary
course of business, (ii) entered into any material transaction not in the
ordinary course of business or (iii) declared or paid any dividend or
made any distribution on any shares of its stock or redeemed, purchased
or otherwise acquired or agreed to redeem, purchase or otherwise acquire
any shares of its stock.
(l) There is no document, contract or other agreement of a character
required to be described in the Registration Statement or Prospectus or
to be filed as an exhibit to the Registration Statement which is not
described or filed as required by the Securities Act, the Rules or
Canadian Securities Laws. Each description of a contract, document or
other agreement in the Registration Statement and the Prospectus
accurately reflects in all material respects the terms of the underlying
document, contract or agreement. Each agreement described in the
Registration Statement and Prospectus or listed in the Exhibits to the
Registration Statement or incorporated by reference to which the Company
or a Subsidiary is a party, subject to customary exceptions, is in full
force and effect and is valid and enforceable by and against the Company
or a Subsidiary, as the case may be, in accordance with its terms.
Neither the Company nor any Subsidiary, if such Subsidiary is a party,
nor to the Company's knowledge, any other party is in default in the
observance or performance of any term or obligation to be performed by it
under any such agreement, and no event has occurred which with notice or
lapse of time or both would constitute such a default, in any such case
which default or event, individually or in the aggregate, would have a
Material Adverse Effect. No default exists, and no event has occurred
which with notice or lapse of time or both would constitute a default, in
the due performance and observance of any term, covenant or condition, by
the Company or any Subsidiary, if such Subsidiary is a party thereto, of
any other agreement or instrument to which the Company or such Subsidiary
is a party or by which the Company, any Subsidiary or their respective
properties or business may be bound or affected which default or event,
individually or in the aggregate, would have a Material Adverse Effect.
(m) Neither the Company nor any of its Subsidiaries is in violation
of any term or provision of its charter or by-laws or of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation,
where the consequences of such violation, individually or in the
aggregate, would have a Material Adverse Effect.
-9-
<PAGE>
(n) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance and sale
by the Company of the Shares) will give rise to a right to terminate or
accelerate the due date of any payment due under, or conflict with or
result in the breach of any term or provision of, or constitute a default
(or an event which with notice or lapse of time or both would constitute
a default) under, or require any consent or waiver under, or result in
the execution or imposition of any lien, charge or encumbrance upon any
properties or assets of the Company or any Subsidiary pursuant to the
terms of, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any Subsidiary is a party or by which
either the Company or any Subsidiary or any of their respective
properties or businesses is bound, or any franchise, license, permit,
judgment, decree, order, statute, rule or regulation applicable to the
Company or any Subsidiary or violate any provision of the charter or by-
laws of the Company or any Subsidiary, except for such consents or
waivers which have already been obtained and are in full force and effect
or which if not obtained would not have a Material Adverse Effect.
(o) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus. The
certificates evidencing the Shares are in due and proper legal form and
have been duly authorized for issuance by the Company. All of the issued
and outstanding Common Shares have been duly and validly issued and are
fully paid and nonassessable. There are no statutory preemptive or other
similar rights to subscribe for or to purchase or acquire any Common
Shares of the Company or any Subsidiaries or any such rights pursuant to
their certificate of incorporation, articles or by-laws or any agreement
or instrument to or by which the Company or any of its Subsidiaries is a
party or bound. The Shares, when issued and sold pursuant to this
Agreement, will be duly and validly issued, fully paid and nonassessable;
and none of them will be issued in violation of any preemptive or other
similar right. Except as disclosed in the Registration Statement and the
Prospectus, there is no outstanding option, warrant or other right
calling for the issuance of, and there is no commitment, plan or
arrangement to issue, any shares of the Company or any Subsidiaries or
any security convertible into, or exercisable or exchangeable for, such
shares other than options or shares issued in the ordinary course of
business under existing stock option or similar plans since the date
referred to in the Prospectus. The Common Shares and the Shares conform
in all material respects to all statements in relation thereto contained
in the Registration Statement and the Prospectus. All outstanding shares
of capital stock of each Subsidiary have been duly authorized and validly
issued, and are fully paid and nonassessable and are owned directly by
the Company or by another wholly owned subsidiary of the Company, free
and clear of any security interests, liens, encumbrances, equities or
claims, other than those described in the Prospectus.
(p) No holder of any security of the Company has the right to have
any security owned by such holder included in the Registration Statement
or to demand
-10-
<PAGE>
registration of any security owned by such holder during the period
ending 90 days after the date of this Agreement. Each director and
officer of the Company and Sumitomo Heavy Industries Ltd. have delivered
to the Representatives its or his written lock-up agreement in the form
attached to this Agreement ("Lock-Up Agreement").
(q) All necessary corporate action has been duly and validly taken
by the Company to authorize the execution, delivery and performance of
this Agreement and the issuance and sale of the Shares by the Company.
This Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes and will constitute the legal,
valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles.
(r) Neither the Company nor any of its Subsidiaries are involved in
any labor dispute nor, to the knowledge of the Company, is any such
dispute threatened, which dispute would have a Material Adverse Effect.
The Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers or contractors which
would have a Material Adverse Effect. The Company is not aware of any
threatened or pending litigation between the Company or any of its
Subsidiaries and any of its executive officers which, if adversely
determined, could have a Material Adverse Effect and has not been
informed that such officers will not remain in the employment of the
Company.
(s) No material transaction has occurred between or among the
Company and any of its officers or directors or five percent shareholders
or any affiliate or affiliates of any such officer or director or five
percent shareholders that is required to be described in and is not
described in the Registration Statement and the Prospectus.
(t) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which would reasonably be expected
to cause or result in, or which has constituted or which would reasonably
be expected to constitute, the stabilization or manipulation of the price
of the Common Shares to facilitate the sale or resale of any of the
Shares.
(u) The Company and its Subsidiaries have filed all material
federal, state, provincial, local and foreign tax returns which are
required to be filed through the date hereof, or have received extensions
thereof, and have paid all taxes shown on such returns and all
assessments received by them to the extent that the same are material and
have become due other than those taxes and assessments that are currently
being challenged and for which a reserve has been taken. There are no tax
audits or investigations pending, which if adversely determined would
have a Material Adverse
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<PAGE>
Effect; nor are there any material proposed additional tax assessments
against the Company or any of its Subsidiaries.
(v) The Shares have been duly authorized for quotation on the
National Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market System, subject to official Notice of Issuance and have
been approved for listing on The Toronto Stock Exchange.
(w) The books, records and accounts of the Company and its
Subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in, and dispositions of, the assets of, and the results of
operations of, the Company and its Subsidiaries. The Company and each of
its Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. and Canadian
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(x) The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are customary in the businesses in which it or they are
engaged; all policies of insurance and fidelity or surety bonds insuring
the Company or any of its Subsidiaries or the Company's or its
Subsidiaries' respective businesses, assets, employees, officers and
directors are in full force and effect; the Company and each of its
Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and neither the Company nor any
Subsidiary of the Company believes that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect.
(y) Each approval, consent, order, authorization, designation,
declaration or filing of, by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated required to be obtained or performed by
the Company (except such additional steps as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") or may be
necessary to qualify the Shares for public offering by the Underwriters
under the state securities or Blue Sky laws) has been obtained or made
and is in full force and effect.
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<PAGE>
(z) To the best of the knowledge of the Company, there are no
affiliations with the NASD among the Company's officers, directors or,
any five percent or greater stockholder of the Company, except as set
forth in the Registration Statement or otherwise disclosed in writing to
the Representatives.
(aa) (i) Each of the Company and its Subsidiaries is in compliance
with all rules, laws and regulations relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Law") which are applicable to its business
except for non-compliance that would not have a Material Adverse Effect;
(ii) neither the Company nor any of its Subsidiaries has received any
notice from (x) any third party of an asserted claim under Environmental
Laws which would have a Material Adverse Effect, or (y) any governmental
authority of an asserted claim under Environmental Laws; (iii) each of
the Company and its Subsidiaries has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to
conduct its business, except where the failure to obtain such permit,
license or approval would not have a Material Adverse Effect, and is in
compliance with all terms and conditions of any such permit, license or
approval; (iv) to the Company's knowledge, no facts currently exist that
will require the Company or any of its Subsidiaries to make future
material capital expenditures to comply with Environmental Laws; and (v)
no property which is or has been owned, leased or occupied by the Company
or its Subsidiaries has been designated as a Superfund site pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended (42 U.S.C. Section 9601, et. seq.) ("CERCLA"), or
otherwise designated as a contaminated site under applicable state,
provincial or local law. Neither the Company nor any of its Subsidiaries
has been named as a "potentially responsible party" under CERCLA.
