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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 28, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-5255
COHERENT, INC.
DELAWARE 94-1622541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5100 PATRICK HENRY DRIVE, SANTA CLARA, CALIFORNIA 95054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 764-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class On which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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As of November 29, 1996, 11,275,772 shares of common stock were
outstanding. The aggregate market value of the voting shares (based on the
closing price reported by the NASDAQ National Market System on November 29,
1996) of Coherent, Inc., held by nonaffiliates was $430,638,625. For purposes
of this disclosure, shares of common stock held by persons who own 5% or more of
the outstanding common stock and shares of common stock held by each officer and
director have been excluded in that such persons may be deemed to be
"affiliates" as that term is defined under the Rules and Regulations of the Act.
This determination of affiliate status is not necessarily conclusive.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed prior to
January 27, 1997, pursuant to Regulation 14A of the Securities Exchange Act of
1934 are incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
The statements in this 10-K that relate to future plans, events or
performance are forward-looking statements that involve risks and uncertainties.
Actual results, events and performance may materially differ. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation
to release publicly the result of any revisions to these forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RISK FACTORS
COMPETITIVE ENVIRONMENT. Coherent encounters aggressive competition in all
areas of its business activity. Coherent's competitors are numerous, ranging
from some of the world's largest corporations to many relatively small and
highly specialized firms. Coherent competes primarily on the basis of
technology, performance, price, quality, reliability, distribution and customer
service and support. To remain competitive, Coherent will be required to
continue to develop new products, periodically enhance its existing products and
compete effectively in the areas described above.
NEW PRODUCT INTRODUCTIONS. Coherent's future operating results are dependent on
its ability to rapidly develop, manufacture and market technologically
innovative products that meet customers' needs. In addition, after the products
are developed, Coherent must quickly manufacture such products in sufficient
volumes at acceptable costs to meet demand. Without the introduction of new
products and product enhancements, Coherent's products are likely to become
technologically obsolete, in which case inventory may be written off and
revenues would be materially and adversely affected. There can be no assurance
that such new products, if and when introduced, will receive market acceptance.
However, Coherent anticipates that it will continue to have significant research
and development expenditures in order to maintain its competitive position with
a continuing flow of innovative, high-quality products.
INTERNATIONAL SALES. The Company conducts a significant portion of its business
internationally. International sales accounted for 53% and 51% of the Company's
sales for fiscal 1996 and 1995, respectively. The Company expects that
international sales will continue to account for a significant portion of its
net sales in the future. A significant amount of the these sales occur through
its international subsidiaries, some of which also perform research,
development, manufacturing and service functions. As a result of the Company's
international sales and operations, it is subject to the risks of conducting
business internationally, including fluctuations in foreign exchange rates,
which could affect the sales price in local currencies of the Company's products
in foreign markets as well as the Company's local costs and expenses of its
foreign operations. The Company uses forward exchange and currency swap
contracts, and other risk management techniques, to hedge its exposure to
currency fluctuations relating to its intercompany transactions and certain firm
foreign currency commitments; however, its international subsidiaries remain
exposed to the economic risks of foreign currency fluctuations. There can be no
assurance that such factors will not adversely impact the Company's operations
in the future or require the Company to modify its current business practices.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS. A variety of factors may cause
period-to-period fluctuations in the operating results of Coherent. Such
factors include, but are not limited to, product mix, competitive pricing
pressures, material costs, revenue and expenses related to new products and
enhancements of existing product, as well as delays in customer purchases in
anticipation of the
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introduction of new products or product enhancements by Coherent or its
competitors. The majority of Coherent's revenues in each quarter results from
orders received in that quarter. As a result, Coherent establishes its
production, inventory and operating expenditure levels based on anticipated
revenue levels. Thus, if sales do not occur when expected, expenditures levels
could be disproportionately high and operating results for that quarter and
potentially future quarters, would be adversely affected.
VOLATILITY OF STOCK PRICE. The market price of Coherent's Common Stock may be
affected by quarterly fluctuations in Coherent's operating results,
announcements by Coherent or its competitors of technological innovations or new
product introductions and other factors. If revenue or earnings in any quarter
fail to meet expectations of the investment community, there could be an
immediate impact on Coherent's stock price. In addition, the stock market has
from time to time experienced extreme price and volume fluctuations,
particularly among stocks of high technology companies, which, on occasion, have
been unrelated to the operating performance of particular companies. Factors
not directly related to Coherent's performance, such as negative industry
reports or disappointing earnings announcements by publicly traded competitors,
may have an adverse impact on the market price of Coherent's Common Stock.
PATENTS. The laser industry is characterized by frequent litigation regarding
patent and other intellectual property rights. Because patent applications are
maintained in secrecy in the United States until such patents are issued and are
maintained in secrecy for a period of time outside the United States, the
Company can conduct only limited searches to determine whether its technology
infringes any patents or patent applications. Any claims for patent
infringement would be time-consuming, result in costly litigation and diversion
of technical and management personnel, cause shipment delays or require the
Company to develop non-infringing technology or to enter into royalty or
licensing agreements. Although patent and intellectual property disputes in the
laser industry have often been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and
often require the payment of ongoing royalties, which could have a negative
impact on gross margins. There can be no assurance that necessary licenses
would be available to the Company on satisfactory terms, or that the Company
could redesign its products or processes to avoid infringement, if necessary.
Accordingly, an adverse determination in a judicial or administrative proceeding
or failure to obtain necessary licenses could prevent the Company from
manufacturing and selling some of its products, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. Conversely, costly and time consuming litigation may be necessary to
enforce patents issued to the Company, to protect trade secrets or know-how
owned by the Company or to determine the enforceability, scope and validity of
the proprietary rights of others.
GOVERNMENT REGULATION. The medical devices marketed and manufactured by the
Company are subject to extensive regulation by the FDA and some foreign
governments. Pursuant to the Federal Food, Drug and Cosmetic Act of 1976, as
amended, and the regulations promulgated thereunder, the FDA regulates the
clinical testing, manufacture, labeling, sale, distribution and promotion of
medical devices. Before a new device can be introduced into the market, the
manufacturer must obtain market clearance through either the 510(k) premarket
notification process or the lengthier premarket approval ("PMA") application
process. Compliance with this process is expensive and time-consuming.
Noncompliance with applicable requirements, including good manufacturing
practices ("GMP") can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing approvals and criminal
prosecution. The FDA also has the authority to request repair, replacement or
refund of the cost of any medical device manufactured or distributed by the
Company.
REIMBURSEMENT. Some of the Company's medical products are purchased by doctors,
clinics, hospitals and other users, which bill various third-party payors, such
as governmental programs and private insurance plans, for covered health care
services provided to their patients. Third-party payors are increasingly
scrutinizing whether to cover new products and the level of reimbursement for
covered
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products used for these health care services. While the Company believes that
the laser procedures using its products have generally been reimbursed, payors
may deny coverage and reimbursement for the Company's products if they determine
that the device was not reasonable and necessary for the purpose for which used,
was investigational or not cost-effective. Failure by doctors, clinics,
hospitals and other users of the Company's products to obtain adequate
reimbursement for use of the Company's products from third-party payors, and/or
changes in government legislation or regulation or in private third-party
payors' policies toward reimbursement for procedures employing the Company's
products could have a material adverse effect on the Company's business, results
of operations and financial condition. Moreover, the Company is unable to
predict what legislation or regulation, if any, relating to the health care
industry or third-party coverage and reimbursement may be enacted in the future,
or what effect such legislation or regulation may have on the Company.
EARTHQUAKES. A portion of Coherent's research and development activities, its
corporate headquarters and other critical business operations are located near
major earthquake faults. Operating results could be materially affected in the
event of an earthquake or other natural disasters.
THE LASER COMPANY
Coherent, Inc., a Delaware corporation, (herein referred to as "Coherent"
or "Company") is a leading designer, manufacturer and supplier of
electro-optical systems and medical instruments utilizing laser, precision optic
and microelectronic technologies. The Company integrates these technologies
into a wide variety of products and systems designed to meet the productivity
and performance needs of its customers. Major markets include the scientific
research community, medical institutions, clinics and private practices, and
commercial and OEM (original equipment manufacturer) applications ranging from
semiconductor processing and disk mastering to light shows and entertainment.
Coherent also produces and sells optical and laser components to other laser
system manufacturers.
The word "laser" is the acronym for "light amplification by stimulated
emission of radiation." The emitted radiation oscillates within an optical
resonator and is amplified by an active media, resulting in a monochromatic beam
of light which is narrow, highly coherent and thus can be focused to a small
spot with a high degree of precision.
INDUSTRY LEADERSHIP
Since inception in 1966, the Company has grown through a combination of
internal expansion, joint ventures and strategic acquisitions of companies with
related technologies and products. Coherent is a technical leader in every
market it serves. Driven by new product application innovations, Coherent has
approximately 150 U.S. patents in force, and over the past several years has
committed from 10% to 11% of annual revenues to research and development
efforts.
During its most recently completed fiscal year, more than half of the
growth in annual sales came from products that were introduced within the last
three years. Committed to quality and customer satisfaction, Coherent designs
and produces many of its own components to retain quality control. Coherent
provides customers with around-the-clock technical expertise and quality that is
ISO 9000 certified at its principal manufacturing sites.
MISSION AND GOALS
Coherent is focused on laser product innovations. Leveraging its
competitive strengths in laser technology development, new product applications,
engineering R&D and manufacturing expertise, Coherent is dedicated to customer
satisfaction, quality and service. Coherent's mission is to continue its
tradition of providing medical, scientific and commercial customers with cost
effective laser products that provide performance breakthroughs and application
innovations.
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Coherent's goals are to serve its customers, employees and stockholders.
Specific goals include providing:
- Customers with innovative products, superb technology, total quality,
support and satisfaction.
- Employees with a challenging, fulfilling place to work while expanding
their skills and horizons.
- Stockholders with consistent returns on equity capital and long-term
growth in sales and earnings.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The sales and operating results of both industry segments and the
identifiable assets attribut-able to both industry segments for the three years
ended September 28, 1996 are set forth in Note 13, "Business Segments," of the
Notes to Consolidated Financial Statements.
PRODUCTS
BUSINESS STRUCTURE
Coherent's business structure reflects its two major business or market
segments, Medical and Electro-Optical. Medical serves the medical-surgical
community, while Electro-Optical serves the needs of scientific and commercial
customers (both end users and OEMs), including customers who purchase
components.
PRODUCT AND MARKET APPLICATIONS
Coherent currently produces more than 150 laser, laser system, precision
optics and component products. Medical products range in price from $25,000 to
$500,000. Scientific and commercial products range from $10,000 to $450,000.
Component products (including diodes) range in price from $500 to $50,000 and
consist of precision optics, thin film coatings, accessories, laser measurement
and testing instruments. The number of applications in Coherent's market
segments are abundant as shown in the table below:
Applications by Market
<TABLE>
<CAPTION>
MEDICAL SCIENTIFIC COMMERCIAL
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<S> <C> <C>
Ophthalmology Spectroscopy Optics & Optical Coating
Aesthetic Surgery Chemistry Semiconductor
Dermatology/Plastic Surgery Photochemistry Microlithography
Cosmetic and Reconstructive Physics Interferometric Wafer Inspection
Surgery Viral Research Marking
Orthopedics Genetics Materials Processing
Urology Environmental Research Floptical Disk Manufacturing
Gynecology Semiconductor Research Audio & Video Disk Mastering
Otolaryngology Biology Stereolithography/Rapid
Neurological Surgery Biochemistry Prototyping
Oral Maxillofacial Surgery Engineering Reprographics
Oncology Forensics Graphic & Architectural Displays
Podiatry Holography Multimedia Entertainment
General Surgery Isotope Separation Micromachining
Medical Therapy Metrology Cytofluoresence
Non-destructive Testing Analytical Instrumentation
Combustion Analysis Disk Texturing
Pulsed Laser Deposition
</TABLE>
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PRODUCT NARRATIVE
MEDICAL
Coherent's Medical Group (CMG) develops, manufactures and distributes a
broad line of medical laser systems used in ophthalmology, dermatology,
gynecology, plastic surgery, aesthetic surgery, orthopedics, otolaryngology,
neurological surgery, urology, podiatry, oncology and other surgical
specialties. These lasers are designed to improve the quality of patient care
and frequently decrease overall healthcare costs compared to conventional
procedures. Most of these products also make it possible to perform treatments
in a doctor's office, surgi-centers or outpatient centers in hospitals instead
of requiring inpatient hospitalization.
SURGICAL PRODUCTS
Coherent has developed two families of laser instruments that are changing
the way surgery is performed: the UltraPulse-Registered Trademark- laser system
and the VersaPulse-Registered Trademark- laser system.
The UltraPulse high energy laser for surgical applications represents a
true departure in design and performance from conventional CO2 lasers. This
technology, on which Coherent owns eight U.S. patents, offers significant
advantages in terms of laser effect on tissue and surgical precision. Because
this high energy laser cleanly and precisely vaporizes tissue, it has clinical
advantages for the treatment of a variety of skin conditions. The UltraPulse
5000C laser, with the Computerized Pattern Generator, is particularly suitable
for applications in skin-resurfacing and in other aesthetic surgery procedures.
Since its introduction in 1994, it has become the largest selling laser to
aesthetic surgeons for this application. In fiscal 1995, Coherent introduced
an international version of this product that is qualified for sale in all
European countries.
In addition to the UltraPulse 5000C, Coherent offers a full line of
UltraPulse lasers for a wide range of surgical specialties and applications.
All of these lasers utilize sealed tube technology which greatly increases tube
life over other designs and does not require external gas or water supplies.
Coherent's UltraPulse lasers are used by specialists in aesthetic surgery,
dermatology, plastic and reconstructive surgery, gynecology, otolaryngology,
oncology, podiatry, oral/maxillofacial surgery, neurological surgery and general
surgery. New applications for lasers in the above referenced specialties are
continually under development. The Company's UltraPulse lasers offer a range of
power from 60 to 100 watts, and are capable of generating unprecedented high
pulse energies not available from competing CO2 lasers.
Coherent's VersaPulse-Registered Trademark- holmium solid-state lasers have
emerged as the laser of choice for orthopedic and urologic surgery. The
VersaPulse, which is fiber-optically delivered, is an ideal laser for cutting,
ablating and smoothing meniscal and cartilaginous tissue with optimum hemostasis
and minimum bleeding. With delivery devices much smaller than conventional
instruments, these systems are expanding the range of procedures that can employ
new minimally invasive techniques.
In 1993, a new generation called the VersaPulse Select-TM- was introduced.
This system doubled the power available to the arthroscopic surgeon while
reducing system size to nearly half that of the first generation designs.
VersaPulse is approved by the FDA for joint arthroscopy, for open and endoscopic
procedures in general surgery and for lower back surgery.
In 1994, Coherent introduced the dual wavelength VersaPulse Select for
urology. This system combines the Ho:YAG and the Nd:YAG lasers and is the first
system to offer soft tissue cutting and coagulation and stone management
(lithotripsy) in a single package. The DuoTome-TM- fiber delivery systems allow
delivery of either the Ho:YAG or the Nd:YAG laser energy through the same fiber.
These systems provide much greater flexibility and are finding unique
applications in the rapidly growing laser prostatectomy market.
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In 1996, Coherent expanded the VersaPulse product family by introducing the
multi-wavelength VersaPulse Aesthetic laser. Featuring four lasers in one box,
this product can be used for the removal of tattoos and treatment of both
vascular and pigmented lesions, such as birthmarks, port wine stains, and
"telangiectasias," the unsightly veins of the legs and face. Physicians use up
to four separate laser systems to achieve the capabilities offered by a single
VersaPulse Aesthetic laser. New laser technology developed at Coherent allows
treatment of lesions containing larger vessels that often do not respond to
conventional lasers.
Coherent was issued two U.S. patents on the use of the holmium laser for
arthroscopy and endoscopy through fiber delivery devices in a liquid
environment. In addition, Coherent holds a number of key patents on the fiber
optic delivery systems used with these lasers.
OPHTHALMIC PRODUCTS
Coherent pioneered the use of lasers in the ophthalmology market segment 25
years ago and is still the leader. CMG offers argon and multiple wavelength
lasers for photocoagulation and treatment of retinal disease and glaucoma. The
Company's Nd:YAG lasers for photodisruption are used for treatment of secondary
cataracts. Coherent also sells an excimer refractive surgery system in many
countries in the world other than the U.S. for correction of vision disorders
including myopia, hyperopia and astigmatism.
Coherent's argon photocoagulator was the first such device to achieve
widespread acceptance by the medical community for treatment of diabetic
retinopathy, retinal detachments and glaucoma. The argon photocoagulator is
also used in treatment of age-related macular degeneration.
The Ultima-Registered Trademark- 2000 and Novus-Registered Trademark- 2000
photocoagulator product lines utilize a patented "power-on-demand" laser tube
design where power is on only when required for treatment by the physician.
This innovation substantially extends the laser tube life and eliminates the
need for an external water supply. A broad line of accessories allows these
products to provide Laser Indirect Opthalmoscopic laser treatment and surgical
endophotocoagulation with Acculite-TM- probes in addition to slit lamp
applications with the LaserLink-TM- Adapter. The portable design of the Ultima
2000 product line allows the system to be transported to the patient for
treatment in convalescent or retirement care facilities, or used in the
operating room, as well as in intensive care nurseries for retinopathy of
prematurity.