(bb) In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company and its Subsidiaries, in the
course of which the Company identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws, or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has in good
faith concluded that such associated costs and liabilities would not,
singly or in the aggregate, have a Material Adverse Effect.
(cc) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of proceeds thereof as described
in the Prospectus, will not be an "investment company" within the meaning
of the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(dd) None of the Company, any of its Subsidiaries or any other
person acting on behalf of the Company or any of its Subsidiaries,
including, without
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<PAGE>
limitation, any director, officer, agent or employee of the Company or
any of its Subsidiaries has directly or indirectly, while acting on
behalf of the Company or any of its Subsidiaries (i) used any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; (iii)
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any other unlawful payment; except to the extent
that any such unlawful contribution, payment or act would not be
material.
(ee) The Company shall use the net proceeds of the offering of the
Shares to be sold by it pursuant to this Agreement in the manner
specified in the Prospectus under the caption "Use of Proceeds".
(ff) The Company is eligible to use the PREP Procedures and a
receipt has been obtained from the OSC in respect of the Canadian
Prospectus.
(gg) Filing of the Canadian Preliminary Prospectus, the Canadian
Final Prospectus and the Canadian Supplemented Prospectus shall
constitute a representation and warranty by the Company to the
Underwriters that as of the date of filing:
(i) all information and statements (except information
relating solely to the Underwriters) contained in the Canadian
Final Prospectus or the Canadian Supplemented Prospectus, as the
case may be, including the documents incorporated therein by
reference and any other management information circular,
financial statements or material change reports (other than
confidential material change reports) filed by the Company with
any securities regulatory authority in any of the Qualifying
Provinces after the date of the Canadian Prospectus and prior to
the termination of the distribution of the Shares (collectively,
the "Documents Incorporated by Reference"), are true and correct
and contain no misrepresentation and constitute full, true and
plain disclosure of all material facts relating to the Company
and the Shares;
(ii) no material fact or information has been omitted from
such disclosure (except facts or information relating solely to
the Underwriters) which is required to be stated in such
disclosure or is necessary to make the statements or information
contained in such disclosure not misleading in light of the
circumstances under which they were made; and
(iii) such documents comply fully with the requirements of
the Canadian Securities Laws.
Such filings shall also constitute the Company's consent to the
Underwriters' use of the Canadian Preliminary Prospectus, Canadian Final
Prospectus, the Documents
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<PAGE>
Incorporated by Reference and the Canadian Supplemented Prospectus in
connection with distribution of the Shares in the Qualifying Provinces in
compliance with the provisions of this Agreement and the Canadian
Securities Laws.
5. Covenants, Representations and Warranties of the Selling
--------------------------------------------------------
Shareholders. Each Selling Shareholder hereby severally covenants, represents
- ------------
and warrants to each Underwriter as follows:
(a) Such Selling Shareholder (i) has caused certificates or (ii) has
executed a Power of Attorney (as hereinafter defined) authorizing the
person named therein to exercise such number of options and cause the
certificates, for the number of Option Shares to be sold by such Selling
Shareholder hereunder to be delivered to LaBarge Weinstein (the
"Custodian"), endorsed in blank or with blank stock powers duly executed,
with a signature appropriately guaranteed, such certificates to be held
in custody by the Custodian for delivery, pursuant to the provisions of
this Agreement and agreements dated March 2000 between the Custodian and
each Selling Shareholder (together, the "Custody Agreement").
(b) Such Selling Shareholder has granted an irrevocable power of
attorney (the "Power of Attorney") to the person named therein, on behalf
of such Selling Shareholder, to execute and deliver this Agreement and
any other document necessary or desirable in connection with the
transactions contemplated hereby and to deliver the Option Shares to be
sold by the Selling Shareholder pursuant hereto.
(c) This Agreement, the Custody Agreement, the Power of Attorney and
the Lock-Up Agreement have each been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder and, assuming due
authorization, execution and delivery by the other parties hereto or
thereto, constitutes the valid and legally binding agreement of such
Selling Shareholder, enforceable against such Selling Shareholder in
accordance with its terms. If a Selling Shareholder is an individual, he
or she is of the age of majority, of sound mind and does not have the
status of a bankrupt.
(d) The execution and delivery by such Selling Shareholder of this
Agreement and the performance by such Selling Shareholder of its
obligations under this Agreement (i) will not contravene any provision of
applicable law, statute, regulation or filing or any agreement or other
instrument binding upon such Selling Shareholder or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over such Selling Shareholder, (ii) does not require any consent,
approval, authorization or order of or registration or filing with any
court or governmental agency or body having jurisdiction over it, except
such as may be required by the Blue Sky laws of the various states in
connection with the offer and sale of the Shares which have been or will
be effected in accordance with this Agreement, (iii) does not and will
not violate any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to such Selling Shareholder or
(iv)
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<PAGE>
will not result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of such Selling Shareholder
pursuant to the terms of any agreement or instrument to which such
Selling Shareholder is a party or by which such Selling Shareholder may
be bound or to which any of the property or assets of such Selling
Shareholder is subject in any case in such a manner as to impair the
ability of such Selling Shareholder to perform this Agreement.
(e) Such Selling Shareholder has (or upon exercise of such Selling
Shareholder's options will have) valid and marketable title to the Option
Shares to be sold by such Selling Shareholder free and clear of any lien,
claim, security interest or other encumbrance, including, without
limitation, any restriction on transfer other than restrictions on
transfer pursuant to the Lock-Up Agreement or securities laws (except
that there is no restriction on transfer under securities laws in the
case of the Option Shares in connection with this Offering).
(f) Such Selling Shareholder has full legal right, power and
authorization, and any approval required by law, to sell, assign,
transfer and deliver the Option Shares to be sold by such Selling
Shareholder in the manner provided by this Agreement.
(g) Upon delivery of and payment for the Option Shares to be sold by
such Selling Shareholder pursuant to this Agreement, the several
Underwriters will receive valid and marketable title to such Option
Shares free and clear of any lien, claim, security interest or other
encumbrance other than as created or permitted to exist by the
Underwriters.
(h) All information relating to such Selling Shareholder furnished
in writing by such Selling Shareholder expressly for use in the
Registration Statement and the Prospectus is, and on each Closing Date
will be, true, correct, and complete, and does not, and on each Closing
Date will not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not
misleading.
(i) Such Selling Shareholder has reviewed the Registration Statement
and Prospectus and, although such Selling Shareholder has not
independently verified the accuracy or completeness of all the
information contained therein, nothing has come to the attention of such
Selling Shareholder that causes such Selling Shareholder to believe that
(i) on the Effective Date, the Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein in order to make the statements made
therein not misleading and (ii) on the Effective Date, the Prospectus
contained and, on each Closing Date contains, any untrue statement of a
material fact or omitted or omits to state any material fact necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
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<PAGE>
(j) The sale of Option Shares by such Selling Shareholder pursuant
to this Agreement is not prompted by such Selling Shareholder's knowledge
of any material information concerning the Company or any of its
Subsidiaries which is required to be but is not set forth in the
Prospectus.
(k) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed or that would reasonably be
expected to cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Shares.
(l) The representations and warranties of such Selling Shareholder
in the Custody Agreement are true and correct.
6. Conditions of the Underwriters' Obligations. The obligations
-------------------------------------------
of the Underwriters under this Agreement are several and not joint. The
respective obligations of the Underwriters to purchase the Shares are subject to
each of the following terms and conditions:
(a) Notification that the Registration Statement has become
effective shall have been received by the Representatives and the U.S.
Prospectus shall have been timely filed with the Commission in accordance
with Section 7(a)(i) of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus, the U.S. Prospectus or the Canadian Prospectus shall have
been or shall be in effect and no order suspending the effectiveness of
the Registration Statement shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the Commission, and any
requests for additional information on the part of the Commission (to be
included in the Registration Statement or the U.S. Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Commission and the Representatives.
(c) The Underwriters shall be provided with evidence satisfactory to
them, acting reasonably, that the Shares have been approved for
designation upon notice of issuance on the Nasdaq National Market.
(d) The representations and warranties of the Company and the
Selling Shareholders contained in this Agreement and in the certificates
delivered pursuant to Section 6(e) and (f), if qualified by any
materiality qualifier whatsoever shall be true and correct, and otherwise
shall be true and correct in all material respects on and as of each
Closing Date as if made on such date. The Company and the Selling
Shareholders shall have performed all covenants and agreements and
satisfied all the conditions contained in this Agreement required to be
performed or satisfied by them at or before such Closing Date.
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<PAGE>
(e) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing
Date, executed by the chief executive or chief operating officer and the
chief financial officer or chief accounting officer of the Company on the
Company's behalf to the effect that (i) the signers of such certificate
have carefully examined the Registration Statement, the U.S. Prospectus,
the Canadian Prospectus and this Agreement and that the representations
and warranties of the Company in this Agreement are true and correct on
and as of such Closing Date with the same effect as if made on such
Closing Date and the Company has performed all covenants and agreements
and satisfied all conditions contained in this Agreement required to be
performed or satisfied by it at or prior to such Closing Date, and (ii)
no stop order suspending the effectiveness of the Registration Statement
has been issued and to the best of their knowledge, no proceedings for
that or any similar purpose have been instituted or are pending under the
Securities Act or under Canadian Securities Laws.
(f) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing
Date, of each Selling Shareholder, to the effect that the representations
and warranties of such Selling Shareholder in this Agreement are true and
correct on and as of such Closing Date with the same effect as if made on
such Closing Date and such Selling Shareholder has performed all
covenants and agreements and satisfied all conditions contained in this
Agreement required to be performed or satisfied by him at or prior to
such Closing Date.
(g) The Representatives shall have received, at the time this
Agreement is executed and on each Closing Date a signed letter from Ernst
& Young LLP addressed to the Representatives, and dated, respectively,
the date of this Agreement and each such Closing Date, in form and
substance reasonably satisfactory to the Representatives confirming that
they are independent accountants within the meaning of the Securities Act
and the Rules, that the response to Item 10 of the Registration Statement
is correct insofar as it relates to them and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules included or incorporated by
reference in the Registration Statement, the U.S. Prospectus and
the Canadian Prospectus and reported on by them comply as to form
in all material respects with the applicable accounting
requirements of the Securities Act and the Rules and Canadian
Securities Laws, as applicable;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the U.S. Prospectus or incorporated by
reference in the Canadian Prospectus under the headings "Summary
Consolidated Financial Data" and "Selected Consolidated Financial
Data," carrying out certain procedures (but not an examination in
accordance with generally accepted
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<PAGE>
auditing standards) which would not necessarily reveal matters of
significance with respect to the comments set forth in such
letter, a reading of the minutes of the meetings of the
stockholders and directors of the Company, and inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters of the Company as to transactions
and events subsequent to the date of the latest audited financial
statements, except as disclosed in the Registration Statement and
the Prospectus, nothing came to their attention which caused them
to believe that:
(A) the amounts in "Summary Consolidated Financial Data,"
and "Selected Consolidated Financial Data" included in the
Registration Statement and the Prospectus do not agree with
the corresponding amounts in the audited and unaudited
financial statements from which such amounts were derived;
or
(B) with respect to the Company, there were, at a
specified date not more than three business days prior to
the date of the letter, any increases in the current
liabilities and long-term liabilities of the Company or any
decreases in net income or in working capital or the
stockholders' equity of the Company, as compared with the
amounts shown on the Company's audited balance sheet for
the fiscal year ended December 31, 1999 included in the
Registration Statement and U.S. Prospectus and incorporated
by reference in the Canadian Prospectus;
(iii) they have performed certain other procedures as may be
permitted under generally acceptable auditing standards as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company) set forth in the
Registration Statement and the Prospectus and reasonably specified
by the Representatives agrees with the accounting records of the
Company; and
(iv) based upon the procedures set forth in Sections 6(g)(ii)
and (iii) above and a reading of the amounts included in the
Registration Statement under the headings "Summary Consolidated
Financial Data" and "Selected Consolidated Financial Data"
included in the Registration Statement and the Prospectus and a
reading of the financial statements from which certain of such
data were derived, nothing has come to their attention that gives
them reason to believe that the "Summary Consolidated Financial"
and "Selected Consolidated Financial Data" included in the
Registration Statement and the Prospectus do not comply as to the
form in all material respects with the applicable accounting
requirements of the Securities Act, Canadian Securities
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<PAGE>
Laws and the Rules or that the information set forth therein is
not fairly stated in relation to the financial statements included
in the Registration Statement or the Prospectus from which certain
of such data were derived.
References to the Registration Statement and the Prospectus in
this Section 6(g) are to such documents as amended and
supplemented at the date of the letter.
(h) The Representatives shall have received on each Closing Date
from Milbank, Tweed, Hadley & McCloy LLP, U.S. counsel for the Company,
an opinion, addressed to the Representatives and dated such Closing Date,
and stating in effect that:
(i) Each of the Lock-Up Agreements, assuming it has been duly
executed by the Company's stockholders, directors and officers and
duly and validly delivered by such persons, constitutes the legal,
valid and binding obligation of each such person enforceable
against each such person in accordance with its terms, except as
the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally (and the possible judicial application of foreign laws
or governmental action affecting the rights of creditors
generally) and except as enforceability is subject to the
application of general principles of equity (regardless of whether
considered in a proceeding in equity or at law), including,
without limitation, (a) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and
(b) concepts of materiality, reasonableness, good faith and fair
dealing.
(ii) No consent, approval, authorization or order of any New
York or United States Federal court or governmental agency or
regulatory body is required for the execution, delivery or
performance of this Agreement by the Company or the consummation
of the transactions contemplated hereby, except such as have been
obtained under the Securities Act and such as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the several
Underwriters.
(iii) The statements in the U.S. Prospectus under the caption
"Tax Considerations," excluding "Canadian Tax Considerations"
insofar as such statements constitute a summary of documents
referred to therein or matters of law, are fair summaries in all
material respects and accurately present the information called
for with respect to such documents and matters.
(iv) The Registration Statement, all preliminary prospectuses
and the U.S. Prospectus and each amendment or supplement thereto
(except for the
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financial statements and schedules and other financial and
statistical data included therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Securities Act and the Rules.
(v) The Registration Statement is effective under the
Securities Act, and no stop order suspending the effectiveness of
the Registration Statement has been issued and to such counsel's
knowledge no proceedings for that purpose have been instituted or
are threatened, pending or contemplated. Any required filing of
the U.S. Prospectus and any supplement thereto pursuant to Rule
424(b) under the Securities Act has been made in the manner and
within the time period required by such Rule 424(b).
(vi) The Company is not an "investment company" or an entity
controlled by an "investment company" as such terms are defined in
the Investment Company Act of 1940.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials and on the opinions of other counsel satisfactory to the
Representatives as to matters which are governed by laws other than the laws of
the State of New York, the General Corporation Law of the State of Delaware and
the federal laws of the United States; provided that such counsel shall state
that in their opinion that the Underwriters and they are justified in relying on
such other opinions. Copies of such certificates and other opinions shall be
furnished to the Representatives and counsel for the Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of the
Company, representatives of the Representatives and representatives of the
independent certified public accountants of the Company, at which conferences
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel is not passing upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except as
specified in the foregoing opinion), on the basis of the foregoing, no facts
have come to the attention of such counsel which cause such counsel to believe
that the Registration Statement at the time it became effective (except with
respect to the financial statements and notes and schedules thereto and other
financial data, as to which such counsel need express no belief) contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that the Prospectus as amended or supplemented (except with respect to the
financial statements, notes and schedules thereto and other financial data, as
to which such counsel need make no statement) on the date thereof contained any
untrue statement of a material fact or
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omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(i) The Representatives shall have received on each Closing Date
from LaBarge Weinstein or Stewart McKelvy Stirling Scales, each Canadian
counsel for the Company, an opinion, addressed to the Representatives and
dated such Closing Date, and stating in effect that:
(i) The Company has been duly continued and is validly existing
as a corporation under the laws of its jurisdiction of
continuance. The Company is duly qualified and in good standing
as a foreign corporation in each jurisdiction in which the
character or location of its assets or properties (owned, leased
or licensed) or the nature of its businesses makes such
qualification necessary, except for such jurisdictions where the
failure to so qualify, individually or in the aggregate, would not
have a Material Adverse Effect.
(ii) The Company has all requisite corporate power and
authority to own, lease and license its assets and properties and
conduct its business as now being conducted and as described in
the Registration Statement, the U.S. Prospectus and the Canadian
Prospectus and with respect to the Company to enter into, deliver
and perform this Agreement and to issue and sell the Shares other
than those required under the state and foreign Blue Sky laws.