The Novus Omni-TM-, introduced in fiscal 1994, attains a new level of
compactness, reliability, and flexibility in ophthalmic multi-wavelength
applications. With instantaneous switching among red, yellow, and green
treatment options, the retinal surgeon can now benefit from the proven
technology improvements in the Novus and Ultima lasers and multiple wavelength
lasers.
Coherent's Nd:YAG laser photodisruptors are used primarily for posterior
capsulotomies. These solid-state, Q-switched lasers provide ophthalmologists
with a method for treating secondary cataracts in a non-invasive manner. Unlike
the argon and multiple wavelength lasers used in photocoagulation, Nd:YAG lasers
produce high power pulses as short as ten billionths of a second. These brief
but powerful pulses produce an "optical breakdown" effect which disrupts (cuts
or perforates) the tissue rather than producing a thermal burn. Nd:YAG lasers
are also used for iridotomies, a procedure used in the treatment of closed angle
glaucoma, whereby the laser makes a hole in the iris facilitating the outflow of
fluid trapped in the eye. This outflow relieves pressure which, if left
untreated, could cause damage to the optic nerve.
In March 1994, Coherent and Herbert Schwind GmbH & Co. KG entered into a
marketing and sales agreement which gives Coherent the exclusive right to sell
the Keratom-TM- excimer refractive surgery system in many countries of the
world. This product uses a high energy argon fluoride excimer
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laser from Lambda Physik, an 80% owned Coherent subsidiary in Germany, to
obtain a high quality laser beam that is more uniform, and optical components
that are simpler, more reliable and more durable than competing machines.
Keratom uses the patented HaloPure-TM- generator to provide ultra-pure halogen
as needed, from a self-contained, solid-state source through a computer
controlled chemical reaction.
Clinical trials are continuing on the new erbium laser for the most
delicate forms of retinal and vitreal surgery. This product is allowing
surgeons to perform very delicate surgical procedures for removing vitroretinal
membranes without impacting the retina, thus restoring vision. The trials have
been expanded to include several leading international vitroretinal surgeons to
participate in this surgical advance.
The medical laser systems manufactured by Coherent's Medical Group are
subject to regulation and control by the U.S. Food and Drug Administration and
other international regulatory agencies. See "Impact of Medical Device
Regulations".
The laser systems manufactured by the Medical Group typically range in
price from $25,000 to $500,000.
ELECTRO-OPTICAL
Coherent's electro-optical products include lasers and laser systems for
scientific, medical research, micromachining, commercial applications, precision
optics and related accessories. The principal types of lasers produced by the
Company's Electro-Optical segment are argon and krypton ion, excimer, carbon
dioxide (CO2), liquid dye, Nd:YAG, Titanium:Sapphire (Ti:Sapphire), diode-pumped
solid-state (DPSS), and semiconductor lasers (laser diodes). These lasers have
a broad range of power and operate in the visible (V), ultraviolet (UV) and
infrared (IR) portions of the electromagnetic spectrum. The Company's optics
and optical products include special purpose lenses, mirrors and advanced
optical coatings. Coherent's electro-optical products are sold for scientific,
medical and OEM applications.
SCIENTIFIC AND COMMERCIAL GROUP
Coherent's Laser Group (CLG) and Lambda Physik, GmbH, the Company's 80%
owned subsidiary in G"ttingen, Germany, comprise the Scientific and Commercial
Group.
CLG is headquartered in Santa Clara, California, and is a leading developer
and manufacturer of ion, dye, solid-state Nd:YAG, Ti:Sapphire, DPSS, diode and
CO2 lasers for the scientific, OEM and micromachining markets. The lasers sold
by CLG are used in basic and applied research in medicine, chemistry, physics,
biology, biochemistry, engineering and forensic sciences, and in a variety of
commercial applications including materials processing, semiconductor
microlithography, stereolithography, interferometric wafer inspection,
reprographics, optical disk manufacturing, analytical instrumentation, laser
light shows, and manufacturing process control.
In fiscal 1996, CLG changed its organizational structure from a product
line focus to a market focus in order to better serve its customers in their
different market channels. As a result, two business units were formed: a
Commercial business unit which focuses on OEM and industrial accounts and a
Scientific business unit focusing on the scientific community.
In fiscal 1996, applications for the DPSS product line continued to expand
in various markets such as printing, reprographics, and instrumentation. In
1995, CLG introduced a series of new service programs worldwide to provide
improved support to its commercial customers. In March 1995, the Company
acquired the non-telecommunication business and some intellectual property
rights of ATx Telecom Systems, Inc. (AMOCO). In June 1995, the Company acquired
the business and net assets of
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Adlas GmbH and Co. KG (Adlas), in Lubeck, Germany, a manufacturer of CW
infrared, green and Q- switched lasers whose products complement the DPSS
product line. Fiscal 1996 saw strong growth for the Lubeck operations,
including the introduction of a new Q-switched laser, the ZT, for the disk
texturing market. With these two acquisitions, CLG has consolidated its patent
position in the DPSS area, increased its portfolio of product offerings to
better address the commercial and micromachining markets, and has opened up a
manufacturing and service entity in Europe.
In July 1995, the Company acquired the laser diode operations of Uniphase.
With this acquisition, the Company added high power semiconductor laser diodes
with wavelength emissions from 670 to 980 nanometers to its product lines.
These laser diodes are key components for the Company's growing segment of diode
pumped laser products, thereby reducing its dependence on outside vendors.
Laser diodes are also widely used in medical, printing, OEM instrumentation,
remote sensing, and machine vision industries. In 1996, CLG began construction,
at its Santa Clara headquarters, of a 10,000 square foot clean room facility to
support this diode business.
Fiscal 1996 included Coherent's introduction of Verdi-TM-, a CW
diode-pumped solid-state visible laser that will provide a compact, high-power,
efficient option for many scientific and commercial laser applications.
In December 1996, subsequent to year end, the Company acquired 80% of the
outstanding capital stock of Tutcore OY, Ltd., and an option to acquire the
remaining 20% in five years. Tutcore is located in Tampere, Finland and is the
leading manufacturer of aluminum-free semiconductor wafers that are incorporated
into laser diodes.
The lasers and laser systems produced by CLG, with the exception of
semiconductor lasers, typically range in price from $10,000 to $250,000.
Semiconductor laser diode prices range from $500 to $3,000.
Coherent's subsidiary, Lambda Physik, GmbH, develops and manufactures
excimer, diode-pumped solid-state, and tunable lasers including dye lasers and
optical parametric oscillators (OPOs). These powerful pulsed lasers cover the
spectral range from VUV, 157 nm to the NIR, over 4 m. Producing UV light
directly without frequency conversion techniques, the excimer laser is a very
efficient tool, gaining strong market share in industrial and medical
applications. The diode-pumped solid-state developments are driven by the
challenge to produce the highest possible frequency conversion efficiencies and
beam quality for UV-power with outstanding brilliance at 1 kHz.
In fiscal 1996, Lambda Physik brought its new production facility and
cleanroom into full operation. Production capacity for excimer lasers was
significantly increased. All products are certified with the CE-mark, a
prerequisite for the European market. In August 1996, Lambda Physik received
the ISO 9002 certification. This is an important milestone of Lambda Physik's
quality program and opens up excellent opportunities in the medical and
industrial marketplace.
In time for the anticipated ramp up of DUV excimer lasers, Lambda Physik
completed, in fiscal 1996, the development of the Novaline-Litho-TM-. This 1
kHz repetition rate KrF excimer laser is suitable for modern step-and-scan
lithography tools.
Also in fiscal 1996, LAMBDA StarLine-TM- was introduced, the first
frequency tripled, 1 kHz, diode-pumped solid-state laser to deliver 10 Watts in
the IR, and diffraction-limited beam quality down to the UV. This new class of
laser is ideal for spectroscopic and non-linear optical applications in the
scientific market as well as for material processing applications.
Lambda Physik has produced some of the most respected pulsed laser models
for spectroscopy in the world. The present pulsed dye laser, SCANmate-TM-, and
parametric oscillator, SCANmate
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OPPO-TM-, set a new standard in the scientific world in narrow-linewidth tunable
light sources for high resolution spectroscopy in the range from 189nm to over
4 pm.
The lasers and laser systems produced by the Scientific and Commercial
Group typically range in price from $10,000 to $450,000.
COMPONENTS GROUP
Coherent's Auburn Group (CAG) manufactures optics, thin film coatings for
high-performance laser optics, laser accessories and electro-optical components
for the Company as well as other manufacturers.
Optics and thin film coatings, which consist of mirrors and lenses used for
imaging and directing a laser beam, are used in the Company's own laser
products, in low-loss coated optics for OEMs and other commercial applications.
During fiscal 1996, the Optics Division combined their super-polish capabilities
with a new Ion Beam Sputter Deposition process to create ultra low-loss laser
mirrors. In England, the Leicester facility put two new coating machines
on-line and introduced processes to support the Company's European laser
component customers.
CAG also designs and manufactures laser measurement instruments and
accessories that are used to measure and maximize the performance of laser
systems. During fiscal 1996, the Instruments Division ramped up production of
low power laser diode modules at its Auburn site, based on a business acquired
early in the year from Applied Laser Systems. The division also introduced a
diode laser module, which will be the first solid-state laser to compete
directly with Helium Neon (HeNe) gas lasers, based on patented technology
licensed from Blue Sky Research of Santa Cruz, California. Lastly, the Optics
Division complemented its precision optics product lines by acquiring technology
developed by ATx Telecom Systems, Inc. (ATx) which includes a unique coating
process for optical components.
Products made by CAG typically range in price from $500 to $50,000 and are
sold through CAG's field and telemarketing salesforce and through an
international network of independent distributors as well as other Coherent
sales groups.
MARKETING, DISTRIBUTION AND CUSTOMER SERVICE & SUPPORT
Coherent markets its products domestically through a direct sales force.
Coherent's products are sold internationally through direct sales personnel
located in the United Kingdom, Sweden, Germany, France, Belgium, The
Netherlands, Japan (medical segment and Lambda Physik products for OEM and
micromachining only), The Peoples Republic of China and Hong Kong, as well as
through independent representatives in other parts of the world. The Company's
foreign sales are made principally to customers in Europe, Japan and Asia
Pacific, but sales are also made to customers in Canada, Mexico, Latin America,
Australia, the Middle East and Africa. Sales made to independent
representatives and distributors are generally priced in U.S. dollars. Foreign
sales made directly by the Company are generally priced in local currencies and
are therefore subject to currency exchange fluctuations. Foreign sales are
also subject to other normal risks of foreign operations, such as protective
tariffs and export/import controls. Coherent's products are broadly distributed
and no one customer accounted for more than 10% of total sales during fiscal
1996.
Coherent commenced direct sales and service for its Medical business
segment in Japan effective February 1, 1996. Japan is the largest international
medical market and creating closer relationships with the Japanese customers
enables the Company to provide stronger support. Furthermore, the Company can
develop products more rapidly for the Japanese market.
The Company gives various warranties on its products and offers service on
a contractual basis after the initial product warranty has expired.
10
<PAGE>
Coherent maintains a customer support and field service staff in major
markets in the United States, Mexico, Europe, Japan and Asia Pacific. This
organization works closely with customers and customer groups in servicing
equipment, training customers to use the Company's products and exploring
additional applications of the Company's technologies.
PRODUCTION AND SOURCES AND AVAILABILITY OF MATERIALS
The Company's production operations consist primarily of assembling and
testing its products, although the Company manufactures substantially all of its
own laser tubes and optics. The Company depends upon outside suppliers for most
product components, many of which are manufactured to the Company's
specifications. The Company has not experienced any significant difficulty in
obtaining raw materials or components in the past. There is always a
possibility of periodic, short-term disruption in supplies of critical, high
technology components; however, the Company does not believe that such
disruptions would have a material adverse impact on its financial position or
results of operations.
PATENTS AND LICENSES
Coherent has a significant number of U.S. and foreign technology patents
incorporated into its products. The Company believes it owns, or has the right
to use, the basic patents covering its products. However, each year there are
hundreds of patents granted worldwide related to lasers and their applications
and, from time to time, the Company has been notified that it may be infringing
upon patents owned by others. In the past, the Company has been able to obtain
patent licenses for patents related to its products on commercially reasonable
terms. The failure to obtain a key patent license from a third party could
cause the Company to incur liabilities for patent infringement and, in the
extreme case, to discontinue the manufacturing of products that infringe upon
the patent. Management believes that none of the Company's current products
infringe upon a valid claim of any patents owned by third parties, where the
failure to license the patent would have a material and adverse effect on the
Company's financial position or results of operations.
BACKLOG
At September 28, 1996, the Company's backlog of orders scheduled for
shipment was approximately $59,974,000, compared with $67,195,000 at September
30, 1995. Orders used to compute backlog are generally cancelable without
substantial penalties. Historically, the rate of cancellation experienced by the
Company has not been significant; however, since orders are cancelable, the
backlog of orders, at any one time, is not necessarily indicative of future
revenues. The Company anticipates filling the present backlog during fiscal
1997. Backlog at September 28, 1996, was higher than at September 30, 1995, in
the Electro-Optical business segment and lower in the Medical business segment.
The decrease was primarily the result of the Company entering fiscal 1996 with
excessive backlog in its Medical UltraPulse product line and the Company was
successful in bringing this down to a manageable level at September 28, 1996.
This decrease was partially offset by higher backlog in the Commercial and OEM
side of the Electro-Optical business as this business has grown faster than the
Scientific business and traditionally has higher backlog due to the nature of
the booking process for OEMs.
COMPETITION
Coherent is the largest laser company in each of its business segments. No
competitor offers the wide range of products that are manufactured and sold by
Coherent. However, competition is intense in both business segments because
there are a number of small laser companies selling products which compete
directly with one or more Coherent products.
11
<PAGE>
The markets in which Coherent is engaged are subject to keen competition
and rapid technological change. The principal factors of competition for all
products are reliability, price, performance, service, marketing and
distribution, technological achievement and human resources. Coherent believes
that it competes favorably in these areas, but continued emphasis upon
development of new and improved products, and the continued development of
successful channels of distribution will be necessary to maintain or increase
the Company's share of the laser markets in which it competes.
RESEARCH AND DEVELOPMENT
Coherent maintains separate research and development staffs in both of its
major business segments. Development of new and improved electro-optical and
medical products is primarily the responsibility of engineering department and
applications staffs located in the U.S., Germany and the United Kingdom. Such
engineering staffs design and develop both new products and enhancements to
existing products. Coherent works closely with customers, both individually and
through Company sponsored seminars, to develop products to meet customer
application and performance needs.
The Company operates in an industry which is subject to rapid technological
change. Its ability to compete and operate successfully depends upon, among
other things, its ability to react to such change. Accordingly, Coherent is
committed to the development of new products as well as the improvement and
refinement of existing products. Fiscal 1996 expenditures for research and
development were $37,705,000, 10% of sales, compared to $31,042,000, 11% of
sales, and $25,800,000, 12% of sales, during fiscal 1995 and 1994, respectively.
IMPACT OF ENVIRONMENTAL REGULATION
The Company believes that compliance with federal, state and local
environmental protection regulations will not have a material adverse effect on
the capital expenditures, earnings, competitive and financial position of the
Company. The Company is a respondent under Remedial Action Orders issued by the
California Department of Toxic Substance Control relating to an investigation
and remediation of soil and groundwater contamination at its former facility in
the Stanford Industrial Park, Palo Alto, California. See Note 12, "Commitments
and Contingencies", of the Notes to Consolidated Financial Statements.
IMPACT OF MEDICAL DEVICE REGULATIONS
The Company's medical products are subject to regulation and control by the
Center for Devices and Radiological Health, a branch of the Food and Drug
Administration (FDA) within the Department of Health and Human Services. The
FDA medical device regulations require either an Investigational Device
Exemption (IDE), Pre-Market Approval (PMA) or 510(K) approval before new
products can be marketed to, or utilized by, the physician. The Company's
medical products are subject to similar regulations in its major international
markets. Complying with these regulations is necessary for the Company's
strategy of expanding the markets for and sales of its products into these
countries.
These approvals may include clinical testing, limitations on the number of
sales, controls of end user purchase price and the extent of product
commercialization. In certain instances, these constraints can delay planned
shipment schedules as design and engineering modifications are made in response
to regulatory concerns and requests. The Company's competitors in the medical
field are subject to the same regulations.
The Company believes that its long established working relationship with
the medical community and the high quality of its products allow it to work
effectively within these regulatory constraints.
12
<PAGE>
EMPLOYEES
At September 28, 1996, Coherent employed 1,794 persons. The Company's
continued success will depend in large measure on its ability to attract and
retain highly skilled employees, who are in great demand.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Financial information relating to foreign and domestic operations for the
three years ended September 28, 1996, is set forth in Note 13, "Business
Segments", of the Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company's corporate headquarters and major electro-optical facility is
located in Santa Clara, California, consisting of approximately 8.5 acres of
land and a 200,000-square-foot building owned by the Company.
Additional electro-optical facilities are located in Auburn, California.
The Auburn facilities consist of two 60,000-square-foot buildings and a
50,000-square-foot building, all of which are owned by the Company.
The Company's principal medical products facility is located in Palo Alto,
California, consisting of two buildings totaling approximately 100,000 square
feet of floor area under leases expiring in 1999. The Company also has a
16,200-square-foot warehouse located in Redwood City, California under a lease
expiring in 2000.