(iii) The Company has authorized and issued capital stock as
set forth in the Registration Statement and the Prospectus under
the caption "Capitalization"; the certificates evidencing the
Shares are in due and proper legal form and have been duly
authorized for issuance by the Company; all of the outstanding
Common Shares of the Company have been duly and validly authorized
and issued and are fully paid and nonassessable and none of them
was issued in violation of any preemptive or other similar right.
The Shares when issued and sold pursuant to this Agreement will be
duly and validly issued, outstanding, fully paid and nonassessable
and none of them will have been issued in violation of any
preemptive or other similar right. To the best of such counsel's
knowledge, except as disclosed in the Registration Statement and
the Prospectus, there are no preemptive or other rights to
subscribe for or to purchase or any restriction upon the voting or
transfer of any securities of the Company pursuant to the
Company's Memorandum of Association, articles or by-laws or other
governing documents or any agreements or other instruments to
which the Company is a party or by which it is bound. To the best
of such counsel's knowledge, except as disclosed in the
Registration Statement and the Prospectus, there is no outstanding
option, warrant or other right calling for the issuance of, and no
commitment, plan or arrangement to issue, any shares of stock of
the Company or any security convertible into,
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exercisable for, or exchangeable for stock of the Company other
than as may have been issued in the ordinary course since the date
thereof. The Common Shares conform in all material respects to the
descriptions thereof contained in the Registration Statement and
the Prospectus.
(iv) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the
Shares. This Agreement has been duly and validly authorized,
executed and delivered by the Company, and this Agreement
constitutes the legal, valid and binding obligation of the
Company.
(v) To the best of such counsel's knowledge, neither the
execution, delivery and performance of this Agreement by the
Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance
and sale by the Company of the Shares) will give rise to a right
to terminate or accelerate the due date of any payment due under,
or conflict with or result in the breach of any term or provision
of, or constitute a default (or any event which with notice or
lapse of time, or both, would constitute a default) under, or
require consent or waiver under, or result in the execution or
imposition of any lien, charge, claim, security interest or
encumbrance upon any properties or assets of the Company or any of
the Subsidiaries pursuant to the terms of any indenture, mortgage,
deed of trust, note or other agreement or instrument of which such
counsel is aware and to which the Company or any of the
Subsidiaries is a party or by which either the Company or any of
the Subsidiaries or any of its respective properties or businesses
is bound, or any franchise, license, permit, judgment, decree,
order, statute, rule or regulation of which such counsel is aware
or violate any provision of the charter or by-laws of the Company.
(vi) To the best of such counsel's knowledge, no default
exists, and no event has occurred which with notice or lapse of
time, or both, would constitute a default, in the due performance
and observance of any term, covenant or condition by the Company
or any of the Subsidiaries of any indenture, mortgage, deed of
trust, note or any other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which it or
any of the Subsidiaries or any of their respective assets or
properties or businesses may be bound or affected, where the
consequences of such default, individually or in the aggregate,
would have a Material Adverse Effect.
(vii) To the best of such counsel's knowledge, the Company is
not in violation of any term or provision of its charter or by-
laws and is not in violation of any terms or provisions of any
franchise, license, permit, judgment, decree, order, statute, rule
or regulation, where the consequences of
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such violation, individually or in the aggregate, would have a
Material Adverse Effect.
(viii) No consent, approval, authorization or order of any
court or governmental agency or regulatory body is required for
the execution, delivery or performance of this Agreement by the
Company or the consummation of the transactions contemplated
hereby, except such as have been obtained under the Canadian
Securities Laws in connection with the purchase and distribution
of the Shares by the several Underwriters.
(ix) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation,
before any court or before or by any public body or board pending
or threatened against, or involving the assets, properties or
businesses of, the Company or any of the Subsidiaries which would
have a Material Adverse Effect.
(x) The statements in the U.S. Prospectus under the caption
"Tax Considerations," excluding "U.S. Tax Considerations" and in
the Canadian Prospectus under the caption "Certain Canadian
Federal Income Tax Considerations" insofar as such statements
constitute a summary of documents referred to therein or matters
of law, are fair summaries in all material respects and accurately
present the information called for with respect to such documents
and matters.
(xi) All of the documents incorporated by reference in the
Canadian Prospectus have been filed (in English and French, as
applicable) in each of the Qualifying Provinces.
(xii) The Canadian Supplemented Prospectus, Canadian Final
Prospectus and the Canadian Preliminary Prospectus and each
amendment or supplement thereto (except for the financial
statements and schedules and other financial and statistical data
included therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Canadian Securities Laws.
(xiii) All necessary documents and proceedings have been filed
and taken and all other legal requirements have been fulfilled
under the laws of each of the provinces of Canada to qualify the
Shares to be offered and sold to the public in each province of
Canada by or through registrants, investment dealers or brokers
registered under applicable legislation of such provinces who have
complied with the relevant provisions of such legislation.
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(xiv) Montreal Trust Company of Canada has been duly appointed
the registrar and transfer agent of the Shares at its principal
transfer office in the cities of Toronto.
(xv) The Shares have been approved for listing on The Toronto
Stock Exchange.
(xvi) The capital stock of the Company conforms in all
material respects to the description thereof contained in the
Prospectus under the caption "Description of Common Shares."
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company
and public officials and on the opinions of other counsel satisfactory to
the Representatives as to matters which are governed by laws other than
the laws of the Province of Ontario and the federal laws of Canada
provided that such counsel shall state that in their opinion the
Underwriters and they are justified in relying on such other opinions.
Copies of such certificates and other opinions shall be furnished to the
Representatives and counsel for the Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officers and other representatives of
the Company, representatives of the Representatives and representatives
of the independent certified public accountants of the Company, at which
conferences the contents of the Registration Statement and the Prospectus
and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus (except as specified in the foregoing
opinion), on the basis of the foregoing, no facts have come to the
attention of such counsel which cause such counsel to believe that the
Registration Statement at the time it became effective (except with
respect to the financial statements and notes and schedules thereto and
other financial data, as to which such counsel need express no belief)
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus as amended or
supplemented (except with respect to the financial statements, notes and
schedules thereto and other financial data, as to which such counsel need
make no statement) on the date thereof contained any untrue statement of
a material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(j) The Representatives shall have received on each Closing Date
from counsel for the Company in the jurisdiction listed opposite the name
of each of the Subsidiaries listed on Schedule III (the "Material
Subsidiaries"), an opinion, addressed to the Representatives and dated
such Closing Date, and stating in effect that:
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(i) Each Material Subsidiary has been duly organized and is
validly existing as a corporation under the laws of its
jurisdiction of incorporation. Each such Material Subsidiary is
duly qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its assets
or properties (owned, leased or licensed) or the nature of its
businesses makes such qualification necessary, except for such
jurisdictions where the failure to so qualify, individually or in
the aggregate, would not have a Material Adverse Effect.
(ii) Each such Material Subsidiary has all requisite corporate
power and authority to own, lease and license its assets and
properties and conduct its business as now being conducted.
(iii) The issued and outstanding shares of capital stock of
each such Material Subsidiary have been duly authorized and
validly issued, are fully paid and nonassessable and are owned by
the Company or by another wholly owned subsidiary of the Company,
free and clear of any perfected security interest or, to the
knowledge of such counsel, any other security interests, liens,
encumbrances, equities or claims, other than those described in
the Registration Statement or the Prospectus.
(iv) To the best of such counsel's knowledge, there is no
litigation or governmental or other proceeding or investigation,
before any court or before or by any public body or board pending
or threatened against, or involving the assets, properties or
businesses of, such Material Subsidiary which would have a
Material Adverse Effect.
To the extent deemed advisable by such counsel, they may rely as
to matters of fact on certificates of responsible officers of such
Material Subsidiary and public officials. Copies of such certificates
shall be furnished to the Representatives and counsel for the
Underwriters.
(k) The Representatives shall have received on each Option Shares
Closing Date from Milbank, Tweed, Hadley & McCloy LLP an opinion,
addressed to the Representatives and dated such Closing Date, and stating
in effect that:
(i) Assuming that they have been duly and validly executed
and delivered by or on behalf of the Selling Shareholders, this
Agreement, the Custody Agreement, the Power of Attorney and the Lock-
Up Agreement each constitutes the legal, valid and binding obligation
of the Selling Shareholders enforceable against the Selling
Shareholders in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
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enforcement of creditors' rights generally (and the possible judicial
application of foreign laws or governmental action affecting the
rights of creditors generally) and except as enforceability is
subject to the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at
law), including, without limitation, (a) the possible unavailability
of specific performance, injunctive relief or any other equitable
remedy and (b) concepts of materiality, reasonableness, good faith
and fair dealing.
(ii) To the extent that the laws of the State of New York or
the federal laws of the United States applies, all of the Selling
Shareholders' rights in the Option Shares to be sold by the Selling
Shareholders pursuant to this Agreement, have been transferred to the
Underwriters who have severally purchased such Option Shares pursuant
to this Agreement, free and clear of adverse claims, assuming for
purposes of this opinion that the Underwriters purchased the same in
good faith without notice of any adverse claims.
(iii) No consent, approval, authorization, license, certificate,
permit or order of any New York or United States federal court,
governmental or regulatory agency, authority or body is required in
connection with the performance of this Agreement by the Selling
Shareholders or the consummation of the transactions contemplated
hereby, including the delivery and sale of the Option Shares to be
delivered and sold by the Selling Shareholders, except such as may be
required under state securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the several
Underwriters.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of the Selling Shareholders and on the
opinions of other counsel satisfactory to the Representatives as to matters
which are governed by laws other than the laws of the State of New York,
the General Corporation Law of the State of Delaware or the federal laws of
the United States in the case of Milbank, Tweed, Hadley & McCloy and the
laws of the Province of Ontario and the federal laws of Canada applicable
therein in the case of LaBarge Weinstein; provided that such counsel shall
state that in their opinion the Underwriters and they are justified in
relying on such other opinions. Copies of such certificates and other
opinions shall be furnished to the Representatives and counsel for the
Underwriters.
(l) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives, and their
counsel and the Underwriters shall have received from Torys a favorable
opinion, addressed to the Representatives and dated such Closing Date, with
respect to the Shares, the Registration Statement and the Prospectus, and
such other related matters, as the Representatives may reasonably
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request, and the Company shall have furnished to Torys such documents as
they may reasonably request for the purpose of enabling them to pass upon
such matters.
(m) The Representatives shall have received copies of the Lock-up
Agreements executed by each entity or person described in Section 4(p).
(n) The Company and the Selling Shareholders shall have furnished or
caused to be furnished to the Representatives such further certificates
or documents as the Representatives shall have reasonably requested.
7. Covenants of the Company.
------------------------
(a) The Company covenants and agrees as follows:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution
of this Agreement, and any amendments thereto, to become effective
as promptly as possible. The Company shall prepare the U.S.
Prospectus in a form approved by the Representatives (such
approval not to be unreasonably withheld) and file such U.S.
Prospectus pursuant to Rule 424(b) under the Securities Act not
later than the Commission's close of business on the second
business day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may be required
by Rule 430A(a)(3) under the Securities Act.
(ii) The Company shall promptly advise the Representatives in
writing (i) when any amendment to the Registration Statement shall
have become effective, (ii) of any request by the Commission for
any amendment of the Registration Statement or the U.S. Prospectus
or for any additional information, (iii) of the prevention or
suspension of the use of any preliminary prospectus or the U.S.
Prospectus or of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding known to it for that
purpose and (iv) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose. The Company shall not file any
amendment of the Registration Statement or supplement to the
Prospectus unless the Company has furnished the Representatives a
copy for its review prior to filing and shall not file any such
proposed amendment or supplement to which the Representatives
reasonably object. The Company shall use its best efforts to
prevent the issuance of any such stop order and, if issued, to
obtain as soon as possible the withdrawal thereof.
(iii) If, at any time within one year after the date hereof
when a prospectus relating to the Shares is required to be
delivered under the
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Securities Act and the Rules, any event occurs as a result of
which the U.S. Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein in the
light of the circumstances under which they were made not
misleading, or if it shall be necessary to amend or supplement the
U.S. Prospectus to comply with the Securities Act or the Rules,
the Company promptly shall prepare and file with the Commission,
subject to the second sentence of paragraph (ii) of this Section
7(a), an amendment or supplement which shall correct such
statement or omission or an amendment which shall effect such
compliance.
(iv) The Company shall make generally available to its security
holders and to the Representatives as soon as practicable, but not
later than 45 days after the end of the 12-month period beginning
at the end of the fiscal quarter of the Company during which the
Effective Date occurs (or 90 days if such 12-month period
coincides with the Company's fiscal year), an earning statement
(which need not be audited) of the Company, covering such 12-month
period, which shall satisfy the provisions of Section 11(a) of the
Securities Act or Rule 158 of the Rules.
(v) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of the
Registration Statement (including all exhibits thereto and
amendments thereof) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and all
amendments thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Securities Act or the
Rules, as many copies of any preliminary prospectus and the
Prospectus and any amendments thereof and supplements thereto as
the Representatives may reasonably request.
(vi) The Company shall cooperate with the Representatives and
their counsel in endeavoring to qualify the Shares for offer and
sale to the extent required by law in connection with the offering
under the laws of such jurisdictions as the Representatives may
designate and shall maintain such qualifications in effect so long
as required for the distribution of the Shares; provided, however,
that the Company shall not be required in connection therewith, as
a condition thereof, to qualify as a foreign corporation or to
execute a general consent to service of process in any
jurisdiction or subject itself to taxation as doing business in
any jurisdiction.
(vii) Without the prior written consent of CIBC World Markets
Corp., for a period of 90 days after the date of this Agreement,
the Company shall not issue, sell or register with the Commission
(other than on Form S-8 or on any successor form), or otherwise
dispose of, directly or indirectly, any
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equity securities of the Company (or any securities convertible
into, exercisable for or exchangeable for equity securities of the
Company), except for the issuance of the Shares pursuant to the
Registration Statement and the issuance of options and shares
pursuant to the Company's existing stock option plan or bonus plan
or shareholder rights plan as described in the Registration
Statement and the Prospectus. In the event that during this
period, (i) any shares are issued pursuant to the Company's
existing stock option plan or bonus plan or (ii) any registration
is effected on Form S-8 or on any successor form relating to
shares that are issuable during such 90 period, the Company shall
obtain the written agreement of such grantee or purchaser or
holder of such registered securities if it is a director or
executive officer of the Company, that, for a period of 90 days
after the date of this Agreement, such person will not, without
the prior written consent of CIBC World Markets Corp. which would
not be unreasonably withheld or delayed, offer for sale, sell,
distribute, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, or exercise any registration rights
with respect to, any shares of Common Shares (or any securities
convertible into, exercisable for, or exchangeable for any shares
of Common Shares) owned by such person.
(viii) On or before completion of this offering, the Company
shall make all filings required under applicable securities laws
and by the Nasdaq National Market.
(ix) The Company will apply the net proceeds from the offering
of the Shares in the manner set forth under "Use of Proceeds" in
the Prospectus.
(x) To furnish to each of the Underwriters prior to or as soon
as possible following the filing of the Canadian Preliminary
Prospectus, the Canadian Final Prospectus and the Canadian
Supplemented Prospectus, as the case may be:
(A) a copy of the Canadian Preliminary Prospectus, the
Canadian Final Prospectus and the Canadian Supplemented
Prospectus in the English language signed and certified as
required by the Canadian Securities Laws applicable in the
Qualifying Provinces other than Quebec;
(B) a copy of the Canadian Preliminary Prospectus, the
Canadian Final Prospectus and the Canadian Supplemented
Prospectus in the French language signed and certified as
required by the Canadian Securities Laws applicable in Quebec;
(C) a copy of any other document required to be filed by the
Company in compliance with the Canadian Securities Laws;
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(D) opinions of Quebec counsel to the Company addressed to the
Underwriters, the Company, LaBarge Weinstein and Torys in form
and substance satisfactory to the Underwriters, acting
reasonably, dated in the case of the Canadian Preliminary
Prospectus, as of the date of the Canadian Preliminary
Prospectus, in the case of the Canadian Final Prospectus, as of
the date of the Canadian Final Prospectus, and, in the case of
the Canadian Supplemented Prospectus, as of the date of the
Canadian Supplemented Prospectus to the effect that the French
language version of the Canadian Preliminary Prospectus, the
Canadian Final Prospectus and the Canadian Supplemented
Prospectus, including in each case the Documents Incorporated by
Reference, as the case may be, except for the consolidated
financial statements of the Company included in the Prospectus,
together with the reports of Ernst & Young LLP on such financial
statements as at and for the periods included in the Prospectus
and including the notes with respect to such financial statements
and Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Prospectus (the
"Financial Information") as to which no opinion need be
expressed, is in all material respects a complete and accurate
translation of the English language version thereof, and that
such English and French language versions are not susceptible of
any materially different interpretation with respect to any
matter contained therein; and
(E) an opinion of Ernst & Young LLP addressed to the
Underwriters, the Company, LaBarge Weinstein and Torys, dated in
the case of the Canadian Preliminary Prospectus, as of the date
of the Canadian Preliminary Prospectus, in the case of the
Canadian Final Prospectus, as of the date of the Canadian Final
Prospectus and, in the case of the Canadian Supplemented
Prospectus, as of the date of the Canadian Supplemented
Prospectus, to the effect that the French language version of the
Financial Information is in all material respects, a complete and
proper translation of the English language version thereof.