During fiscal 1995, the Company purchased its former Laser Group Porter
Drive facility in the Stanford Industrial Park, Palo Alto, California. This
facility is 95,000 square feet, was remodeled during fiscal 1996, and is
currently leased to an unaffiliated third party.
During fiscal 1993, the Company sold the net assets of Coherent General,
Inc. The sale did not include land consisting of approximately 36 acres (11
developed acres) and facilities consisting of a 58,000-square-foot building
owned by the Company in Sturbridge, Massachusetts. This building is currently
leased (until August 1998) to the acquirer of Coherent General, Inc.
Lambda Physik GmbH's facility in Gottingen, Germany consist of two
buildings totaling 54,000 square feet, which are owned by the Company.
Lambda Physik's domestic facility is located in Fort Lauderdale, Florida,
consisting of an 11,000-square-foot building leased until March, 2002.
Coherent GmbH's facility in Dieburg, Germany consists of a
16,740-square-foot building leased by the Company until 1999 with a five year
renewal option.
Coherent Lubeck's facility in Lubeck, Germany consists of a
19,913-square-foot building leased by the Company until 1999 with a five year
renewal option.
Coherent Optics Europe Ltd.'s facilities consist of two leased buildings
(four units) in Leiceseter, England totaling 34,537 square feet with leases
expiring from 2005 to 2007.
Coherent Japan's facilities include 13,600-square-feet consisting of four
buildings leased until 1998.
13
<PAGE>
The Company also maintains sales and service offices under short-term
leases in the United States, Mexico, Germany, the United Kingdom, France,
Belgium, The Netherlands, Sweden, Hong Kong, and Peoples Republic of China.
In general, the Company's facilities are considered both suitable and
adequate to provide for future requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a respondent under Remedial Action Orders
issued by the California Department of Toxic Substance Control in connection
with the investigation and remediation of soil and ground water contamination at
its former facility in the Stanford Industrial Park, Palo Alto, California. See
Note 12, "Commitments and Contingencies", of the Notes to Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Coherent's Common Stock is traded on the NASDAQ National Market System
under the symbol COHR. The table below sets forth the high and low closing
prices for each quarterly period during the past two fiscal years as reported by
the National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------
Fiscal 1996 Fiscal 1995
------------------------------------- -------------------------------------
Dec. 30 Mar. 30 June 29 Sept. 28 Dec. 31 Apr. 1 July 1 Sept.30
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Price:
High $43.50 $49.00 $55.50 $52.75 $17.25 $28.25 $30.75 $41.25
Low $28.00 $33.75 $40.13 $32.00 $13.75 $16.50 $24.25 $28.75
</TABLE>
The number of stockholders of record as of November 29, 1996 was 2,085. No
cash dividends have been declared or paid since Coherent was founded and the
Company has no present intention to declare or pay cash dividends. The
Company's agreements with its banks restrict the payment of dividends on the
Company's Common Stock. See Note 6, "Short-term Borrowings", of the Notes to
Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------------------------------
Sept. 28, Sept. 30, Oct. 1, Sept. 25, Sept. 26,
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $364,430 $285,499 $215,367 $196,883 $192,213
- -------------------------------------------------------------------------------------------------------------
Gross profit 187,218 142,483 105,429 97,300 90,738
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations 30,314 19,323 10,301 9,319 5,227
- -------------------------------------------------------------------------------------------------------------
Gain (loss) from discontinued
operations 1,154 (4,409) (2,583)
- -------------------------------------------------------------------------------------------------------------
Cumulative effect of change in
accounting for income taxes 5,637
- -------------------------------------------------------------------------------------------------------------
Net income 30,314 19,323 11,455 10,547 2,644
- -------------------------------------------------------------------------------------------------------------
COMMON AND EQUIVALENT PER SHARE DATA:
Income from continuing operations 2.63 1.75 1.00 .93 .55
Gain (loss) from discontinued
operations .11 (.44) (.27)
Cumulative effect of change
in accounting for income taxes .56
- -------------------------------------------------------------------------------------------------------------
Net income 2.63 1.75 1.11 1.05 .28
- -------------------------------------------------------------------------------------------------------------
Total assets 311,516 255,874 211,766 193,796 183,292
- -------------------------------------------------------------------------------------------------------------
Long-term obligations 3,921 5,139 8,865 14,122 15,559
- -------------------------------------------------------------------------------------------------------------
Other long-term liabilities 12,403 9,597 6,789 3,468 5,020
- -------------------------------------------------------------------------------------------------------------
Minority interest in subsidiaries 2,738 1,782 4,089 3,806 3,813
- -------------------------------------------------------------------------------------------------------------
Stockholders' equity 197,587 161,191 133,464 117,023 103,476
- -------------------------------------------------------------------------------------------------------------
</TABLE>
No dividends have been declared in any of the periods presented. See "Item
5" for a discussion of the Company's dividend history.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
During fiscal 1996, net income increased to $30.3 million ($2.63 per share)
compared to $19.3 million ($1.75 per share) for fiscal 1995 and $11.5 million
($1.11 per share) for fiscal 1994. Fiscal 1994 results reflect a $1.2 million
($.11 per share) gain from the reversal of inventory valuation reserves and
certain accruals that were no longer required relating to the discontinuation of
the Industrial operations in fiscal 1993. Income from continuing operations
before income taxes increased $17.5 million (55%) to $49.3 million for fiscal
1996 compared to $31.8 million for fiscal 1995 and $16.8 million for fiscal
1994. These increases resulted primarily from higher sales volumes, gross
profits, and other income. The Company's effective tax rate was 39% for all
three years presented.
1996 COMPARED TO 1995
NET SALES AND GROSS PROFIT
CONSOLIDATED
During fiscal 1996, net sales increased $78.9 million (28%) to $364.4
million from $285.5 million, resulting primarily from increased sales volumes.
Such higher volumes occurred primarily with OEM's and commercial customers in
the Electro-Optical segment and with lasers for aesthetic surgery in the Medical
segment. International sales grew at a higher rate than domestic sales in both
segments for a total increase of $45.2 million (31%). Accordingly,
international sales were 53% of net sales for the current fiscal year compared
to 51% last year, reflecting the Company's commitment to grow its international
business.
The gross profit rate improved to 51% for the current fiscal year compared
to 50% for fiscal 1995. The improvement in the overall margin resulted
primarily from higher sales volumes of high margin products and manufacturing
efficiencies.
ELECTRO-OPTICAL
Electro-Optical net sales increased $42.3 million (27%) in the current
fiscal year to $201.6 million from $159.3 million in the prior fiscal year.
International sales increased $26.6 million (28%) and domestic sales increased
$15.7 million (24%) in the current fiscal year. The increased sales, both
internationally and domestically, resulted primarily from higher sales volumes
to OEM's and commercial customers, due to broader acceptance of new products
introduced within the past two years and due in part to increased sales
associated with business acquisitions.
The gross profit rate increased to 52% from 50% in the prior fiscal year.
The increase over the prior year resulted from efficiencies gained from the
higher sales volumes, a more favorable product mix, and efficiencies experienced
due to manufacturing enhancements at Lambda Physik GmbH.
MEDICAL
Medical net sales increased $36.6 million (29%) to $162.8 million in fiscal
1996 from $126.2 million in fiscal 1995. International sales increased $18.7
million (36%) while domestic sales increased $18.0 million (24%) in the current
fiscal year. The growth was primarily attributable to higher sales volumes of
the Ultrapulse for cosmetic applications.
16
<PAGE>
The gross profit rate increased to 51% from 50% in the prior fiscal year
primarily due to the higher sales volumes which also are comprised of higher
margin products, such as the Ultrapulse for cosmetic procedures.
OPERATING EXPENSES
Years Ended
Sept. 28, Sept. 30,
1996 1995
--------- ---------
(in thousands)
Research & development $ 37,705 $ 31,042
Selling, general & administrative 104,813 81,529
------- --------
Total operating expenses $ 142,518 $112,571
------- --------
------- --------
Total operating expenses increased $29.9 million (27%) from the prior
fiscal year but as a percentage of sales remained constant at 39%.
Current year research and development (R&D) expenses increased $6.7 million
(21%) from the prior year but decreased as a percentage of sales from 11% to
10%. The absolute dollar increase was most significant in the Company's
Electro-Optical business segment due to more headcount and related expenses
associated with the Company's continued emphasis on product development and its
recent strategic acquisitions. The Company intends to build upon its leadership
position and continue this strong commitment to product development. For
example, two new models of our UltraPulse-Registered Trademark- medical laser
system allow physicians from all size practices to participate in the growing
market for skin resurfacing with the laser that is recognized as the "gold
standard" for this application. The Company's new diode-pumped solid-state
(DPSS) laser, used to improve the performance of computer hard-disk drives,
provides hard-disk media manufacturers a laser capable of handling high-volume
production while maintaining the highly stable operations required for this
application. At the recent American Academy of Ophthalmology in Chicago, the
Company introduced the Selecta 7000-TM-. Based on initial results using this
system for Selective Laser Trabeculoplasty (SLT), the Company believes that the
Selecta 7000 has the potential for becoming the standard treatment for treating
primary open-angle glaucoma.
Selling, general and administrative (SG&A) expenses increased $23.3 million
(29%) but remained at 29% of sales compared to the prior fiscal year. Sales,
marketing and service expenses increased $17.7 million (32%) and as a percentage
of sales increased to 20% from 19% in fiscal 1995. This expense was driven by
an increase in headcount to support the growing business, the Medical segment's
change to direct sales in Japan, and an increase in the level of workshops and
trade shows worldwide. Administration expenses increased $5.6 million (21%) but
as a percentage of sales remained at 9%. This increase was driven by costs
related to recent strategic acquisitions, facility expansions, and bonuses
associated with improved operating performance over the prior year.
OTHER INCOME (EXPENSE)
Total other income, net increased by $2.7 million during the current fiscal
year. This increase resulted primarily from a $1.6 million gain from the third
quarter sale of the Company's holdings in another medical laser company, and
$1.2 million higher interest and dividend income, net, due to capitalization of
interest associated with the refurbishment of the Porter facility and the
construction of the Auburn Building III. The funds generated by operations and
the sales of shares under the employee stock option and purchase plans helped
fund the acquisition of such facilities without increasing average borrowings
nor significantly reducing average cash and short-term investments.
17
<PAGE>
The Porter Drive facility was completed in September, 1996 and has been leased
to an unaffiliated third party.
INCOME TAXES
The Company's effective tax rate for fiscal 1996 and fiscal 1995 remained
constant at 39%.
1995 COMPARED TO 1994
NET SALES AND GROSS PROFIT
CONSOLIDATED
During fiscal 1995, net sales increased $70.1 million (33%) to $285.5
million from $215.4 million in fiscal 1994, resulting primarily from higher
sales volumes of products introduced in the past two years in both the
Electro-Optical and Medical business segments. Increased international sales
in both business segments, were also due in part to the weaker U.S. dollar
against the German deutschemark, British pound and Japanese yen in fiscal 1995
compared to fiscal 1994. International sales increased $36.9 million (34%) to
$146.9 million while domestic sales increased $33.2 million (31%) to $138.6
million. International sales were 51% of net sales for fiscal 1995, the same as
in fiscal 1994.
The gross profit rate improved to 50% for fiscal 1995 compared to 49% for
fiscal 1994. The improvement was primarily associated with higher sales
volumes of higher margin Medical segment products in certain territories that
experience higher gross profits. The improvement, primarily in the Medical
segment, is also due in part to translation gains affecting gross profit because
of the weaker U.S. dollar in fiscal 1995 compared to fiscal 1994 against other
major currencies. Translation gains from Electro-Optical segment international
sales were offset by the impact of higher product costs from translation losses
due to certain of its products manufactured in Germany and sold in the U.S. and
other countries where the respective currencies were weaker than the
deutschemark. However, the Medical segment's gross profit benefits from the
translation gains from its foreign currency denominated sales as its product
costs are primarily dollar denominated.
ELECTRO-OPTICAL
Electro-Optical net sales increased $33.3 million (26%) to $159.3 million
in fiscal 1995 from $126.0 million in fiscal 1994. International sales
increased $24.3 million (35%) to $94.7 million (59% of total sales) for fiscal
1995. Domestic sales increased $9.0 million (16%) to $64.6 million for fiscal
1995. The increase in net sales resulted primarily from higher sales volumes in
the Coherent Laser Group, Coherent Auburn Group and Coherent Lambda Physik.
The gross profit rate remained constant at 50% for both fiscal years.
MEDICAL
Medical net sales increased $36.8 million (41%) to $126.2 million for
fiscal 1995 from $89.4 million in the prior year. International sales increased
$13.2 million (33%) to $52.2 million for fiscal 1995 and domestic sales
increased $23.6 million (47%) to $74.0 million. The increase in international
sales was primarily attributable to increased sales volumes in Europe, Japan,
Asia Pacific, Mexico, Latin America and Canada. On a product line basis, the
acceptance of the Ultrapulse for dermatology and the Ultima for ophthalmology
accounted for the increased sales volumes.
The gross profit rate increased to 50% from 48% in fiscal 1994. The
increase in margin was primarily due to higher sales volumes of higher margin
products, a more favorable geographic mix, and
18
<PAGE>
the impact of international sales denominated in strong foreign currencies,
while product costs of such international sales are primarily denominated in
dollars.
OPERATING EXPENSES
Years Ended
Sept. 30, Oct. 1,
1995 1994
--------- -------
(in thousands)
Research & development $ 31,042 $ 25,800
Selling, general & administrative 81,529 63,323
-------- --------
Total operating expenses $112,571 $ 89,123
-------- --------
-------- --------
Total operating expenses increased $23.4 million (26%) but decreased as a
percentage of sales to 39% in fiscal 1995 from 41% in the prior fiscal year.
Fiscal 1995 research and development (R&D) expenses increased in absolute
dollars by $5.2 million (20%) from fiscal 1994. The increase in R&D expenses
occurred primarily in the Medical segment due to increased personnel and related
costs associated with an increased number of products under development and
increased spending for clinical development activities. As a percentage of
sales, R&D expenses decreased in fiscal 1995 to 11% from 12% in fiscal 1994,
however, this level of spending continues to reflect the Company's continued
commitment to innovation and technical leadership.
Selling, general and administrative (SG&A) expenses increased $18.2 million
(29%) compared to fiscal 1994 but remained at 29% of sales. Selling and
marketing expenses increased $12.1 million (28%) during fiscal 1995 but
decreased to 19% as a percentage of sales from 20% in the prior fiscal year.
The dollar increase was associated with higher sales volumes, additional
personnel, and increased facilities expenses. General and administrative
expenses also increased by $6.1 million (30%) compared to fiscal 1994, but
remained at 9% as a percentage of sales. In addition, total SG&A expenses were
higher in both segments due in part to the translation of costs denominated in
strong foreign currencies relative to the U.S. dollar, compared to the same
period a year ago.
OTHER INCOME (EXPENSE)
Total other income, net increased by $1.5 million primarily due to a
decrease of $0.7 million in interest expense due to lower average interest
rates and the nonrecurrence of fiscal 1994 prepayment penalties associated with
debt refinancing and an increase in other income of $0.7 million primarily due
to a gain on the sale of an investment.
INCOME TAXES
The Company's effective tax rate for fiscal 1995 and fiscal 1994 remained
constant at 39%.
OTHER
Inflation has not had a significant impact on the Company's results of
operations during the past three fiscal years because general price level
increases have been modest. Increases in per unit material and labor costs have
generally been offset by improved yields and other efficiencies.
19
<PAGE>
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash and short-term
investments of $34.6 million at September 28, 1996. Additional sources of
liquidity are the Company's multi-currency line of credit and bank credit
facilities totaling $37.1 million as of September 28, 1996, of which $27.7
million is unused and available under these credit facilities. During fiscal
1996, such facilities have been used in Europe and Japan. Because of the
Company's low debt to equity ratio (.06:1), management believes that additional
cash could be borrowed if necessary; however, cash flow from operations, cash
and equivalents, short-term investments and available lines of credit are
expected to be sufficient to fund operations for fiscal 1997. The Company has
certain financial covenants related to its lines of credit. At September 28,
1996, the Company is in compliance with these covenants (see Note 6, "Short-term
Borrowings", of the Notes to Consolidated Financial Statements").
CHANGES IN FINANCIAL CONDITION
Cash and equivalents decreased by $11.2 million (55%) from September 30,
1995. Operations and changes in exchange rates generated $23.0 million. The
increase from operations is net of significant amounts used to establish the
working capital of the Company's direct sales organization in Japan. Investing
activities used $34.3 million; $24.5 million was used to acquire property and
equipment (net of proceeds from disposition of property and equipment), $5.0
million was used to purchase distribution rights in Japan, $2.5 million used for
acquisitions made by the Company, and $2.3 million was used for other investing
activities. Financing activities provided $0.1 million; sales of shares under
employee benefit plans and collection of notes receivable from stock sales
generated $4.8 million, partially offset by increased repayments on borrowings,
net of $4.7 million.
Cash and equivalents at September 30, 1995 decreased by $6.8 million (25%)
from October 1, 1994. Operations and changes in exchange rates generated $9.3
million; short-term investments increased $7.7 million. Investing activities
used $18.5 million; $7.7 million was used to acquire property and equipment (net
of proceeds from disposition of property and equipment), $4.5 million was used
to purchase certain assets and license certain patents from Amoco, $4.3 million
was used to purchase the former Porter Drive facility and $1.9 million was used
for the purchase of the net assets of Adlas (see Note 3 "Acquisitions" of the
Notes to Consolidated Financial Statements). Financing activities provided $2.4
million, sales of shares under employee benefit plans and collection of notes
receivable from stock sales generated $6.2 million, partially offset by
increased repayments on borrowings, net of $3.8 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) for an index to the consolidated financial statements and
supplementary financial information which are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Registrant's directors will be set forth under the
caption "Election of Directors - Nominees" in Registrant's proxy statement for
use in connection with the Annual Meeting of Stockholders to be held in March,
1997, (the "1996 Proxy Statement") and is incorporated herein by reference. The
1996 Proxy Statement will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrant's fiscal year.
The following table sets forth the names, ages and office of all of the
executive officers of the Company:
Name Age Office Held
- -------------------------------------------------------------------------------
James L. Hobart, Ph.D. 63 Chairman of the Board of Directors,
and Chief Technical Officer
Bernard J. Couillaud, Ph.D. 52 President
and Chief Executive Officer
Robert J. Quillinan 49 Vice President
and Chief Financial Officer
Gerald C. Barker 54 Vice President and General Manager,
Coherent Laser Group
Kevin P. Connors 34 Vice President and General Manager,
Coherent Medical Group
Robert M. Gelber 51 Vice President and General Manager,
Coherent Auburn Group
Dennis C. Bucek 51 Treasurer and Assistant Secretary
Scott H. Miller 42 Vice President and General Counsel
Larry W. Sonsini 55 Secretary
There are no family relationships between any of the executive officers and
directors.
Dr. Hobart served as the President of the Company from 1968 through June
1974 and from January 1976 through March 1983. From June 1974 to January 1976
he served as the Company's Chief Scientist. He served as Chief Executive
Officer from August 1988 to July 1996 and as General Manager of the Medical
Group from August 1994 to June 1996. He has served as a director of the Company
since 1966 and as Chairman of the Board of Directors since 1974. In addition,
he was elected Chief Technical Officer in May 1996.
Dr. Couillaud has served as President and Chief Executive Officer as well
as a member of the Board of Directors since July 1996. He served as Vice
President and General Manager of Coherent Laser Group from March 1992 to July
1996. From 1990 to March 30, 1992, he served as Manager of the Advanced Systems
Business Unit, and from 1987 to 1990 served as Director of R&D for the Coherent
Laser Group.
21
<PAGE>
Mr. Quillinan has served as Vice President and Chief Financial Officer
since July 1984. He served as Vice President and Treasurer from March 1982 to
July 1984 and as Corporate Controller from April 1980 to March 1982.
Mr. Barker has served as Vice President and General Manager, Coherent Laser
Group since June 1996. He served as Director, Ion Business Unit from 1990 to
1996. From 1987 to 1990 he served as Manager Engineering Programs.
Mr. Connors has served as Vice President and General Manager, Coherent
Medical Group since June 1996. He served as Director of Research and
Development from 1995 to 1996 and Manager Engineering Programs from 1994 to
1995. From 1987 to 1994, Mr. Connors held various engineering and engineering
management positions at Coherent Medical Group.
Mr. Gelber has served as Vice President and General Manager, Coherent
Auburn Group since August 1986.
Mr. Bucek has served as Treasurer and Assistant Secretary since August
1985.
Mr. Miller has served as General Counsel to the Company since October 1988
and as Vice President since March 1994.
For over five years, Mr. Sonsini has served as the Company's Secretary. He
is a member of Wilson, Sonsini, Goodrich & Rosati, P.C., general counsel to the
Company.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding remuneration of Registrant's directors and executive
officers will be set forth under the caption "Election of Directors - Executive
Compensation" in Registrant's 1997 Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management will be set forth under the captions "Information Concerning
Solicitation and Voting - Record Date and Share Ownership" and "Election of
Directors - Security Ownership of Management" in Registrant's 1997 Proxy
Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will
be set forth under the caption "Election of Directors - Certain Transactions" in
Registrant's 1997 Proxy Statement and is incorporated herein by reference.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND FORM 8-K REPORTS
Page
----
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Consolidated Financial Statements of
Coherent, Inc. and its subsidiaries are filed
as part of this report on Form 10-K:
Independent Auditors' Report 28
Consolidated Balance Sheets - September 28, 1996
and September 30, 1995 29
Consolidated Statements of Income - Years ended
September 28, 1996, September 30, 1995
and October 1, 1994 30
Consolidated Statements of Stockholders' Equity -
Years ended September 28, 1996, September 30, 1995
and October 1, 1994 31
Consolidated Statements of Cash Flows - Years ended
September 28, 1996, September 30, 1995
and October 1, 1994 32
Notes to Consolidated Financial Statements 34
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts 49
Schedules not listed above have been omitted because the matter or
conditions are not present or the information required to be set forth
therein is included in the Consolidated Financial Statements hereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended
September 28, 1996.
(c) EXHIBITS
Exhibit
Numbers
-------
2.1* Agreement and Plan of Merger. (Previously filed as Exhibit 2.1
to Form 10-K for the fiscal year ended September 29, 1990.)
23
<PAGE>
(c) EXHIBITS CONTINUED
Exhibit
Numbers
-------
3.1* Restated and Amended Certificate of Incorporation. (Previously
filed as Exhibit 3.1 to Form 10-K for the fiscal year ended
September 29, 1990.)
3.2* Bylaws, as amended. (Previously filed as Exhibit 3.2 to Form
10-K for the fiscal year ended September 29, 1990.)
4.1* Amended and Restated Common Shares Rights Agreement dated
November 2, 1989 between the Company and the Bank of Boston.
(Previously filed as Exhibit 4.1 to Form 8K filed on
November 3, 1989.)
10.5* Leases dated January 10, 1979, between the Company and John D.
Banks, Allen W. Koering, Frank Lee Crist, Jr., George McKee and
West Bayshore Associates. (Previously filed as Exhibit 10.5 to
Form 8, Amendment No. 1 to Annual Report on Form 10-K for the
fiscal year ended September 25, 1982.)
10.17* 1981 Incentive Stock Option Plan, as amended, and forms of
agreement. (Previously filed as Exhibits to the Company's
Registration Statement on Form S-8 No. 2-96838 filed April 2,
1985.)
10.18* 1987 Incentive Stock Option Plan and forms of agreement.
(Previously filed as Exhibit 10.18 to Form 10-K for the fiscal
year ended September 30, 1989.)
10.19* Productivity Incentive Plan, as amended. (Previously filed as
Exhibit 10.19 to Form 10K for the fiscal year ended October 1,
1988.)
10.20* Employee Stock Purchase Plan and form of Subscription Agreement,
as amended. (Previously filed as Exhibit 10.20 to Form 10K for
the fiscal year ended October 1, 1988.)
10.21* Coherent Employee Retirement and Investment Plan. (Previously
filed as Exhibit 10.23 to Form 8, Amendment No. 1 to Annual
Report on Form 10-K for the fiscal year ended September 25,
1982.)
10.30* Patent License Agreements by and between Coherent, Inc. and
Patlex Corporation, effective as of July 1, 1988. (Previously
filed as Exhibit 10.30 to Form 10K for the fiscal year ended
October 1, 1988.)
10.31* Agreement by and between Coherent, Inc. and Dr. Dirk Basting,
dated as of September 15, 1988. (Previously filed as Exhibit
10.31 to Form 10K for the fiscal year ended October 1, 1988.)
10.33* 1990 Directors' Option Plan and Form of Agreement. (Previously
filed as Exhibit 10.33 to Form 10-K for the fiscal year ended
September 29, 1990.)
10.34 1995 Incentive Stock Option Plan and forms of agreement.
24
<PAGE>
(c) EXHIBITS CONTINUED
Exhibit
Numbers
-------
10.35 Management Transition Agreement effective June 30, 1996 between
the Company and Henry E. Gauthier.
21.1 Subsidiaries.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
* These exhibits were previously filed with the Commission as indicated and
are incorporated herein by reference.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized on December 23, 1996.
COHERENT, INC.
JAMES L. HOBART
-----------------------
By: James L. Hobart
Chairman of the Board &
Chief Technical Officer
26
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bernard J. Couillaud and Robert J. Quillinan,
jointly and severally, his attorneys-in-fact, each with the power of
substitution for him in any and all capacities, to sign any amendments to this
report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming that each of said attorneys-in-fact, or his substitute
or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
JAMES L. HOBART December 23, 1996
- ----------------------------------------------- ------------------------
James L. Hobart Date
(Director, Chairman of the Board &
Chief Technical Officer)
BERNARD J. COUILLAUD December 23, 1996
- ------------------------------------------------ ------------------------
Bernard J. Couillaud Date
(Director, President & Chief Executive Officer)
ROBERT J. QUILLINAN December 23, 1996
- ----------------------------------------------- ------------------------
Robert J. Quillinan Date
(Vice President & Chief Financial Officer)
CHARLES W. CANTONI December 23, 1996
- ----------------------------------------------- ------------------------
Charles W. Cantoni Date
(Director)
FRANK CARRUBBA December 23, 1996
- ----------------------------------------------- ------------------------
Frank Carrubba Date
(Director)
HENRY E. GAUTHIER December 23, 1996
- ----------------------------------------------- ------------------------
Henry E. Gauthier Date
(Director)
THOMAS SLOAN NELSEN December 23, 1996
- ----------------------------------------------- ------------------------
Thomas Sloan Nelsen Date
(Director)
JERRY E. ROBERTSON December 23, 1996
- ----------------------------------------------- ------------------------
Jerry E. Robertson Date
(Director)
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Coherent, Inc.:
We have audited the accompanying consolidated financial statements of
Coherent, Inc. and its subsidiaries, listed in Item 14.(a)1. Our audits also
included the consolidated financial statement schedule listed in Item 14.(a)2.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements and the financial statement schedule 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Coherent, Inc. and its
subsidiaries at September 28, 1996 and September 30, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 28, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
San Jose, California
October 29, 1996
28
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 28, September 30,
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 9,214 $ 20,426
Short-term investments 25,421 24,242
Accounts receivable - net of allowances
of $3,285 in 1996 and $2,834 in 1995 83,360 62,374
Inventories 65,835 52,004
Prepaid expenses and other assets 11,519 11,173
Deferred tax assets 23,071 14,733
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 218,420 184,952
- ---------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT 117,069 91,300
ACCUMULATED DEPRECIATION AND AMORTIZATION (52,468) (46,427)
- ---------------------------------------------------------------------------------------------------
Property and equipment - net 64,601 44,873
- ---------------------------------------------------------------------------------------------------
GOODWILL - net of accumulated amortization of
$5,717 in 1996 and $4,237 in 1995 10,639 10,152
OTHER ASSETS 17,856 15,897
- ---------------------------------------------------------------------------------------------------
$ 311,516 $ 255,874
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 4,160 $ 7,016
Current portion of long-term obligations 4,221 5,285
Accounts payable 12,425 11,688
Income taxes payable 12,395 4,165
Other current liabilities 61,666 50,011
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 94,867 78,165
- ---------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS 3,921 5,139
OTHER LONG-TERM LIABILITIES 12,403 9,597
MINORITY INTEREST IN SUBSIDIARIES 2,738 1,782
STOCKHOLDERS' EQUITY:
Common stock, par value $.01:
Authorized - 50,000 shares
Outstanding - 11,211 in 1996 and 10,869 in 1995 111 108
Additional paid-in capital 82,939 76,225
Unrealized gain on investments 171
Notes receivable from stock sales (845) (1,218)
Retained earnings 113,794 83,480
Accumulated translation adjustment 1,588 2,425
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 197,587 161,191
- ---------------------------------------------------------------------------------------------------
$ 311,516 $ 255,874
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended
-------------------------------------------------
SEPT. 28, Sept. 30, Oct. 1,
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 364,430 $ 285,499 $ 215,367
COST OF SALES 177,212 143,016 109,938
- ----------------------------------------------------------------------------------------------
GROSS PROFIT 187,218 142,483 105,429
- ----------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Research and development 37,705 31,042 25,800
Selling, general and administrative 104,813 81,529 63,323
- ----------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 142,518 112,571 89,123
- ----------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 44,700 29,912 16,306
OTHER INCOME (EXPENSE):
Interest and dividend income 2,444 2,392 2,108
Interest expense (39) (1,148) (1,879)
Other - net 2,212 668 215
- ----------------------------------------------------------------------------------------------
TOTAL OTHER INCOME, NET 4,617 1,912 444
- ----------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 49,317 31,824 16,750
PROVISION FOR INCOME TAXES 19,003 12,501 6,449
- ----------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 30,314 19,323 10,301
- ----------------------------------------------------------------------------------------------
GAIN FROM DISCONTINUED OPERATIONS 1,154
- ----------------------------------------------------------------------------------------------
NET INCOME $ 30,314 $ 19,323 $ 11,455
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
COMMON AND EQUIVALENT PER SHARE DATA:
INCOME FROM CONTINUING OPERATIONS $2.63 $1.75 $1.00
GAIN FROM DISCONTINUED OPERATIONS .11
- ----------------------------------------------------------------------------------------------
NET INCOME $2.63 $1.75 $1.11
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
<PAGE>
<TABLE>
<CAPTION>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 28, 1996, September 30, 1995, and October 1, 1994
(In thousands)
COMMON STOCK Add. Unreal. Notes Rec. Accum.
Par Paid-in Gain on From Stock Retain. Trans.
Shares Value Capital Investmts. Sales Earnings Adj.
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 25, 1993 9,913 $99 $64,456 $ $(1,310) $52,702 $1,076
Sales of shares under employee
stock option plans 202 2 2,066 (671)
Productivity Incentive Plan
distributions 21 291
Sales of shares under Employee
Stock Purchase Plan 202 2 1,617
Tax benefit of stock option
transactions 216
Translation adjustment 1,463
Net income 11,455
- --------------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 1, 1994 10,338 103 68,646 (1,981) 64,157 2,539
Sales of shares under employee
stock option plans 359 3 3,615 (326)
Productivity Incentive Plan
distributions 21 422
Sales of shares under Employee
Stock Purchase Plan 151 2 1,772
Tax benefit of stock option
transactions 1,770
Change in unrealized gain on
investments 171
Collection of notes receivable 1,089
Translation adjustment (114)
Net income 19,323
- --------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995 10,869 108 76,225 171 (1,218) 83,480 2,425
Sales of shares under employee
stock option plans 204 2 2,403
Productivity Incentive Plan
distributions 14 626
Sales of shares under Employee
Stock Purchase Plans 124 1 2,042
Tax benefit of stock option
transactions 1,643
Change in unrealized gain
on investments (171)
Collection of notes receivable 373
Translation adjustment (837)
Net income 30,314
- --------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1996 11,211 $111 $82,939 $ $(845) $113,794 $1,588
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
31
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended
---------------------------------------------
SEPT. 28, Sept. 30, Oct. 1,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS:
OPERATING ACTIVITIES:
Net income $30,314 $19,323 $11,455
Adjustments to reconcile to net cash
provided by operating activities:
Gain on disposal of segment (1,154)
Purchases of short-term trading investments (103,644) (87,137) (64,470)
Proceeds from sales of short-term trading
investments 102,465 79,600 57,131
Depreciation and amortization 12,372 8,955 7,862
Issuance of common stock under
Productivity Incentive Plan 626 422 291
Deferred income taxes (8,725) 1,601 319
Minority interest in subsidiaries 956 (2,307) 283
Equity in (income) loss of joint ventures (93) 80 (202)
Changes in assets and liabilities:
Accounts receivable (21,954) (10,980) (3,741)
Inventories (14,875) (10,383) (1,702)
Prepaid expenses and other assets (478) 125 3,602
Accounts payable 985 3,504 250
Other current liabilities 24,118 8,410 4,095
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,067 11,213 14,019
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (24,930) (8,384) (10,728)
Dispositions of property and equipment, net 443 654 380
Acquisition of Japan distribution rights (5,048)
Purchase of Amoco assets (4,520)
Purchase of Porter Drive facility (4,311)
Cash paid for acquisition of Adlas (1,941)
Other - net (4,792) 43 (1,663)
- ------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (34,327) (18,459) (12,011)
- ------------------------------------------------------------------------------------------------------
(CONTINUED)
</TABLE>
32
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
(In thousands)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
SEPT. 28, Sept. 30, Oct. 1,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES:
Long-term debt borrowings $ 2,547 $ 940 $ 8,926
Long-term debt repayments (4,723) (5,670) (12,762)
Short-term borrowings 7,093 2,960 84
Short-term repayments (9,558) (2,026) (1,560)
Repayments of capital lease obligations (91) (587)
Sales of shares under employee stock option
and purchase plans, net 4,448 5,066 3,016
Collection of notes receivable from stock sales 373 1,089
- ------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 89 2,359 (2,883)
- ------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND EQUIVALENTS 959 (1,926) 191
- ------------------------------------------------------------------------------------------------------
Net decrease in cash and equivalents (11,212) (6,813) (684)
Cash and equivalents beginning of year 20,426 27,239 27,923
- ------------------------------------------------------------------------------------------------------
CASH AND EQUIVALENTS END OF YEAR $ 9,214 $ 20,426 $ 27,239
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of Adlas net assets:
Purchase obligation due $ 4,996
Cash paid 1,941
Net tangible assets acquired (1,015)
-------
Goodwill acquired $ 5,922
-------
-------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 915 $ 1,032 $ 1,718
Income taxes $ 16,682 $ 13,417 $ 2,905
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
33
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Coherent,
Inc. and its majority owned subsidiaries (collectively, the Company). All
significant intercompany balances and transactions have been eliminated. The
functional currency of the Company's foreign subsidiaries is their respective
local currencies. Accordingly, gains and losses from the translation of the
financial statements of the foreign subsidiaries are reported as a separate
component of stockholders' equity. Investments in business entities in which
the Company does not have control, but has the ability to exercise significant
influence over operating and financial policies (generally 20-50% ownership),
are accounted for by the equity method.