(xi) During the period from the date of this Agreement to the
completion of distribution of the Shares, to promptly notify, whether
directly or through public announcement, the Underwriters in writing of:
(A) any material change (actual, anticipated, contemplated or
threatened, financial or otherwise) known to it in the business,
affairs, operations, assets, liabilities (contingent or
otherwise) or capital of the Corporation and its Subsidiaries
taken as a whole; or
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(B) any material fact which has arisen or been discovered and
would have been required to have been stated in the Prospectus
had the fact arisen or been discovered on, or prior to, the date
of such document; and
any change in any material fact (which for the purposes of this Agreement
shall be deemed to include the disclosure of any previously undisclosed
material fact) contained in the Canadian Prospectus or any Canadian
Prospectus Amendment, including all Documents Incorporated by Reference,
which fact or change is, or may be, of such a nature as to render any
statements in the Prospectus misleading or untrue or which would result
in a misrepresentation in the Prospectus or which would result in the
Prospectus not complying (to the extent that such compliance is required)
with the Canadian Securities Laws.
The Company shall promptly, and in any event within any applicable time
limitation, comply, to the reasonable satisfaction of the Underwriters,
with all applicable filings and other requirements under the Canadian
Securities Laws as a result of such fact or change. However, the Company
shall not file any amendment to the Canadian Prospectus (a "Canadian
Prospectus Amendment") or other document without first obtaining approval
from the Underwriters, after consultation with the Underwriters with
respect to the form and content thereof, which approval will not be
unreasonably withheld. The Company shall in good faith discuss with the
Underwriters any fact or change in circumstances (actual, anticipated,
contemplated or threatened, financial or otherwise) which is of such a
nature that there is reasonable doubt whether written notice need be
given under this paragraph.
(xii) If during the period of distribution to the public of the
Shares, there shall be any change in the Canadian Securities Laws which,
in the opinion of the Underwriters, requires the filing of a Canadian
Prospectus Amendment, the Company shall, to the satisfaction of the
Underwriters, acting reasonably, promptly prepare and file such Canadian
Prospectus Amendment with the appropriate securities regulatory authority
in each of the Qualifying Provinces where such filing is required.
(xiii) When the Company is required to prepare or prepares any
Canadian Prospectus Amendment, the Company shall also prepare and deliver
promptly to each of the Underwriters signed and certified copies of all
Canadian Prospectus Amendments in the English and French language which
have not been previously delivered. The Canadian Prospectus Amendments
shall be in form and substance satisfactory to the Underwriters acting
reasonably. Concurrently with the delivery of any Canadian Prospectus
Amendments, the Company shall deliver to each of the Underwriters, with
respect to such Canadian Prospectus Amendments, documents similar to
those
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referred to in Sections 7(a)(xi)(C), (D) and (E). The Company shall
promptly furnish the Underwriters, without charge, with commercial copies
of the English and French language versions of such Canadian Prospectus
Amendment, in such quantities and at such cities as the Representatives
may from time to time reasonably request.
(xiv) To cause commercial copies of the Canadian Prospectus in the
English and French languages to be delivered to the Underwriters without
charge, in such numbers and in such cities as the Underwriters may
reasonably request by oral instructions to the printer of the Prospectus
given forthwith after the Underwriters have been advised that the Company
has complied with the Canadian Securities Laws with respect to the filing
thereof. Such delivery shall be effected as soon as possible and, in any
event, on or before a date one Business Day after compliance with the
Canadian Securities Laws with respect to the filing thereof.
(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident
to the performance of the obligations of the Company under this Agreement
including those relating to: (i) the preparation, printing, filing and
distribution of the Registration Statement including all exhibits thereto,
each preliminary prospectus, the Prospectus, all amendments and supplements
to the Registration Statement and the Prospectus if required during the one
year period after the date hereof, and the printing, filing and distribution
of this Agreement; (ii) the preparation and delivery of certificates for the
Shares to the Underwriters; (iii) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of the
various jurisdictions referred to in Section 7(a)(vi), including the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such registration and qualification and the preparation,
printing, distribution and shipment of preliminary and supplementary Blue Sky
memoranda (of not more than U.S.$5,000); (iv) the furnishing (including costs
of shipping and mailing) to the Representatives and to the Underwriters of
copies of each preliminary prospectus, the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents required by this
Section to be so furnished, as may be reasonably requested for use in
connection with the offering and sale of the Shares by the Underwriters or by
dealers to whom Shares may be sold; (v) the filing fees of the NASD in
connection with its review of the terms of the public offering and reasonable
fees and disbursements of counsel for the Underwriters in connection with
such review; (vi) inclusion of the Shares for quotation on the Nasdaq
National Market; (vii) all transfer taxes, if any, with respect to the sale
and delivery of the Shares by the Company and the Selling Shareholders to the
Underwriters; and (viii) all costs and expenses incident to listing the
Shares on the Nasdaq National Market and The Toronto Stock Exchange. Subject
to the provisions of Section 10, the Underwriters agree to pay, whether or
not the transactions contemplated hereby are consummated or this Agreement is
terminated, all costs and expenses incident to the
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<PAGE>
performance of the obligations of the Underwriters under this Agreement
not payable by the Company pursuant to the preceding sentence, including,
without limitation, the fees and disbursements of counsel for the
Underwriters.
8. Indemnification.
----------------
(a) The Company, and each Selling Shareholder agrees, jointly and
severally, to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act or who
is an affiliate of a Representative against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and
any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under
the Securities Act, the Exchange Act, Canadian Securities Laws or other
federal, provincial or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto required within one year from the date hereof, or in
any Blue Sky application or other information or other documents executed
by the Company filed in any state or other jurisdiction to qualify any or
all of the Shares under the securities laws thereof (any such
application, document or information being hereinafter referred to as a
"Blue Sky Application") or arise out of or are based upon any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that such indemnity shall not inure to the benefit of
any Underwriter (or any person controlling such Underwriter) on account
of any losses, claims, damages or liabilities arising from the sale of
the Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such
preliminary prospectus, the Registration Statement or the Prospectus, or
such amendment or supplement thereto, or in any Blue Sky Application in
reliance upon and in conformity with information furnished in writing to
the Company by the Representatives on behalf of any Underwriter
specifically for use therein; provided, further, that with respect to any
such untrue statement or omission made in any preliminary prospectus, the
indemnity agreement contained in this Section 8(a) shall not inure to the
benefit of the Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased the Shares concerned if
any such loss, claim, damage or liability of such Underwriter is a result
of the fact that both (A) a copy of the Prospectus was not sent or given
to such person at or prior to written confirmation of the sale of such
Share to such person and (B) the untrue statement or omission in the
preliminary prospectus was corrected in the Prospectus. Notwithstanding
the foregoing,
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<PAGE>
liability of any Selling Shareholder pursuant to the provisions of this
Section 8(a) shall be limited to an amount equal to the aggregate net
proceeds received by such Selling Shareholder from the sale of the Option
Shares sold by such Selling Shareholders hereunder. This indemnity
agreement will be in addition to any liability which the Company and
Selling Shareholders may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Shareholders and each person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, each director of the
Company, and each officer of the Company who signs the Registration
Statement, to the same extent as the foregoing indemnity from the
Company, and the Selling Shareholders to each Underwriter, but only
insofar as such losses, claims, damages or liabilities arise out of or
are based upon any untrue statement or omission or alleged untrue
statement or omission which was made in any preliminary prospectus, the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, contained in the sections with respect to
"Underwriting" in the U.S. Prospectus and in the Canadian Prospectus
(other than the information therein with respect to the Company's $13.1
million credit facility) and information about orders and delivery on the
inside covers thereof; provided however, that the obligation of each
Underwriter to indemnify the Company or the Selling Shareholders
(including any controlling person, director or officer thereof) shall be
limited to the net proceeds received by the Company or the Selling
Shareholder from such Underwriter.