The Company's fiscal year ends on the Saturday nearest to September 30.
Consequently, the Company's fiscal year for 1996 included 52 weeks, fiscal 1995
included 52 weeks and fiscal 1994 included 53 weeks.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company's policy is to invest in various short-term debt instruments
including certificates of deposit, bankers acceptances and repurchase agreements
of major banks and institutions, obligations of the U.S. Treasury and U.S.
Government agencies, tax-exempt municipal securities and commercial paper with
credit ratings of A1 and P1. All highly liquid debt instruments purchased with
a remaining maturity of three months or less are classified as cash equivalents.
During fiscal 1995 the Company classified an investment in marketable
equity securities as available for sale and recorded an unrealized gain of
$171,000 in stockholders' equity at September 30, 1995. The cost of such
investment had been written off in previous years when such securities were
restricted and recoverability was doubtful.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are as
follows:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Purchased parts and assemblies $18,446 $14,840
Work-in-process 24,244 19,836
Finished goods 23,145 17,328
- --------------------------------------------------------------------------------
Inventories $65,835 $52,004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
34
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are generally depreciated or
amortized using the straight-line method. Cost and estimated useful lives are
as follows:
1996 1995 Useful Life
- --------------------------------------------------------------------------------
(In thousands)
Land $ 5,833 $ 5,852
Buildings and improvements 43,317 28,665 20-31 years
Equipment, furniture and fixtures 63,723 53,883 3-10 years
Leasehold improvements 4,196 2,900 Terms of lease
- --------------------------------------------------------------------------------
Property and equipment $117,069 $91,300
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Included in equipment, furniture and fixtures is equipment under capital
leases with a cost of $546,000 at September 28, 1996 (accumulated amortization
of $517,000) and $1,676,000 at September 30, 1995 (accumulated amortization of
$1,335,000).
GOODWILL
Goodwill relates to acquired subsidiaries and is being amortized on a
straight-line basis over estimated useful lives of three to forty years. The
Company evaluates its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset may not be
recoverable.
WARRANTY
The Company warrants certain of its products and provides for estimated
product warranty costs at the time of sale.
REVENUE RECOGNITION
The Company generally recognizes revenue from product sales upon shipment
or title transfer, if later, and from service upon performance or over the terms
of the service contract as appropriate.
CONCENTRATION OF CREDIT RISK
Financial instruments which may potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
short-term investments and accounts receivable. The Company places its
investments only in U.S. Treasury obligations or with high credit quality
financial institutions and, by policy, limits the amount of credit exposure to
any one institution. The majority of its short-term investments are in U.S.
Treasury bills and notes at September 28, 1996. The majority of the Company's
accounts receivable are derived from sales to customers for medical and surgical
applications, scientific research applications, and OEM's. The Company performs
ongoing credit evaluations of its customers' financial condition and limits the
amount of credit extended when deemed necessary but generally requires no
collateral. The Company maintains reserves for potential credit losses, and all
such losses to date have been within management's expectations.
INCOME TAXES
Federal income taxes have not been provided on a portion of the unremitted
earnings of foreign subsidiaries either because such earnings are intended to be
permanently reinvested or because foreign tax credits are available to offset
any planned distributions of such earnings. The total amount of unremitted
earnings of foreign subsidiaries was approximately $7,937,000 at September 28,
1996.
35
<PAGE>
Withholding taxes of approximately $206,000 would be payable upon repatriation
of such earnings which would result in additional foreign tax credits.
COMMON AND EQUIVALENT PER SHARE DATA
Common and equivalent per share data is based upon the weighted average
number of common shares outstanding during the period plus dilutive common share
equivalents and shares issuable under the Productivity Incentive Plan. Dilutive
common share equivalents include outstanding stock options when the exercise
price is less than the average market price and shares subscribed under the
Employee Stock Purchase Plan. The number of common and dilutive common
equivalent shares used were 11,544,000 in 1996, 11,062,000 in 1995, and
10,342,000 in 1994.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation. Such reclassification had no impact on net income or
retained earnings for any year presented.
2. DISCONTINUED OPERATIONS
During fiscal 1993, the Company disposed of its Industrial segment. A net
loss of $4,409,000 on disposition of the segment and discontinued operations was
recorded. During fiscal 1994, the Company substantially completed its plan of
disposition which resulted in a net gain of $1.2 million from the reversal of
inventory valuation reserves and certain accruals in excess of amounts required.
3. ACQUISITIONS
In December 1996, subsequent to year end, the Company acquired 80% of the
outstanding capital stock of Tutcore OY Ltd., for $8.9 million including
estimated amounts over the next five years based on future sales performance.
The Company has an option to acquire the remaining 20% in five years. Tutcore
is located in Tampere, Finland and is a leading manufacturer of aluminum-free
semiconductor wafers that are incorporated into laser diodes.
During the fourth quarter of fiscal 1996, the Company signed a technology
transfer and license agreement with Blue Sky Research (BSR) related to BSR's
patented CircuLaser-TM- diodes. Under the agreement, Coherent is exclusively
licensed to manufacture such lasers for incorporation into diode laser modules.
The Company paid $125,000 for the license and has agreed to pay future royalties
under the agreement.
During the second quarter of fiscal 1996, the Company reached agreement
with Matsumoto Medical Instruments, its former distributor of medical products
in Japan, to acquire exclusive distribution rights for Coherent's products in
Japan, effective immediately. The agreement also provided for Coherent to
repurchase its inventory from Matsumoto and allows for Coherent to assume full
service and warranty support to its customers on an exclusive basis immediately.
The Company capitalized all costs paid in excess of the value of the tangible
assets acquired from Matsumoto and realized no immediate write-offs. The amount
in excess of net tangible assets acquired was $5,048,000 which is being
amoritzed over a five year period having commenced during the third quarter of
fiscal 1996.
In the first quarter of fiscal 1996, the Company acquired certain net
assets of Applied Laser Systems (ALS) and the Laser Optics Division of ATx
Telecom Systems, Inc. (a subsidiary of Amoco Technology Company) for $2.5
million. ALS is a pioneer in the design and manufacture of low power diode
laser modules. ATx is the developer of unique coating processes for optical
components including lenses and mirrors used in the fabrication of solid state
lasers and other products. These technologies
36
<PAGE>
complement Coherent's existing laser instrumentation, precision optics and
laser diode product lines sold to OEMs and end users. The Company recorded $1.2
million of goodwill associated with the purchases which is being amortized over
five years.
Effective June 30, 1995, the Company acquired the business and net assets
of Adlas GmbH and Co. KG (Adlas), located in Lubeck, Germany for approximately
$6.9 million. The Company paid $1.9 million in cash and recorded a $3.5 million
note payable (paid in December 31, 1995) and a $1.5 million deferred payment due
December 31, 1997. An additional deferred payment, also due December 31, 1997,
of $0.8 million was recorded in fiscal 1996. These deferred payments do not
accrue interest and are contingent on achieving certain net sales goals. The
Company recorded the deferred payments when it determined the net sales goals
were probable of being attained. The acquisition has been accounted for as a
purchase and, accordingly, the Company has recorded the $6.7 million excess of
the purchase price over the fair value of net tangible assets acquired as
goodwill which is being amortized over ten years. Adlas is a leading
manufacturer of DPSS lasers used in commercial applications such as
semiconductor inspection, reprographics, materials processing, and analytical
instrumentation. The results of Adlas are included in the Company's results for
the fourth quarter of fiscal 1995. The proforma unaudited net sales, net income
and earnings per share for fiscal 1995 giving effect to the acquisition as if it
had occurred on October 2, 1994 were $290,699,000, $19,460,000 and $1.76,
respectively. The proforma net sales, net income and earnings per share for
fiscal 1994 as if Adlas had been acquired on September 26, 1993 were
$220,167,000, $11,545,000, and $1.12, respectively.
Effective March 24, 1995, Coherent and ATx Telecom Systems, Inc. (AMOCO)
entered into an "Asset Purchase and Sale Agreement" whereby Coherent purchased
certain assets (consisting primarily of patents and technology licenses)
relating to Amoco's diode pumped solid-state laser technology for $4.5 million
in cash. The intangible assets acquired of $4.3 million are being amortized
primarily over a ten year period.
4. BALANCE SHEET DETAILS
Prepaid expenses and other assets consist of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Prepaid income taxes $ 6,180 $ 5,690
Prepaid expenses and other 5,339 5,483
- --------------------------------------------------------------------------------
Prepaid expenses and other assets $11,519 $11,173
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other assets consist of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Assets held for investment $ 1,491 $ 6,726
Intangibles and other assets 16,365 9,171
- --------------------------------------------------------------------------------
Other assets $17,856 $15,897
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Assets held for investment at September 28, 1996 included the
Company's former manufacturing facility in Sturbridge, Massachusetts which the
Company is leasing to Transfer Technology Group PLC. At September 30, 1995,
assets held for investment also included the Company's Porter Drive facility
which is now under lease to a third party and has been reclassified to property
and equipment.
The increase in intangibles and other assets was primarily due to the
acquisition of the Japan distribution rights (see Note 3).
37
<PAGE>
Other current liabilities consist of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Accrued payroll and benefits $20,264 $15,889
Accrued expenses and other 13,278 12,948
Reserve for warranty 9,450 6,856
Deferred service income 9,028 8,595
Cash overdrafts 7,957 3,137
Customer deposits 1,689 2,586
- --------------------------------------------------------------------------------
Other current liabilities $61,666 $50,011
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other long-term liabilities consist of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Deferred tax liabilities $5,955 $4,679
Environmental remediation costs 1,760 2,469
Deferred income and other 4,688 2,449
- --------------------------------------------------------------------------------
Other long-term liabilities $ 12,403 $9,597
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash equivalents and short-term investments are stated at fair market value
based on quoted market prices.
The recorded carrying amount of the Company's long-term obligations
approximates fair market value.
The carrying amount and fair value of foreign exchange contracts were $19.1
million and $18.9 million, respectively at September 28, 1996. The carrying
amount and fair value of foreign exchange contracts were $23.6 million and $23.5
million, respectively, at September 30, 1995. The fair value of foreign
exchange contracts is estimated by obtaining quoted market prices of comparable
contracts, adjusted through interpolation where necessary for maturity
differences.
FOREIGN EXCHANGE CONTRACTS
In the normal course of business, the Company has exposures to foreign
currency fluctuations arising from foreign currency sales and purchases and
intercompany transactions, among other things. The Company uses foreign
exchange forward contracts to limit its exposure to foreign exchange losses
arising from nonfunctional currency payables and receivables and firm
commitments. These contracts are executed with credit-worthy financial
institutions and are denominated in currencies of major industrial nations.
Gains and losses on these contracts serve as hedges in that they offset
fluctuations that would otherwise impact the Company's financial results. Costs
associated with entering into such contracts are generally amortized over the
life of the instruments and are not material to the Company's financial results.
38
<PAGE>
At September 28, 1996 and September 30, 1995, the Company had foreign
currency forward contracts outstanding to hedge accounts receivable and backlog,
which mature at various dates, to reduce exposure to foreign currency exchange
risk. The aggregate fair value of instruments used to buy U.S. dollars in
exchange for Japanese yen was $7,310,000 at September 28, 1996 and $3,726,000 at
September 30, 1995. The aggregate fair value of instruments used to buy U.S.
dollars in exchange for German deutschemarks was $7,349,000 at September 28,
1996 and $14,216,000 at September 30, 1995. The aggregate fair value of
instruments used to buy U.S. dollars in exchange for French francs was
$3,456,000 at September 28, 1996 and $5,126,000 at September 30, 1995. The
aggregate fair value of instruments used to buy U.S. dollars in exchange for
Hong Kong dollars was $517,000 at September 28, 1996. The aggregate fair value
of instruments used to buy U.S. dollars in exchange for Dutch guilders was
$293,000 at September 28, 1996. The aggregate fair value of instruments used to
buy U.S. dollars in exchange for British pounds sterling was $475,000 at
September 30, 1995.
6. SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Borrowings under bank credit lines $2,252 $1,541
Note payable due to minority interest in subsidiary 1,908 2,003
Note payable for Adlas acquisition (see Note 3) 3,472
- --------------------------------------------------------------------------------
Short-term borrowings $4,160 $7,016
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The note payable to minority interest in subsidiary is due upon four weeks
notice from the note holder and bears interest at FIBOR (Frankfurt Interbank
Offered Rate) plus 0.5% with a maximum of 9.0%.
The Company maintains lines of credit worldwide with several banks. The
Company's primary domestic line of credit is a $10,000,000 unsecured revolving
account from Bank of America which expires March 31, 1997. In addition, the
Company has several foreign lines of credit which allow it to borrow in the
applicable local currency. These lines of credit total $27,073,000 and are
concentrated in Germany and Japan. The Company's lines of credit generally
provide borrowing at the bank reference rate or better which varies depending on
the country where the funds are borrowed. The Company's domestic lines of
credit are generally subject to standard covenants related to financial ratios,
profitability and dividend payments. The Company was in compliance with all
financial covenants at September 28, 1996.
7. INCOME TAXES
The provision for income taxes from continuing operations consists of
the following:
1996 1995 1994
- --------------------------------------------------------------------------------
(In thousands)
CURRENTLY PAYABLE:
Federal $18,179 $5,749 $6,920
State 2,452 1,249 1,309
Foreign 6,105 2,694 (2,099)
- --------------------------------------------------------------------------------
26,736 9,692 6,130
- --------------------------------------------------------------------------------
DEFERRED CHARGE (CREDIT):
Federal (5,077) 3,439 (77)
State (1,348) (125) 59
Foreign (1,308) (505) 337
- --------------------------------------------------------------------------------
(7,733) 2,809 319
- --------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES
FROM CONTINUING OPERATIONS $19,003 $12,501 $6,449
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
39
<PAGE>
The components of income (loss) from continuing operations before income
taxes consist of:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
United States $39,820 $27,282 $17,378
Foreign 9,497 4,542 (628)
- -----------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $49,317 $31,824 $16,750
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
The reconciliation of the statutory federal income tax rate to the
effective rate for continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
% of % of % of
Pretax Pretax Pretax
Income Income Income
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Foreign tax rates in excess of U.S. rates 3.0 1.9 2.3
Foreign tax credit (1.3) (2.2) (10.0)
Foreign sales corporation benefit (1.0)
Increase in valuation allowance 7.9
Foreign losses in excess of available tax benefits (0.2)
State income taxes, net of federal income tax benefit 1.7 2.3 5.3
Research and Development credit, net of recapture (0.4) (2.0) (1.2)
Other 1.5 4.3 (0.6)
- ----------------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS 38.5% 39.3% 38.5%
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred tax assets and liabilities were:
September 28, September 30,
1996 1995
- --------------------------------------------------------------------------------
(in thousands)
Deferred tax assets:
Reserves and accruals not currently deductible $13,289 $ 7,020
Operating loss carryforwards and tax credits 2,804 3,715
Intercompany profit 331 696
Deferred service revenue 2,509 2,260
State taxes 1,098 324
Other 2,588 1,598
- --------------------------------------------------------------------------------
22,619 15,613
Valuation allowance (1,817) (1,817)
- --------------------------------------------------------------------------------
20,802 13,796
Deferred tax liabilities:
Depreciation 1,986 1,975
Other 1,700 1,767
- --------------------------------------------------------------------------------
3,686 3,742
- --------------------------------------------------------------------------------
Total deferred tax assets and liabilities $17,116 $10,054
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
40
<PAGE>
The total net deferred tax asset is classified on the balance sheet at
September 28, 1996 and September 30, 1995 as follows (in thousands):
1996 1995
- --------------------------------------------------------------------------------
Current deferred income tax assets $23,071 $14,733
Non-current deferred income tax liabilities (5,955) (4,679)
- --------------------------------------------------------------------------------
Net deferred tax assets $17,116 $10,054
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total net operating losses of $1,049,000 for tax return purposes expire as
follows: 1997 - $164,000 and 1998 - $885,000. Total tax credits of $2,417,000
for tax return purposes expire in 1999.
Utilization of certain of these carry forwards are subject to restrictions
relating to taxable income of subsidiaries not previously consolidated for
income tax purposes.
8. LONG-TERM OBLIGATIONS
The components of long-term obligations are as follows:
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Notes payable $ 3,216 $ 5,862
Bonds payable:
1981 12
1984 302
1988 2,600 2,600
Capital leases (Note 12) 24 123
Deferred acquisition payment (Note 3) 2,302 1,525
- --------------------------------------------------------------------------------
8,142 10,424
Current portion (4,221) (5,285)
- --------------------------------------------------------------------------------
Long-term obligations $ 3,921 $ 5,139
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES PAYABLE - At September 28, 1996, notes payable consists of $1.1
million for the mortgage on the Santa Clara CLG and Corporate facility as well
as for general working capital requirements at an interest rate of 6.3%, $1.2
million at 2.0% of outside financing by Lambda Japan and $0.9 million for the
financing of equipment with varying interest rates from 7.6% to 9.1%. Notes
payable are generally secured by the related assets financed.
BONDS PAYABLE - Bonds payable were issued to finance the construction
of certain facilities and acquisition of equipment which secure repayment of the
bonds. The 1981 and 1984 bonds were repaid in fiscal 1996. The average
interest rate on these bonds was 5.3% during fiscal 1995. The 1988 bonds are
payable in installments through 2008 with a variable interest rate (3.7% at
September 28, 1996) not to exceed 12%. The 1988 bonds are guaranteed by a
letter of credit issued by Union Bank with an annual fee of 1.5%.
Annual maturities of debt (excluding capital leases) are: 1997
- - $4,197,000, 1998 - $1,714,000, 1999 - $200,000, 2000 - $200,000, 2001 -
$200,000 and thereafter $1,607,000.
9. STOCKHOLDERS' EQUITY
Each outstanding share of the Company's common stock carries a stock
purchase right (right) issued pursuant to a dividend distribution declared by
the Company's Board of Directors and distributed to stockholders of record on
November 17, 1989. When exercisable, each right entitles the stockholder to buy
one share of the Company's common stock at an exercise price of $80. The rights
will become exercisable following the tenth day after a person or group
announces acquisition of 20% or more
41
<PAGE>
of the Company's common stock or announces commencement of a tender offer, the
consummation of which would result in ownership by the person or group of 30% or
more of the common stock. The Company will be entitled to redeem the rights at
$.01 per right at any time on or before the 10th day following the acquisition
by a person or group of 20% or more of the Company's common stock.
If, prior to redemption of the rights, the Company is acquired in a merger
or other business combination in which the Company is the surviving corporation,
or a person or group acquires 30% or more of the Company's common stock, each
right owned by a holder of less than 20% of the common stock will entitle its
owner to purchase, at the right's then current exercise price, a number of
shares of common stock of the Company having a fair market value equal to twice
the right's exercise price. If the Company sells more than 50% of its assets or
earning power or is acquired in a merger or other business combination in which
it is not the surviving corporation, the acquiring person must assume the
obligations under the rights and the rights will become exercisable to acquire
common stock of the acquiring person at the discounted price.
10. EMPLOYEE BENEFIT PLANS
PRODUCTIVITY INCENTIVE PLAN
The Productivity Incentive Plan (Plan) provides for quarterly distributions
of common stock and cash to each eligible employee. The amounts of the
distributions are based on consolidated pre-tax profit, the market price of the
Company's common stock and the employee's salary. The fair market value of
common stock and cash that are earned under the Plan are charged to expense.
For fiscal 1996, 15,447 shares (fair market value of $644,897) and $3,730,871
were accrued for the benefit of employees. For fiscal 1995, 18,593 shares (fair
market value of $482,672) and $2,597,904 were accrued for the benefit of
employees. For fiscal 1994, 23,200 shares (fair market value of $302,500) and
$1,547,000 were accrued for the benefit of employees. At September 28, 1996,
the Company had 52,399 shares of its common stock reserved for future issuance
under the Plan.
COHERENT EMPLOYEE RETIREMENT AND INVESTMENT PLAN
Under the Coherent Employee Retirement and Investment Plan, the Company
matches employee contributions to the Plan up to a maximum of 6% of the
employee's individual earnings. Employees become eligible for after tax
participation and for Company matching contributions after completing one year
of service. The Company's contributions (net of forfeitures) for fiscal 1996,
1995, and 1994 were $2,579,000, $2,519,000, and $2,307,000, respectively.
SUPPLEMENTAL RETIREMENT PLAN
The Company has a Supplemental Retirement Plan for senior management
personnel which permits the participants to contribute up to 24% of their before
tax earnings to a trust. The Company will match these contributions up to an
amount equal to 6% of such participants' earnings less any amounts contributed
by the Company to such participant under the Coherent Employment Retirement and
Investment Plan. The Company's contributions (net of forfeitures) for fiscal
1996, 1995, and 1994 were $13,510, $12,344, and $11,359, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan whereby eligible employees
may authorize payroll deductions of up to 10% of their regular base salary to
purchase shares at the lower of 85% of the fair market value of the common stock
on the date of commencement of the offering or on the last day of the twelve-
month offering period. In fiscal 1996, 124,400 shares were purchased by and
distributed to employees at an average price of $16.43 per share. In fiscal
1995, 150,300 shares were
42
<PAGE>
purchased by and distributed to employees at an average price of $11.80 per
share. In fiscal 1994, 201,800 shares were purchased by and distributed to
employees at an average price of $8.02 per share.
At September 28, 1996, $2,021,000 had been contributed by employees that
will be used to purchase a maximum of 85,300 shares in fiscal 1997 at a price
determined under the terms of the Plan. At September 28, 1996, the Company had
423,000 shares of its common stock reserved for future issuance under the plan.
STOCK OPTIONS
Under the Company's stock option plans, non-statutory or incentive stock
options to purchase common stock may be granted to officers and other key
employees, who also may be directors. The option price is the fair market value
at the grant date. Under the plans, options expire not more than six years
after the date of grant and become exercisable as determined by the Board of
Directors. At September 28, 1996, 2,338,000 shares of the Company's common
stock were reserved for issuance under the plans.
Under the Company's 1990 Directors' Option Plan, non-statutory stock
options are automatically granted to non-employee directors of the Company.
Such directors initially receive a stock option for 10,000 shares exercisable
over a four year period. Additionally the non-employee directors receive an
annual grant of 2,500 shares exercisable four years from the date of grant.
These options are exercisable at the fair market value of the common stock on
the date of grant and expire six years thereafter. At September 28, 1996, there
were options outstanding for 50,000 shares under the plan and 60,000 shares
remain available for future grants.
Additional information with respect to the stock option plans is as
follows:
<TABLE>
<CAPTION>
Option Exercise Price
--------------------------------------
Range Per Share
Number ---------------
of Shares Low High Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, SEPTEMBER 25, 1993 1,037,400 $8.00 $15.25 $11,335,600
Granted 282,200 12.00 14.75 3,694,600
Exercised (201,400) 8.00 13.00 (2,067,200)
Canceled (81,400) 8.63 14.50 (959,200)
- ---------------------------------------------------------------------------------------------------
OUTSTANDING, OCTOBER 1, 1994 1,036,800 8.00 15.25 12,003,800
Granted 297,100 14.25 35.00 8,101,400
Exercised (363,200) 8.00 15.25 (3,708,100)
Canceled (46,300) 8.63 27.50 (648,700)
- ---------------------------------------------------------------------------------------------------
OUTSTANDING, SEPTEMBER 30, 1995 924,400 8.63 35.00 15,748,400
Granted 412,000 28.25 55.50 16,676,000
Exercised (205,000) 8.63 27.50 (2,520,800)
Canceled (41,100) 8.63 39.13 (901,800)
- ---------------------------------------------------------------------------------------------------
OUTSTANDING, SEPTEMBER 28, 1996 1,090,300 $8.63 $55.50 $29,001,800
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
</TABLE>
At September 28, 1996, options for approximately 321,000 shares were
exercisable and 1,247,500 shares were available for future option grants.
NOTES RECEIVABLE FROM STOCK SALES
Notes receivable from stock sales result from the exercise of stock options
for notes. The notes are full recourse promissory notes bearing interest at
variable rates ranging from 5.34% to 7.88% and are
43
<PAGE>
collateralized by the stock issued upon exercise of the stock options. Interest
is payable annually and principal is due from 1996 through 1999.
11. OTHER INCOME (EXPENSE)
Other income (expense) is as follows:
Years Ended
-------------------------------------
Sept. 28, Sept. 30, Oct. 1,
1996 1995 1994
- --------------------------------------------------------------------------------
Minority interest in subsidiaries $(813) $(282) $(176)
Royalty income 479 134 88
Foreign exchange gain (loss) 299 112 71
Equity in income (loss) of joint ventures 93 (80) 202
Gain on investments, net 1,646 487
Other - net 508 297 30
- --------------------------------------------------------------------------------
Other income - net $2,212 $ 668 $ 215
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases several of its facilities under operating leases. In
addition, the Company leases the land for its Auburn manufacturing facilities
under long-term fixed leases.
In addition, the Company leases certain equipment under capital lease
agreements (see Note 1).
Future minimum payments under the Company's leases are as follows (in
thousands):
Capital Operating
Fiscal Year Ending Leases Leases
- --------------------------------------------------------------------------------
1997 $25,000 $ 3,309,000
1998 2,864,000
1999 1,960,000
2000 806,000
2001 671,000
Thereafter 4,153,000
- --------------------------------------------------------------------------------
Total $25,000 $13,763,000
-----------
-----------
Amounts representing interest 1,000
------
Present value of minimum lease payments $24,000
-------
-------
Rent expense was $5,305,000 in fiscal 1996, $3,015,000 in fiscal 1995, and
$3,797,000 in fiscal 1994.
In September 1988, the Company entered into several agreements with Patlex
Corporation (Patlex) whereby the Company was granted licenses to several laser
related patents developed by Dr. Gordon Gould and assigned to Patlex. Under the
terms of the agreements, the Company pays royalties to Patlex of 5% or 3.5% and
2% of certain defined domestic sales and international sales, respectively,
subject to certain exceptions and limitations. Royalty expense under these
agreements was $1,324,000 in fiscal 1996, $1,123,000 in fiscal 1995, and
$1,149,000 in fiscal 1994. The patents expire on various dates through May
2005.
44
<PAGE>
CONTINGENCIES
Certain claims and lawsuits arising in the ordinary course of business have
been filed or are pending against the Company. In the opinion of management,
all such matters have been adequately provided for, are without merit, or are of
such kind that if disposed of unfavorably, would not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
The Company, along with several other companies, has been named as a party
to a remedial action order issued by the California Department of Toxic
Substance Control relating to soil and groundwater contamination at and in the
vicinity of the Stanford Industrial Park in Palo Alto, California, where the
Porter Drive facility is located. The responding parties to the Regional Order
(including the Company) have completed Remedial Investigation and Feasibility
Reports, which were approved by the State of California. The responding parties
have installed four remedial systems and have reached agreement with responding
parties on final cost sharing.
The Company was also named, along with other parties, to a remedial action
order for the Porter Drive facility site itself in Stanford Industrial Park.
The State of California has approved the Remedial Investigation Report,
Feasibility Study Report, Remedial Action Plan Report and Final Remedial Action
Report, prepared by the Company for this site. The Company has been operating
remedial systems at the site to remove subsurface chemicals since April 1992.
During fiscal 1996, the Company tentatively agreed with the prior tenant
and neighboring companies, on allocation of the cost of investigating and
remediating the site at 3210 Porter Drive and the bordering site at 3300
Hillview Avenue. Final settlement agreements are expected to be signed in
fiscal 1997.
Management believes that the Company's probable, nondiscounted net
liability at September 28, 1996 for remaining costs associated with the above
environmental matters is $0.8 million which has been previously accrued. This
amount consists of total estimated probable costs of $2.1 million ($0.3 million
included in accrued expenses and $1.8 million included in other long-term
liabilities) reduced by minimum probable recoveries of $1.3 million included in
Other Assets from other parties named to the order.
13. BUSINESS SEGMENTS
The Company operates in two industry segments. The Company designs,
manufactures and markets electro-optical products such as lasers, optics and
related accessories, and medical products such as laser and optical systems used
for surgical and therapeutic applications.
Intersegment sales are accounted for primarily at domestic selling prices.
Intercompany sales between geographic areas are accounted for at a discount from
domestic selling prices. Corporate assets are principally those not
identifiable to a segment and include such items as cash and equivalents, short-
term investments, certain receivables, prepaid expenses, deferred income taxes,
certain property and equipment, assets held for sale and other assets.
Corporate expenses include depreciation of corporate assets and general legal
expenses.
45
<PAGE>
Information concerning the Company's operations by industry segment and
geographic area is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
INDUSTRY SEGMENT DATA 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES, INCLUDING (In thousands)
INTERSEGMENT SALES:
Electro-Optical products $223,683 $175,557 $138,096
Medical products 162,844 126,308 89,376
Intersegment sales (22,097) (16,366) (12,105)
- ---------------------------------------------------------------------------------------
NET SALES $364,430 $285,499 $215,367
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Electro-Optical products $ 33,582 $ 22,681 $ 14,039
Medical products 13,181 7,930 2,881
Corporate expenses (2,063) (699) (614)
- ---------------------------------------------------------------------------------------
INCOME FROM OPERATIONS $ 44,700 $ 29,912 $ 16,306
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Electro-Optical products $152,653 $126,803 $105,261
Medical products 90,170 59,850 46,085
Eliminations (3,120) (4,516) (2,926)
- ---------------------------------------------------------------------------------------
Total identifiable assets 239,703 182,137 148,420
Corporate assets 71,813 73,737 63,346
- ---------------------------------------------------------------------------------------
TOTAL ASSETS $311,516 $255,874 $211,766
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION:
Electro-Optical products $ 8,707 $ 6,407 $ 5,810
Medical products 3,205 2,379 1,675
Corporate 460 169 377
- ---------------------------------------------------------------------------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 12,372 $ 8,955 $ 7,862
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
CAPITAL EXPENDITURES:
Electro-Optical products $ 14,587 $ 5,450 $ 7,264
Medical products 4,801 2,719 3,119
Corporate 5,542 215 345
- ---------------------------------------------------------------------------------------
TOTAL CAPITAL EXPENDITURES $ 24,930 $ 8,384 $ 10,728
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC REGION INFORMATION 1996 1995 1994
- ----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS
BY GEOGRAPHIC REGION:
United States $280,285 $200,057 $152,115
Europe 75,147 78,094 59,774
Far East and other 8,998 7,348 3,478
- ----------------------------------------------------------------------------------
NET SALES $364,430 $285,499 $215,367
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
SALES TO AFFILIATES (ELIMINATED IN
CONSOLIDATION) BY GEOGRAPHIC REGION:
United States $ 9,167 $ 29,278 $ 22,933
Europe 28,019 13,627 10,920
- ----------------------------------------------------------------------------------
NET SALES $ 37,186 $ 42,905 $ 33,853
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
INCOME FROM OPERATIONS:
United States $ 34,577 $ 31,439 $ 16,869
International 11,503 647 (223)
Corporate expenses (817) (700) (869)
Transfers between geographic areas (563) (1,474) 529
- ----------------------------------------------------------------------------------
INCOME FROM OPERATIONS $ 44,700 $ 29,912 $ 16,306
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
United States $182,926 $127,621 $101,556
International 59,897 59,032 49,790
Eliminations (3,120) (4,516) (2,926)
- ----------------------------------------------------------------------------------
Total identifiable assets 239,703 182,137 148,420
Corporate assets 71,813 73,737 63,346
- ----------------------------------------------------------------------------------
TOTAL ASSETS $311,516 $255,874 $211,766
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
EXPORT SALES:
Far East $ 50,164 $ 44,312 $ 29,870
Europe 35,800 8,894 9,869
Other 22,014 8,246 6,974
- ----------------------------------------------------------------------------------
TOTAL EXPORT SALES $107,978 $61,452 $46,713
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
NET SALES TO GEOGRAPHIC REGION:
United States $172,307 $138,605 $105,402
International 192,123 146,894 109,965
- ----------------------------------------------------------------------------------
NET SALES $364,430 $285,499 $215,367
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
Net assets of foreign subsidiaries as of year-end were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
TOTAL ASSETS $ 68,531 $ 59,032 $ 49,702
Total liabilities (47,917) (41,615) (39,436)
- -----------------------------------------------------------------------------------
NET ASSETS $ 20,614 $ 17,417 $ 10,266
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1996 and 1995 are as
follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
YEAR ENDED SEPTEMBER 28, 1996:
Net sales $83,681 $90,552 $89,327 $100,870
Gross profit 42,356 46,721 46,082 52,059
Net income 6,465 7,351 7,918 8,580
Net income per share .57 .64 .68 .74
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995:
Net sales $58,583 $66,456 $76,247 $ 84,213
Gross profit 29,738 32,554 38,141 42,050
Net income 3,486 4,389 5,117 6,331
Net income per share .33 .40 .46 .56
- --------------------------------------------------------------------------------
48
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995,
AND OCTOBER 1, 1994
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance
Beginning Costs and from at End
of Period Expenses Reserves (1) of Period
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 28, 1996:
Accounts receivable allowances $ 2,834 $ 2,069 $(1,618) $ 3,285
Warranty 6,856 9,316 (6,722) 9,450
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1995:
Accounts receivable allowances $ 2,384 $ 1,461 $(1,011) $ 2,834
Warranty 5,418 10,010 (8,572) 6,856
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 1, 1994:
Accounts receivable allowances $ 3,025 $ 1,384 $(2,025) $ 2,384
Warranty 5,814 8,209 (8,605) 5,418
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Reductions from the reserves are for the purpose for which the reserves were
created.
49
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K Annual Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended September 28, 1996
____________________
COHERENT, INC.