(c) Any party that proposes to assert the right to be indemnified
under this Section 8 will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section 8, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of all
papers served. No indemnification provided for in Section 8(a) or 8(b)
shall be available to any party who shall fail to give notice as provided
in this Section 8(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice but the omission
so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to
any indemnified party for contribution or otherwise than under this
Section 8. In case any such action, suit or proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and the approval by the
indemnified party of such counsel, the indemnifying parties shall not be
liable to such indemnified party for any legal or other expenses,
-35-
<PAGE>
except as provided below and except for the reasonable costs of
investigation subsequently incurred by such indemnified party in
connection with the defense thereof. The indemnified party shall have the
right to employ its counsel in any such action, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless
(i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified
party shall have been advised by counsel that there may be one or more
legal defenses available to it which are different from or in addition to
those available to the indemnifying party (in which case the indemnifying
parties shall not have the right to direct the defense of such action on
behalf of the indemnified party) or (iii) the indemnifying parties shall
not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of
which cases the fees and expenses of counsel shall be at the expense of
the indemnifying parties. In no event shall the indemnifying parties be
responsible for fees and expenses of more than one firm for all
indemnified parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected without its
written consent, which consent shall not be unreasonably withheld or
delayed.
9. Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in
Section 8(a) or 8(b) is due in accordance with its terms but for any reason is
held to be unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a) or 8(b), then each indemnifying party shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims asserted,
but after deducting any contribution received by any person entitled hereunder
to contribution from any person who may be liable for contribution) to which the
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Selling Shareholders on
the one hand and the Underwriters on the other from the offering of the Shares
or, if such allocation is not permitted by applicable law or indemnification is
not available as a result of the indemnifying party not having received notice
as provided in Section 8 hereof, in such proportion as is appropriate to reflect
not only the relative benefits referred to above but also the relative fault of
the Company and the Selling Shareholders on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Shareholders and the Underwriters shall be deemed to be in the same
proportion as (x) the total proceeds from the offering (net of underwriting
discounts but before deducting expenses) received by the Company or the Selling
Shareholders, as set forth in the table on the cover page of the Prospectus,
bear to (y) the underwriting discounts received by the Underwriters, as set
forth in the table on the cover page of the Prospectus. The relative fault of
the Company and the Selling Shareholders or the Underwriters shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact related to information supplied by the Company and
the Selling Shareholders or the Underwriters and the parties' relative intent,
knowledge, access
-36-
<PAGE>
to information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 9, (i) in no case shall any Underwriter (except
as may be provided in the Agreement Among Underwriters) be liable or responsible
for any amount in excess of the underwriting discount applicable to the Shares
purchased by such Underwriter hereunder; (ii) the Company shall be liable and
responsible for any amount in excess of such underwriting discount; and (iii) in
no case shall any Selling Shareholders be liable and responsible for any amount
in excess of the aggregate net proceeds of the sale of Shares received by such
Selling Shareholders; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 9, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of the Section 15 of the Securities Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to clauses (i) and
(ii) in the immediately preceding sentence of this Section 9. Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 9,
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
Section 9. No party shall be liable for contribution with respect to any action,
suit, proceeding or claim settled without its written consent. The Underwriter's
obligations to contribute pursuant to this Section 9 are several in proportion
to their respective underwriting commitments and not joint.
10. Termination. This Agreement may be terminated with respect to
-----------
the Shares to be purchased on a Closing Date by the Representatives by notifying
the Company and the Selling Shareholders at any time:
(a) in the absolute discretion of the Representatives at or before
any Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in
the opinion of the Representatives will in the future materially disrupt,
the securities markets; (ii) if there has occurred any new outbreak or
material escalation of hostilities or other calamity or crisis the effect
of which on the financial markets of the United States or Canada is such
as to make it, in the judgment of the Representatives, inadvisable to
proceed with the offering; (iii) if there shall be such a material
adverse change in general financial, political or economic conditions or
the effect of international conditions on the financial markets
-37-
<PAGE>
in the United States or Canada is such as to make it, in the judgment of
the Representatives, inadvisable or impracticable to market the Shares;
(iv) if trading in the Shares has been suspended by the Commission, the
Ontario Securities Commission or The Toronto Stock Exchange, or trading
generally on the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., the Nasdaq National Market or The Toronto Stock Exchange
has been suspended or limited, or minimum or maximum ranges for prices
for securities shall have been fixed, or maximum ranges for prices for
securities have been required, by said exchanges or by order of the
Commission, the National Association of Securities Dealers, Inc., or any
other governmental or regulatory authority; (v) if a banking moratorium
has been declared by any state or federal authority; or (vi) if, in the
judgment of the Representatives, there has occurred since the date hereof
a Material Adverse Effect, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 6 shall not have been fulfilled when and as required
by this Agreement.
If this Agreement is terminated pursuant to any of its provisions,
neither the Company nor the Selling Shareholders shall be under any liability to
any Underwriter, and no Underwriter shall be under any liability to the Company,
except that (y) if this Agreement is terminated by the Representatives or the
Underwriters because of any failure, refusal or inability on the part of the
Company or the Selling Shareholders to comply with the terms or to fulfill any
of the conditions of this Agreement, the Company or, if applicable, the
defaulting Selling Shareholders will reimburse the Underwriters for all
reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or refused to
purchase the Shares agreed to be purchased by it under this Agreement, without
some reason sufficient hereunder to justify cancellation or termination of its
obligations under this Agreement, shall be relieved of liability to the Company,
the Selling Shareholders or to the other Underwriters for damages occasioned by
its failure or refusal.
11. Substitution of Underwriters. If one or more of the
----------------------------
Underwriters shall fail (other than for a reason sufficient to justify the
cancellation or termination of this Agreement under Section 10) to purchase on
any Closing Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more substitute
underwriters to purchase such Shares or make such other arrangements as the
Representatives may deem advisable or one or more of the remaining Underwriters
may agree to purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting
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<PAGE>
Underwriters shall be obligated to purchase such Shares on the terms
herein set forth in proportion to their respective obligations hereunder;
provided, that in no event shall the maximum number of Shares that any
Underwriter has agreed to purchase pursuant to Section 1 be increased
pursuant to this Section 11 by more than one-ninth of such number of
Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to one additional business day within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Representatives to purchase such Shares
upon the terms set forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more than
five business days in order that necessary changes and arrangements (including
any necessary amendments or supplements to the Registration Statement or
Prospectus) may be effected by the Representatives and the Company. If the
number of Shares to be purchased on such Closing Date by such defaulting
Underwriter or Underwriters shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements pursuant to
this Section 11 within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company or the Selling
Shareholders and without liability on the part of the Company, except in both
cases as provided in Sections 7(b), 8, 9 and 10. The provisions of this
Section 11 shall not in any way affect the liability of any defaulting
Underwriter to the Company or the nondefaulting Underwriters arising out of such
default. A substitute underwriter hereunder shall become an Underwriter for all
purposes of this Agreement.
12. Miscellaneous. The respective agreements, representations,
-------------
warranties, indemnities and other statements of the Company or its officers, of
the Selling Shareholders and of the Underwriters set forth in or made pursuant
to this Agreement shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or the
Selling Shareholders or any of the officers, directors or controlling persons
referred to in Sections 8 and 9 hereof, and shall survive delivery of and
payment for the Shares. The provisions of Sections 7(b), 8, 9 and 10 shall
survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Shareholders and their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters, or the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement.
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<PAGE>
The term "successors and assigns" shall not include any purchaser of Shares from
any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, c/o CIBC World Markets Corp., One World
Financial Center, New York, New York; 10281 Attention: Ido Stern, with a copy to
Torys, 237 Park Avenue, New York, New York; 10017, Attention: Robert A.
Ouimette, Esq. and (b) if to the Company, to its agent for service as such
agent's address appears on the cover page of the Registration Statement with a
copy to Milbank Tweed Hadley & McCloy LLP, 1 Chase Manhattan Plaza, New York,
New York, 10005, Attention: Mark L. Weissler, Esq. and to LaBarge Weinstein,
Xerox Tower, 333 Preston Street, 11th Floor, Ottawa, Ontario, K1S 5N4 Attention:
Deborah L. Weinstein and (c) if to the Selling Shareholders to GSI Lumonics
Inc., 105 Schneider Road, Kanata, Ontario, K2K 1Y3, Attention: Charles J.
Gardner with a copy to Milbank Tweed Hadley & McCloy LLP, 1 Chase Manhattan
Plaza, New York, New York, 10005, Attention: Mark L. Weissler, Esq. and to
LaBarge Weinstein, Xerox Tower, 333 Preston Street, 11th Floor, Ottawa, Ontario,
K1S 5N4 Attention: Deborah L. Weinstein.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
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<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
GSI LUMONICS INC.