EXHIBITS
____________________
50
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit
Numbered
Number Exhibit Page
------ ------- ----
<S> <C> <C>
10.34 1995 Incentive Stock Option Plan and forms of agreement See Page 52
10.35 Management Transition Agreement effective June 30, 1996 See Page 73
between the Company and Henry E. Gauthier.
21.1 Subsidiaries See page 80
23.1 Independent Auditors' Consent See page 81
24.1 Power of Attorney See page 27
27 Financial Data Schedules See page 82
</TABLE>
All other exhibits required to be filed as part of this report have been
incorporated by reference. See item 14(c) for a complete index of such
exhibits.
51
<PAGE>
EXHIBIT 10.34
COHERENT, INC.
1995 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees and Consultants,
and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the legal requirements relating to
the administration of stock option plans under state corporate and securities
laws and the Code.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Coherent, Inc., a California corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged
by the Company or a Parent or Subsidiary to render services and who is
compensated for such services. The term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means that
the employment or consulting relationship with the Company, any Parent, or
Subsidiary, is not interrupted or terminated. Continuous Status as an Employee
or Consultant shall not be considered interrupted in the case of
<PAGE>
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary,
or any successor. A leave of absence approved by the Company shall include
sick leave, military leave, or any other personal leave approved by an
authorized representative of the Company. For purposes of Incentive Stock
Options, no such leave may exceed ninety days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option
and shall be treated for tax purposes as a Nonstatutory Stock Option.
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. Neither service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the Company.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, the Fair Market Value of a Share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such system or exchange (or the exchange with the greatest volume of
trading in Common Stock) on the last market trading day prior to the day of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high
bid and low asked prices for the Common Stock on the last market trading
day prior to the day of determination, as reported in THE WALL STREET JOURNAL
or such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
53
<PAGE>
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "NOTICE OF GRANT" means a written notice evidencing
certain terms and conditions of an individual Option of Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(r) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of
the Plan.
(u) "OPTION EXCHANGE PROGRAM" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
(v) "OPTIONED STOCK" means the Common Stock subject to
an Option or Stock Purchase Right.
(w) "OPTIONEE" means an Employee or Consultant who holds an
outstanding Option or Stock Purchase Right.
(x) "PARENT" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(y) "PLAN" means this 1995 Stock Plan.
(z) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 below.
(aa) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
agreement between the Company and the Optionee evidencing the
terms and restrictions applying to stock purchased under a Stock Purchase
Right. The Restricted Stock Purchase Agreement is subject to the terms and
conditions of the Plan and the Notice of Grant.
54
<PAGE>
(bb) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.
(cc) "SECTION 16(b)" means Section 16(b) of the Securities
Exchange Act of 1934, as amended.
(dd) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "SUBSIDIARY" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
13 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is one million two hundred and fifty
thousand (1,250,000) Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option of Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which
were subject thereto shall become available for future grant or sale
under the Plan (unless the Plan has terminated); PROVIDED,
however, that Shares that have actually been issued under the Plan,
whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under
the Plan, except that if Shares of Restricted Stock are repurchased by
the Company at their original purchase price, and the original
purchaser of such Shares did not receive any benefits of ownership of
such Shares, such Shares shall become available for future grant under
the Plan. For purposes of the preceding sentence, voting rights shall
not be considered a benefit of Share ownership.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
Directors, Officers who are not Directors, and Employees who are
neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS
SUBJECT TO SECTION 16(b). With respect to Option or Stock Purchase
Right grants made to Employees who are also Officers or Directors
subject to Section 16(b) of the Exchange Act, the Plan shall be
administered by (A) the Board, if the Board may administer the Plan in
a manner complying with the rules under Rule
55
<PAGE>
16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made, or (B) a committee designated by
the Board to administer the Plan, which committee shall be constituted
to comply with the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be
made. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time
to time the Board may increase the size of the Committee and appoint
additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all
members of the Committee and thereafter directly administer the Plan,
all to the extent permitted by the rules under Rule 16b-3 relating to
the disinterested administration of employee benefit plans under which
Section 16(b) exempt discretionary grants and awards of equity
securities are to be made.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS.
With respect to Option or Stock Purchase Right grants made to Employees or
Consultants who are neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a committee designated by the
Board, which committee shall be constituted to satisfy Applicable Laws. Once
appointed, such Committee shall serve in its designated capacity until
otherwise directed by the Board. The Board may increase the size of the
Committee and appoint additional members, remove members (with or without
cause) and substitute new members, fill vacancies (however caused), and
remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific
duties delegated by the Board to such Committee, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and
Stock Purchase Rights or any combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder.
Such terms and conditions include, but are not limited to, the
56
<PAGE>
exercise price, the time or times when Options or Stock Purchase
Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option of Stock Purchase Right
or the shares of Common Stock relating thereto, based in each case on
such factors as the Administrator, in its sole discretion, shall
determine;
(vii) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value
of the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(viii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options
longer than is otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions applicable
to Options and Stock Purchase Rights and any Restricted Stock; and
(xiv) to make all other determinations deemed necessary
or advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and
binding on all Optionees and any other holders of Options or Stock
Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase
Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees. If otherwise eligible, an
Employee or Consultant who has been granted an Option or Stock Purchase
Right may be granted additional Options or Stock Purchase Rights.
57
<PAGE>
6. LIMITATIONS.
(a) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a) Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such employment or consulting relationship at any time, with or
without cause.
(c) The following limitations shall apply to grants of Options
and Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of
the Company, Options and Stock Purchase Rights to purchase more than
250,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options and Stock Purchase Rights to purchase up to
an additional 250,000 Shares which shall not count against the limit set
forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 13.
(iv) If an Option or Stock Purchase Right is cancelled in
the same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 13), the cancelled Option
or Stock Purchase Right will be counted against the limits set forth in
subsections (i) and (ii) above. For this purpose, if the exercise price of an
Option or Stock Purchase Right is reduced, the transaction will be treated as
a cancellation of the Option or Stock Purchase Right and the grant of a new
Option or Stock Purchase Right.
7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or
its approval by the shareholders of the Company as described in Section 19 of
the Plan. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 15 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years
58
<PAGE>
from the date of grant or such shorter term as may be provided in the Notice
of Grant. Moreover, in the case of an incentive Stock Option granted to an
Optionee who, at the time the incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Notice of Grant.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares
to be issued pursuant to exercise of an option shall be determined by the
Administrator, subject to the following:
(i) An incentive stock option granted to an Employee who,
at the time such option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(ii) an Option granted to any Employee other than an
Employee described in paragraph (i) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions which must be satisfied
before the Option may be exercised. In so doing, the Administrator may
specify that an Option may not be exercised until the completion of a service
period.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
59
<PAGE>
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
(v) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker,
if applicable, shall require to effect an exercise of the Option and delivery
to the Company of the sale or loan proceeds required to pay the exercise
price;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of
any consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise
of an Option shall be issued in the name of the Optionee or, if requested by
the Optionee, in the name of the Optionee and his or her spouse. Until the
stock certificate evidencing such Shares is issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly after the Option is exercised.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the stock certificate is issued, except as provided
in Section 13 of the Plan.
60
<PAGE>
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. Upon
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is specified in the
Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant).
In the absence of a specified time in the Notice of Grant, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
In the case of an Incentive Stock Option, such period of time for exercise
shall not exceed three (3) months from the date of termination. If, on the
date of termination, the Optionee is not entitled to exercise the Optionee's
entire Option, the Shares covered by the unexercisable portion of the
Option shall revert to the Plan. If, after termination, the Optionee does
not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in
status from Consultant to Employee or Employee to Consultant, an Optionee's
Continuous Status as an Employee or Consultant shall not automatically
terminate solely as a result of such change in status. However, in such
event, an Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option three months and one day following such change of
status.
(c) DISABILITY OF OPTIONEE. In the event that an Optionee's
Continuous Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any
time within twelve (12) months from the date of such termination, but only to
the extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant). If, at the date of termination,
the Optionee is not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee,
the Option may be exercised at any time within twelve (12) months following
the date of death (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert
to the Plan. If, after death, the Optionee's estate or a person who acquired
the right to exercise the Option by bequest or inheritance
61
<PAGE>
does not exercise the Option within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(e) RULE 16b-3. Options granted to individuals subject to Sec-
tion 16 of the Exchange Act ("Insiders") must comply with the applicable
provisions of Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum
exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing, by means of a Notice of Grant, of the terms,
conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid,
and the time within which the offeree must accept such offer, which shall in
no event exceed six (6) months from the date upon which the Administrator
made the determination to grant the Stock Purchase Right. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's employment with the Company for any reason (including
death or Disability). The purchase price for Shares repurchased pursuant to
the Restricted Stock purchase agreement shall be the original price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.
(c) RULE 16b-3. Stock Purchase Rights granted to Insiders, and
Shares purchased by Insiders in connection with Stock Purchase Rights, shall
be subject to any restrictions applicable thereto in compliance with
Rule 16b-3. An Insider may only purchase Shares pursuant to the grant of a
Stock Purchase Right, and may only sell Shares purchased pursuant to the
grant of a Stock Purchase Right, during such time or times as are permitted
by Rule 16b-3.
(d) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion. In addition, the provisions of Restricted Stock Purchase
Agreements need not be the same with respect to each purchaser.
(e) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company.
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No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 13 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. An
Option or Stock Purchase Right may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or
by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares
of Common Stock which have been authorized for issuance under the Plan but as
to which no Options or Stock purchase Rights have yet been granted or which
have been returned to the Plan upon cancellation or expiration of an Option
or Stock Purchase Right, as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option or
Stock Purchase Right has not been previously exercised, it will terminate
immediately prior to the consummation of such proposed action. The Board may,
in the exercise of its sole discretion in such instances, declare that any
Option or Stock Purchase Right shall terminate as of a date fixed by the
Board and give each Optionee the right to exercise his or her Option or Stock
Purchase Right as to all or any part of the Optioned Stock, including Shares
as to which the Option or Stock Purchase Right would not otherwise be
exercisable.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option and Stock Purchase Right shall
be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be exercisable. If an Option or
Stock
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Purchase Right is exercisable in lieu of assumption or substitution in the
event of a merger or sale of assets, the Administrator shall notify the
Optionee that the Option or Stock Purchase Right shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the
Option or Stock Purchase Right shall terminate upon the expiration of such
period. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger or sale of assets,
the option or right confers the right to purchase or receive, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right immediately
prior to the merger or sale of assets, the consideration (whether stock,
cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date
of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the
outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets was not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned
Stock subject to the Option or Stock Purchase Right, to be solely common
stock of the successor corporation or its Parent equal in fair market value
to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. DATE OF GRANT. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes
the determination granting such Option or Stock Purchase Right, or such other
later date as is determined by the Administrator. Notice of the determination
shall be provided to each Optionee within a reasonable time after the date of
such grant.
15. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Rule 16b-3 or with Section 422 of the Code (or any successor rule
or statute or other applicable law, rule or regulation, including the
requirements of any exchange or quotation system on which the Common Stock is
listed or quoted). Such shareholder approval, if required, shall be obtained
in such a manner and to such a degree as is required by the applicable law,
rule or regulation.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company.
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16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, Applicable Laws, and the
requirements of any stock exchange or quotation system upon which the Shares
may then be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at
the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required.
17. LIABILITY OF COMPANY.
(a) INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(b) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock
covered by an Option or Stock Purchase Right exceeds, as of the date of
grant, the number of Shares which may be issued under the Plan without
additional shareholder approval, such Option or Stock Purchase Right shall be
void with respect to such excess Optioned Stock, unless shareholder approval
of an amendment sufficiently increasing the number of Shares subject to the
Plan is timely obtained in accordance with Section 15(b) of the Plan.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
19. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such shareholder approval shall be
obtained in the manner and to the degree required under applicable federal
and state law.
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COHERENT, INC.
1995 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number ________________________________
Date of Grant ________________________________
Vesting Commencement Date ________________________________
Exercise Price per Share $_______________________________
Total Number of Shares Granted _______________________________
Total Exercise Price _______________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _______________________________
VESTING SCHEDULE:
This Option may be exercised, in whole or in part, in accordance with
the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after
the Vesting Commencement Date, and 1/48 of the Shares subject to the Option
shall vest each month thereafter].
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TERMINATION PERIOD:
This Option may be exercised for [days/months] after termination of
the Optionee's employment or consulting relationship with the Company. Upon
the death or Disability of the Optionee, this Option may be exercised for
such longer period as provided in the Plan. In the event of the Optionee's
change in status from Employee to Consultant or Consultant to Employee, this
Option Agreement shall remain in effect. In no event shall this Option be
exercised later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant attached as Part I of this
Agreement (the "Optionee") an option (the "Option") to purchase the number of
Shares, as set forth in the Notice of Grant, at the exercise price per share
set forth in the Notice of Grant (the "Exercise Price"), subject to the terms
and conditions of the Plan, which is incorporated herein by reference.
Subject to Section 15(c) of the Plan, in the event of a conflict between the
terms and conditions of the Plan and the terms and conditions of this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option
under Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of
Code Section 422(d) it shall be treated as a Nonstatutory Stock Option
("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement. In the event
of Optionee's death, Disability or other termination of Optionee's employment
or consulting relationship, the exercisability of the Option is governed by
the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall
be signed by the Optionee and shall be delivered in person or by certified
mail to the Secretary of the Company. The Exercise Notice shall be accompanied
by payment of the aggregate Exercise Price as to all Exercised Shares. This
Option shall be deemed to be exercised upon receipt by the Company of such
fully executed Exercise Notice accompanied by such aggregate Exercise Price.
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No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with all relevant provisions of law and
the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date
the Option is exercised with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
(b) check;
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company
of the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, AND (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
6. TAX CONSEQUENCES. Some of the federal and California tax
consequences relating to this Option, as of the date of this Option, are set
forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION.
(i) NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax and California income tax liability upon exercise of a
NSO. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if
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any, of the Fair Market Value of the Exercised Shares on the date of exercise
over their aggregate Exercise Price. If the Optionee is an Employee or a
former Employee, the Company will be required to withhold from his or her
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time
of exercise.
(ii) INCENTIVE STOCK OPTION. If this Option qualifies as an
ISO, the Optionee will have no regular federal income tax or California
income tax liability upon its exercise, although the excess, if any, of the
Fair Market Value of the Exercised Shares on the date of exercise over their
aggregate Exercise Price will be treated as an adjustment to alternative
minimum taxable income for federal tax purposes and may subject the Optionee
to alternative minimum tax in the year of exercise. In the event that the
Optionee undergoes a change of status from Employee to Consultant, any
Incentive Stock Option of the Optionee that remains unexercised shall cease
to qualify as an Incentive Stock Option and will be treated for tax purposes
as a Nonstatutory Stock Option on the ninety-first (91st) day following such
change of status.
(b) DISPOSITION OF SHARES.
(i) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one
year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for
federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized
on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the excess, if any, of the lesser of
(A) the difference between the Fair Market Value of the Shares acquired on
the date of exercise and the aggregate Exercise Price, or (B) the difference
between the sale price of such Shares and the aggregate Exercise Price.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or
(ii) one year after the exercise date, the Optionee shall immediately notify
the Company in writing of such disposition. The Optionee agrees that he or
she may be subject to income tax withholding by the Company on the
compensation income recognized from such early disposition of ISO Shares by
payment in cash or out of the current earnings paid to the Optionee.
7. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in
their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely
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to the Optionee's interest except by means of a writing signed by the Company
and Optionee. This agreement is governed by California law except for that
body of law pertaining to conflict of laws.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing
this Option Agreement and fully understands all provisions of the Plan and
Option Agreement. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Option Agreement. Optionee further agrees
to notify the Company upon any change in the residence address indicated
below.
OPTIONEE: COHERENT, INC.
By:
- -------------------------------- -------------------------------
Signature
Title:
- -------------------------------- ----------------------------
Print Name
- --------------------------------
Residence Address
- --------------------------------
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EXHIBIT A
1995 STOCK PLAN
EXERCISE NOTICE
Coherent, Inc.
5100 Patrick Henry Drive
P.O. Box 54980
Santa Clara, CA 95056-0980
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ______________, 199__, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Coherent, Inc. (the "Company") under
and pursuant to the 1995 Stock Plan (the "Plan") and the Stock Option
Agreement dated _________, 19__ (the "Option Agreement"). The purchase price
for the Shares shall be $________, as required by the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. A share certificate for the number of Shares so
acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 13 of the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition
of the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company
for any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Purchaser with respect to the subject
matter
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hereof, and may not be modified adversely to the Purchaser's interest except
by means of a writing signed by the Company and Purchaser. This agreement is
governed by California law except for that body of law pertaining to conflict
of laws.
Submitted by: Accepted by:
PURCHASER: COHERENT, INC.
- ------------------------------- By:
Signature ------------------------------
- ------------------------------- Its:
Print Name -----------------------------
ADDRESS: ADDRESS:
5100 Patrick Henry Drive
- ----------------------- P.O. Box 54980
- ----------------------- Santa Clara, Ca 95056-0980
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EXHIBIT 10.35
COHERENT, INC.
MANAGEMENT TRANSITION AGREEMENT
THIS AGREEMENT is effective as of June 30, 1996 (the "Effective Date"), by
and between Coherent, Inc. ("Coherent") and Henry E. Gauthier ("Gauthier").
RECITALS
A. Gauthier is employed by Coherent and is a member of the board of
directors of Coherent.
B. Effective June 30, 1997, Gauthier desires to voluntarily terminate his
employment with Coherent.
C. Gauthier will remain a member of the board of directors of Coherent.
D. Coherent desires to retain Gauthier's services as an employee for the
period commencing June 30, 1996 and ending June 30, 1997 (the "Employment
Term"), and as a consultant for the period commencing with the day immediately
following the Employment Term and ending two (2) years thereafter (the
"Consulting Term"), and to set forth the terms upon which it will pay for
Gauthier's health benefits during his lifetime, upon the terms set forth herein.
E. Gauthier is willing to provide services as an employee and as a
consultant pursuant to this Agreement.
F. Gauthier is willing to agree not to compete with Coherent during the
Employment Term and Consultant Term.
NOW THEREFORE, the parties agree as follows:
1. TERM. The term of this Agreement shall commence on the Effective Date
and shall continue until all the payments due and all other obligations of the
parties hereunder have been made or satisfied; provided, however, that
notwithstanding any other provision of this Agreement, Gauthier's and Coherent's
representations, obligations, covenants and duties under the Employee Agreement
by and between Gauthier and Coherent dated January 23, 1973, shall survive any
termination of this Agreement.
2. DUTIES OF GAUTHIER.
(a) EMPLOYMENT TERM. Except as provided otherwise herein, during the
Employment Term Gauthier agrees to continue to serve as an employee of Coherent
and as a member of the board of directors of Coherent, subject to his re-
election as a director by Coherent's shareholders. During the Employment Term,
Gauthier's compensation and other benefits shall be as provided in Section 3(a).
(b) CONSULTING TERM. Except as otherwise provided herein, during the
Consulting Term, Gauthier agrees to perform services as a consultant to Coherent
as is reasonably requested
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by Coherent, and to continue to serve as a member of the board of directors of
Coherent subject to his re-election as a director by Coherent's shareholders.
Gauthier and Coherent both agree and acknowledge that there shall be no minimum
fees or hours during the Consulting Term and that all scheduling and payments of
fees will be made through the offices of Coherent's Chief Financial Officer.
Nothing in this Agreement shall in any way be construed to constitute Gauthier
as an agent, employee or representative of Coherent during the Consulting Term,
and Gauthier shall perform all services hereunder during the Consulting Term as
an independent contractor. Gauthier acknowledges and agrees that Gauthier is
obligated to report as income all compensation received by Gauthier pursuant to
this Agreement during the Consulting Term, and Gauthier agrees to and
acknowledges the obligation to pay all self-employment and other taxes thereon.
Gauthier further agrees to indemnify Coherent and hold it harmless to the extent
of any obligation imposed on Coherent during the Consulting Term to pay in
withholding taxes or similar items. During the Consulting Term, Gauthier's
compensation and other benefits shall be as provided in Section 3(b).
3. COMPENSATION.
(a) EMPLOYMENT TERM.
(i) CASH COMPENSATION. Through the Employment Term, Gauthier
shall be paid his current base salary in accordance with Coherent's standard
payroll practices. Gauthier shall also receive, promptly following the
termination of the Employment Term, full payment for all accrued wages,
including, but not limited to, unused vacation days to which he is entitled
pursuant to Coherent policy. Gauthier shall not be entitled to any directors'
fees during the Employment Term.
(ii) BENEFITS. Through the Employment Term, Gauthier shall be
eligible to participate in the employee benefit plans and executive compensation
programs maintained by Coherent applicable to other key executives of Coherent,
including (without limitation) retirement plans, savings or profit sharing
plans, stock option, incentive or other bonus plans, life, disability, health,
accident and other insurance programs, paid vacations, and similar plans or
programs, subject, in each case, to the generally applicable terms and
conditions of the applicable plan or program in question and to the
determination of any committee administering such plan or program; provided,
however, that Gauthier's participation in any Coherent incentive or bonus plan
shall terminate after payment of any amount earned through the third quarter of
Coherent's 1996 fiscal year. Coherent will make cc:mail and voice mail available
to Gauthier for such period of time as is mutually agreed upon by Gauthier and
Coherent's Chief Financial Officer.
(iii) COMPANY CAR. During the Employment Term, Gauthier shall
have the continued use of the 1996 BMW 750i provided to Gauthier by Coherent
(the "Company Car"). Gauthier authorizes Coherent to make monthly payroll
deductions equal to $250 during the Employment Term in connection with
Gauthier's use of the Company Car. On July 1, 1997 Gauthier shall be obligated
to purchase from Coherent, and Coherent shall be obligated to sell to Gauthier,
the Company car for $46,005.54.
(b) CONSULTING TERM. Through the Consulting Term, Gauthier shall be
paid for his consulting services at a rate of $175.00 per hour, payable (to the
extent earned) no less frequently than twice per month. Notwithstanding the
foregoing, Gauthier shall be paid a $1,000 retainer for his consulting services
on the first and second anniversary of the Effective Date of this Agreement. In
addition, Gauthier shall be entitled to such directors' fees for his services as
a director as are customarily paid by Coherent to its directors from time-to-
time.
(c) BENEFITS. For the rest of his life, at Coherent's cost and
expense, Gauthier shall receive Coherent's Tier II Executive Group Medical,
Dental and Life Insurance (the "Coverage") under the following conditions:
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(i) Any cash contribution required from Coherent officers for
similar coverage will be invoiced by Coherent by December 31 of each year, and
must be paid by Gauthier no later than January 30 of the following year.
Failure to make such payment on time or within a thirty (30) day notice period
will be grounds for termination of the Coverage.
(ii) The Coverage shall immediately terminate on December 31st
of the year of Gauthier's death.
(iii) If Gauthier accepts medical, dental and life insurance
coverage by another entity, the Coverage shall become secondary to that offered
by the new entity.
(iv) If Gauthier violates any provision of Section 5 during the
Employment Term, the Coverage shall immediately terminate.
(v) If Coherent changes or reduces the medical, dental or life
insurance coverage offered to its officers generally, such changes or reductions
shall be applicable to the Coverage provided Gauthier.
(vi) Notwithstanding any provision in the Coverage to the
contrary, the Life Insurance to be provided hereunder shall not be less than
that currently provided Gauthier, as an officer/employee of Coherent.
(vii) If for any reason Coherent is unable to maintain the the
Coverage for Gauthier through its regular insurers, Coherent shall provide
equivalent benefits through other qualified insurers acceptable to Gauthier.
(d) STOCK OPTIONS. Gauthier's options to purchase Coherent stock
shall be governed by the provisions of the applicable option agreements by and
between Gauthier and Coherent, and the vesting, post-termination exercisability,
and other provisions of such options shall not be affected by this Agreement.
If Gauthier violates any provision of Section 5 during the Consulting Term, the
consulting portion of this Agreement shall terminate, in which case Gauthier
shall have thirty (30) days in which to exercise any vested stock options.
(e) COMPANY EQUIPMENT. Coherent acknowledges that Gauthier is in
possession of certain Coherent equipment consisting of a 280 Duo Power Mac with
accessories and a Motorola Microtech cellular telephone. Coherent acknowledges
that such equipment was given to Gauthier on June 30, 1996.
(f) IMPUTED INCOME. GAUTHIER ACKNOWLEDGES AND AGREES THAT HE SHALL
BE SOLELY RESPONSIBLE FOR ALL TAXES ASSOCIATED WITH ANY INCOME IMPUTED TO
GAUTHIER AS A RESULT OF BENEFITS PROVIDED UNDER THIS AGREEMENT.
4. TERMINATION.
(a) TERMINATION BY GAUTHIER.
(i) Gauthier may voluntarily terminate this Agreement upon
ninety (90) days written notice to Coherent. Upon the effectiveness of such
termination, Gauthier shall immediately cease to accrue any benefits hereunder.
(ii) Upon Gauthier's death during the term of this Agreement,
Gauthier shall immediately cease to accrue any benefits hereunder, except that
the Coverage shall continue to
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the end of the year of Gauthier's death. In such event, any compensation
already accrued by Gauthier shall be paid to Gauthier's estate in accordance
with his testamentary disposition or the laws of descent and distribution.
(b) TERMINATION BY COHERENT.
(i) Coherent may terminate this Agreement in the event Gauthier
violates the provisions of Section 5 hereof during the Employment Term. A
violation of Section 5 during the Consulting Term shall not be sufficient cause
for Coherent to terminate this Agreement, but would be sufficient to permit
Coherent to terminate the consulting portion hereof (in which case Gauthier
would have 30 days from the date of such termination to exercise any vested
stock options; any unvested stock options shall expire).
(ii) This Agreement shall not be terminated without reasonable
notice to Gauthier setting forth the facts on which the claimed violation of
Section 5 is based, and providing an opportunity for Gauthier, together with
his counsel, if any, to be heard before the board of directors of Coherent.
5. COVENANT NOT TO COMPETE OR SOLICIT.
(a) COVENANT NOT TO COMPETE. Until expiration of the Consulting
Term, Gauthier will not directly or indirectly engage in (whether as an
employee, consultant, proprietor, partner, director or otherwise), or have any
ownership interest in, or participate in the financing, operation, management or
control of, any person, firm, corporation or business that engages in a
"Restricted Business" in a "Restricted Territory" as such terms are defined
below. It is agreed, however, that ownership of no more than 2% of the
outstanding voting stock of a publicly traded corporation shall not constitute a
violation of this provision.
(b) COVENANT NOT TO SOLICIT. Until expiration of the Consulting
Term, Gauthier will not directly or indirectly:
(i) solicit, encourage or take any action which is intended to
induce any other employee, independent contractor, customer or supplier of
Coherent or any affiliated corporation to terminate his or its relationship with
Coherent or any affiliated corporation, or
(ii) interfere in any manner with the contractual or employment
relationship between Coherent or any affiliated corporation and any such
employee, independent contractor, customer or supplier of Coherent or any
affiliated corporation.
(c) REPRESENTATIONS. The parties intend that the covenants contained
in Sections 5(a) and (b) shall be construed as a series of separate covenants,
one for each county, city, state, territory, jurisdiction, country or analogous
entity of the Restricted Territory. Except for geographic coverage, each such
separate covenant shall be deemed identical. Gauthier represents that he is
familiar with the covenants not to compete and not to solicit contained herein,
and is fully aware of his obligations hereunder, including, without limitation,
the reasonableness of the length of time, scope and geographic coverage of these
covenants.
(d) DEFINITIONS. As used in this Section 5, the terms listed below
shall have the following meanings:
(i) "Restricted Business" means any business that manufactures
or sells laser or optical components for lasers which would compete against
Coherent's current or planned products, or any business that manufactures or
sells medical devices whose primary use is a competitive alternative to lasers.
Prior to engaging in any activities which might be deemed a
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"Restricted Business", Gauthier may seek approval from Coherent. Whether or not
such approval is sought, Coherent shall be reasonable in determining whether or
not such activity constitutes a Restricted Business.
(ii) "Restricted Territory" means any county, city, state,
territory, jurisdiction, country or analogous entity in which Coherent currently
conducts its business or may in the future conduct its business.
6. RELEASE OF CLAIMS.
(a) GENERAL. As a condition of entering into this Agreement,
Gauthier agrees that the consideration that he receives hereunder constitutes
settlement in full of all outstanding obligations owed to Gauthier by Coherent.
Gauthier, on behalf of himself and his heirs, executors, family members and
assigns, hereby fully and forever releases Coherent and its officers, directors,
employees, investors, shareholders, administrators, predecessor corporations,
successor and assigns, of and from any claim, duty, obligation or cause of
action relating to any matters of any kind whether presently known or unknown,
suspected or unsuspected, that any of them may possess arising from any
omissions, acts or facts that have occurred up until and including the Effective
Date of this Agreement.
Gauthier agrees that the release set forth in this section shall be and
remain in effect in all respects as a complete general release as to the matters
released and shall survive the termination of this Agreement, but does not
extend to any obligations incurred under this Agreement.
(b) CIVIL CODE SECTION 1542. Gauthier acknowledges that he has had
the opportunity to discuss this Agreement with his legal counsel and is familiar
with the provisions or California Civil Code Section 1542, which provides as
follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
Gauthier, being aware of said Code section, agrees to expressly waive any
rights he may have thereunder, as well as under any other statute or common law
principles of similar effect.
(c) AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967. Gauthier
understands and agrees that he: (i) Has had a full twenty-one (21) days within
which to consider this Agreement before executing it; (ii) Has carefully read
and fully understands all of these provisions of this Agreement; (iii) Is,
through this Agreement, releasing Coherent from any and all claims he may have
against Coherent; (iv) Knowingly and voluntarily agrees to all of the terms set
forth in this Agreement; (v) Knowingly and voluntarily intends to be legally
bound by the same; (vi) Has a full seven (7) days following the execution of
this Agreement to revoke this Agreement and has been and hereby is advised in
writing that this Agreement shall not become effective or enforceable until the
revocation period has expired; and (vii) Understands that rights or claims under
the Age Discrimination in Employment Act of 1967 (29 U.S.C. Section 621, ET
SEQ.) that may arise after the date this Agreement is executed are not waived.
7. ARBITRATION.
(a) Gauthier agrees that any dispute or controversy arising out of,
relating to, or in connection with this Agreement, or the interpretation,
validity, construction, performance, breach or termination thereof, shall be
finally settled by binding arbitration t be held in San Francisco
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<PAGE>
County, California under the Commercial Arbitration Rules, supplemented by the
Supplemental Procedures for Large Complex Disputes, of the American Arbitration
Association as then in effect (the "Rules"). The arbitrator(s) may grant
injunctions or other relief in such dispute or controversy. The decision of the
arbitrator(s) shall be final, conclusive and binding on the parties to the
arbitration, and judgment may be entered on the decision of the arbitrator(s) in
any court having jurisdiction.
(b) The arbitrator(s) shall apply California law to the merits of any
dispute or claim, without reference to rules of conflicts of law, and the
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law.
(c) The parties shall each pay one-half of the costs and expenses of
such arbitration, and each party shall pay its own counsel fees and expenses.
(d) GAUTHIER HAS READ AND UNDERSTANDS THIS SECTION 7, WHICH DISCUSSES
ARBITRATION. GAUTHIER UNDERSTANDS THAT BY SIGNING THIS AGREEMENT GAUTHIER
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF GAUTHIER'S RIGHT TO A JURY TRIAL AND RELATES TO
THE RESOLUTION OF ALL DISPUTES RELATING TO GAUTHIER'S RELATIONSHIP WITH
COHERENT.
8. GENERAL PROVISIONS.
(a) ENTIRE AGREEMENT. This Agreement and any written Coherent plan
or written agreement between Gauthier and Coherent that are referenced herein,
represent the entire agreement and understanding between the parties as to the
subject matter hereof, and supersede all prior or contemporaneous agreements,
whether written or oral. No waiver, alternation, or modification, if any, of
the provisions of this Agreement shall be binding unless in writing and signed
by duly authorized representatives of the parties hereto.
(b) SEVERABILITY. If one or more of the provisions in this Agreement
are deemed void by law, then the remaining provisions will continue in full
force and effect.
(c) SUCCESSORS. Any successor to Coherent (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of Coherent's business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as Coherent would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Coherent" shall
include any successor to Coherent's business and/or assets that agrees to assume
Coherent's obligations hereunder or which becomes bound by the terms of this
Agreement by operation of law. The terms of this Agreement and all rights of
Gauthier hereunder shall inure to the benefit of, and be enforceable by,
Gauthier's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
(d) CONFLICTING OBLIGATIONS. Gauthier represents that he has not
entered into, and will not enter into, any oral or written agreement in conflict
herewith.
(e) COUNTERPARTS. This Agreement may be executed by either of the
parties hereto in counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
COHERENT, INC. HENRY E. GAUTHIER
By:
------------------------------- ---------------------------
Title: Date:
------------------ -----------------
Date:
------------------
79
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EXHIBIT 21.1
SUBSIDIARIES
The following table sets forth information as to Coherent's subsidiaries,
all of which are included in the consolidated financial statements. Coherent
owns 100% of the outstanding voting securities of such corporations except as
noted below.
Jurisdiction of
Name Incorporation
- --------------------------------------------------------------------------------
Coherent FSC, Inc. Virgin Islands
Coherent GmbH Germany
Coherent (U.K.) Ltd. United Kingdom
Coherent Japan, Inc. Japan
Lambda Physik GmbH (1) Germany
Lambda Physik U.S. (1) Massachusetts
Lambda Physik Japan, K.K. (2) Japan
Laser, Inc. Massachusetts
Coherent S.A. France
Coherent Optics Europe, Ltd. United Kingdom
Coherent Lubeck GmbH Germany
Coherent Export Co., Inc. United States
(1) The Company owns 80% of the outstanding voting securities of these
subsidiaries.
(2) The Company owns 76% of the outstanding voting securities of this
subsidiary.
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 33-
303035, 33-66536, 33-35609, 33-31442, 33-21878 and 2-96838 of Coherent, Inc. on
Forms S-8 of our report dated October 29, 1996 appearing in this Annual Report
on Form 10-K of Coherent, Inc. for the year ended September 28, 1996.
DELOITTE & TOUCHE LLP
San Jose, California
December 23, 1996
81
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<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-START> OCT-01-1995
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<SECURITIES> 25,421
<RECEIVABLES> 90,912
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0
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