By:
--------------------------
Name:
Title:
SELLING SHAREHOLDERS
By:
--------------------------
Title: Attorney-in-Fact
Confirmed:
CIBC WORLD MARKETS CORP.,
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By: CIBC WORLD MARKETS CORP.
By:
--------------------------
Name:
Title:
-41-
<PAGE>
SCHEDULE I
Name to be Purchased from the Company
- --------------------------------- ------------------------------------------
CIBC World Markets Corp. .
Chase Securities Inc. .
Needham & Company, Inc. .
Nesbitt Burns Inc. .
Banc of America Securities LLC .
Deutsche Bank Securities Inc. .
ING Barings LLC .
Prudential Securities .
Incorporated
Adams, Harkness & Hill, Inc. .
Dain Ramscher Wessels .
First Albany Corporation .
McDonald Investments Inc., a .
KeyCorp Company
Parker/Hunter Incorporated .
Pennsylvania Merchant Group .
Preferred Capital Markets, Inc. .
Ragen Mackenzie Incorporated .
---
Total .
===
<PAGE>
SCHEDULE II
SELLING SHAREHOLDERS
Name Number of Firm Shares to be Sold
- ----------------------------- --------------------------------
Patrick Austin 34,500
Desmond Bradley 40,000
Charles Gardner 2,500
John George 5,000
Michael Kampfe 59,769
Kurt Pelsue 40,000
Charles Winston 121,619
-------
Total 303,388
=======
<PAGE>
SCHEDULE III
MATERIAL SUBSIDIARIES
GSI Lumonics Corporation (formerly Lumonics Corp.) (US)
General Scanning Inc. (US)
GSI Lumonics GmbH (formerly Lumonics GmbH) (Germany)
GSI Lumonics Limited (formerly Lumonics Limited) (UK)
GSI Lumonics Japan (formerly General Scanning Japan KK)
<PAGE>
EXHIBIT A
GSI Lumonics Inc.
PRICE DETERMINATION AGREEMENT
-----------------------------
., 2000
CIBC World Markets Corp.
Chase Securities Inc.
Needham & Company, Inc.
c/o CIBC World Markets Corp.
One World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named on
Schedule I attached hereto
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated April 11, 2000 (the
"Underwriting Agreement"), among GSI Lumonics Inc., a New Brunswick corporation
(the "Company"), the Selling Shareholders named therein and the several
Underwriters named in Schedule I thereto and hereto (the "Underwriters"), for
whom you are acting as Representatives (the "Representatives"). The
Underwriting Agreement provides for the purchase by the Underwriters from the
Company, subject to the terms and conditions set forth therein, of an aggregate
of 4,000,000 of the Company's common shares (the "Firm Shares") and for the
Company and the Selling Shareholders to grant to the Underwriters an option to
purchase up to an aggregate of 600,000 additional Common Shares (the "Option
Shares") from it and the Selling Shareholders as contemplated in the
Underwriting Agreement for the purposes of covering over-allotments in
connection with the sale of the Firm Shares. This Agreement is the Price
Determination Agreement referred to in the Underwriting Agreement.
Pursuant to second paragraph of the Underwriting Agreement, the undersigned
agree with the Representatives as follows:
The initial public offering price per share for the Firm Shares shall be
U.S.$..
The purchase price per share for the Firm Shares to be paid by the several
Underwriters to the Company on the Closing Date shall be U.S.$.; and the
underwriting discounts and commissions per share for the Firm Shares to be paid
by the Company to the several Underwriters on the Closing Date shall be U.S.$..
Any Option Shares shall
<PAGE>
be sold for the same price per share and with the same underwriting discounts
and commissions per share as apply to the Firm Shares.
The price, commission and net proceeds for the Firm Shares to be sold in
Canada will be calculated in Canadian dollars at the approximate equivalent of
the U.S. dollar amount set out above, based on the prevailing U.S. dollar
exchange rates as of the date of pricing of the Offering.
The Company and the Selling Shareholders represent and warrant to each of
the Underwriters, and the Selling Shareholders represent and warrant to the
Company, that their representations and warranties set forth in Section 4 and
Section 5 of the Underwriting Agreement are accurate as though expressly made at
and as of the date hereof.
As contemplated by the Underwriting Agreement, attached as Schedule I is a
completed list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.
This agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to the conflict of laws principles
of such state.
<PAGE>
If the foregoing is in accordance with your understanding of the agreement
among the Underwriters, the Company and the Selling Shareholders, please sign
and return to the Company a counterpart hereof; whereupon this instrument along
with all counterparts and together with the Underwriting Agreement shall be a
binding agreement among the Underwriters, the Company and the Selling
Shareholders in accordance with its terms and the terms of the Underwriting
Agreement.
Very truly yours,
GSI LUMONICS INC.
By:
-----------------------
Name:
Title:
SELLING SHAREHOLDERS
By:
-----------------------
Title: Attorney-in-Fact
Confirmed:
CIBC WORLD MARKETS CORP.,
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By: CIBC WORLD MARKETS CORP.
By:
-----------------------
Name:
Title:
<PAGE>
EXHIBIT 5
10th Floor, Brunswick House Correspondence: Telephone: 506.632.1970
44 Chipman Hill P.O. Box 7289 Fax: 506.652.1989
Saint John, NB Postal Station A [email protected]
Canada E2L 2A9 Saint John, NB www.smss.com
Canada E2L 4S6
April 10, 2000
GSI Lumonics Inc.
105 Schneider Road
Kanata, Ontario
Canada K2K 1Y3
Ladies and Gentlemen:
We have acted as New Brunswick counsel to GSI Lumonics Inc. (the "Company") in
connection with the registration of up to 4,600,000 common shares (the "Shares")
of the Company, inclusive of an over-allotment option, under the Securities Act
of 1933, as amended, pursuant to a registration statement on Form S-3,as amended
(the "Registration Statement"), filed with the United States Securities and
Exchange Commission pursuant to an Underwriting Agreement dated on or about
April 11, 2000 (the "Underwriting Agreement").
In rendering the opinion below, we have examined originals or copies certified
or otherwise identified to our satisfaction of all such records of the Company,
agreements and other instruments, certificates of public officials, certificates
of officers and representatives of the Company and such other documents as we
have deemed necessary as a basis for the opinion expressed below. In our
examination we have assumed and have not verified that the signatures on all
documents which we have examined are genuine, the authenticity of all documents
submitted to us as originals and the conformity with authentic original
documents of all documents submitted to us as copies.
Based on the foregoing, and having regard to legal considerations we deem
relevant, we are of the opinion that when the Shares have been issued and sold
by the Company as contemplated in the Registration Statement and the
Underwriting Agreement referred to therein against payment of the purchase price
contemplated therein, they will constitute legally issued, fully paid and
nonassessable shares of the Company's common stock.
The opinions set forth herein are limited to the laws of the Province of New
Brunswick and we express no opinion as to the laws of any other jurisdiction.
We consent to your filing of this opinion as an exhibit to the Registration
Statement and to the reference to our name in the section of the Registration
Statement entitled "Legal Matters".
Yours truly,
STEWART McKELVEY STIRLING SCALES
<PAGE>
Exhibit 8
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, N.Y. 10005-1413
April 7, 2000
GSI Lumonics Inc.
105 Schneider Road
Kanata, Ontario
Canada K2K 1Y3
Ladies and Gentlemen:
You have requested our opinion regarding certain United States tax
considerations in connection with the offering of common shares, at no par value
per share, of GSI Lumonics Inc., a company incorporated under the laws of New
Brunswick, pursuant to a registration statement (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"), on Form S-3.
In our opinion, the discussion in the prospectus forming part of the
Registration Statement under the heading "Tax Considerations - United States
Federal Income Tax Considerations" to the extent it states matters of law or
legal conclusions and subject to the qualifications and limitations contained
therein, describes the principal United States federal income tax consequences
that are likely to be material to a beneficial owner of the common shares, and
are incorporated and adopted herein as our opinion.
We express no opinion in respect of those matters governed by or construed
in accordance with the law of any jurisdiction other than the federal laws of
the United States of America.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to the name of our firm therein,
without thereby admitting that we are "experts" under the Act or the rules and
regulations of the Securities and Exchange Commission thereunder for the
purposes of any part of the Registration Statement.
Very truly yours,
Milbank, Tweed, Hadley & McCloy LLP
