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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended October 2, 1999
or
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<S> <C>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 0-5255
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COHERENT, INC.
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<S> <C>
DELAWARE
(State or other jurisdiction 94-1622541
of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Common Stock Purchase Rights
(Title of Class)
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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 / /
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/
As of November 18, 1999, 24,617,751 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 18, 1999) of
Coherent, Inc., held by nonaffiliates was $420,198,352. 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
February 25, 2000, 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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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 differ materially. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. Coherent 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 is one of the largest companies in each
of its business segments. No single competitor offers as wide a range of
products as are manufactured and sold by Coherent. However, competition is
intense in all business segments because there are a number of smaller and
larger companies selling products which compete directly with one or more
Coherent products.
Coherent's competitors are numerous, ranging from some of the world's
largest corporations to many relatively small and highly specialized firms.
Major competitors in Coherent's respective market segments include, but are not
limited to, the following list of companies: the Electro-Optics segment competes
primarily against Spectra-Physics Lasers, Inc., SDL, Inc., Rofin Sinar
Technologies, Inc., Continuum (a division of Hoya), Excel Technology, Inc.,
II-VI Inc., Optical Coating Labs, II-VI, and Newport Corporation. The Medical
segment's direct competition includes, but is not limited to ESC Medical
Systems Ltd., Candela Corporation, Cynosure, Laser Scope, The Carl Zeiss Group,
Nidek, HGM Medical, and IRIDEX Corporation. The Lambda segment's main
competitors include Cymer, Inc., Komatsu, Ltd., Ushio, Lumonics, SOPRA,
Continuum, and Spectra-Physics Lasers, Inc.
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 performance, reliability, price, service, marketing and
distribution, technological achievement and human resources.
A failure to remain competitive in these markets could cause a loss of
market share, declining growth, and the inability to manage inventories if
competitors gain increased market acceptance for their products. Some of the
competitors are larger than Coherent and have a greater access to capital,
technical, marketing, sales and other resources than does Coherent.
In addition, there can be no assurance that Coherent's current or potential
competitors will develop or acquire comparable or superior products to those
developed by Coherent. Any possible business combinations or mergers by
competitors, forming a larger, more significant competitor, could result in
increased competition, price reductions, reduced margins, or loss of market
share, any of which could materially and adversely affect Coherent's businesses,
operating results, and financial condition.
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 general
product offerings are likely to become technologically obsolete. There can be no
assurance that such new products, if and when introduced, will receive market
acceptance.
INTERNATIONAL SALES. Coherent conducts a significant portion of its
business internationally. International sales accounted for 58% and 55% of
Coherent's sales for fiscal 1999 and 1998, respectively. Coherent expects that
international sales will continue to account for a significant portion of its
net sales in the future. A significant amount of these sales occur through its
international subsidiaries (some of which
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also perform research, development, manufacturing and service functions) and
from exports from its U.S. operations. As a result, Coherent's international
sales and operations are subject to the risks of conducting business
internationally. Risks include fluctuation in foreign exchange rates, which
could affect the sales price in local currencies of products in foreign markets
as well as the local costs and expenses of foreign operations. Coherent uses
forward exchange, currency swap contracts, currency options 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 Coherent's operations in the future or require it to modify
current business practices.
ASIA-PACIFIC. Recent economic trends in the Asia-Pacific marketplace have
caused a heightened awareness of the impact this portion of the world's economy
can have on the overall economy. The Asia-Pacific market currently represents
almost one-third of the worlds buying power and approximately 26% and 24% of
Coherent's fiscal 1999 and 1998 sales, respectively, are to this region. Changes
in this area's economic growth rate may impact suppliers of product into that
market. While the actual magnitude of the business at risk is unknown, it is
possible that a decrease in capital spending in this market could have an
adverse impact on Coherent's sales and results of operations.
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
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, expenditure 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. See Item 5,
"Market for the Registrant's Common Equity and Related Stockholder Matters".
PATENTS AND LICENSES. 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, Coherent can conduct only limited searches to determine
whether its technology infringes any patents or patent applications. Any claims
for patent infringement could be time-consuming, result in costly litigation,
divert technical and management personnel, cause shipment delays, require
Coherent 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. These payments could have a
negative impact on gross margins. There can be no assurance that necessary
licenses would be available to Coherent on satisfactory terms, or Coherent could
redesign its products or processes to avoid infringement. Accordingly, an
adverse determination in a
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judicial or administrative proceeding or failure to obtain necessary licenses
could prevent Coherent from manufacturing and selling some of its products. This
could have a material adverse effect on Coherent's business, results of
operations and financial condition. Conversely, costly and time consuming
litigation may be necessary to enforce patents issued to Coherent 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.
Coherent has a significant number of U.S. and foreign technology patents
incorporated into its products. Coherent believes it owns or has the right to
use the basic patents covering its products.
REIMBURSEMENT. A significant portion of Coherent'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 products used for these health care services. While
Coherent believes that the laser procedures using its products (except for most
aesthetic applications, which comprise approximately half of the Medical
segment's revenue) have generally been reimbursed, payors may deny coverage and
reimbursement for Coherent's products if they determine that the device was not
reasonable and necessary for the purpose for which used or was investigational
or not cost-effective. Failure by doctors, clinics, hospitals and other users of
Coherent's products to obtain adequate reimbursement for use of Coherent'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 Coherent's products could have a material adverse effect on
Coherent's business, results of operations and financial condition. Moreover,
Coherent 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 substantial portion of Coherent's research and development
activities, manufacturing, 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
disaster.
PRODUCTION AND SOURCES AND AVAILABILITY OF MATERIALS. Coherent's production
operations consist primarily of assembling and testing its products, although
Coherent manufactures substantially all of its own laser tubes, optics and diode
wafers. Coherent depends upon outside suppliers for most product components,
many of which are manufactured to Coherent's specifications. Coherent maintains
a diverse supplier base, and as a result, typically no individual supplier makes
up more than 5% of total purchases. Coherent 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.
RESEARCH AND DEVELOPMENT. Coherent maintains separate research and
development staffs in all of its operating segments. Development of new and
improved Electro-Optical, Lambda and Medical products is primarily the respon
sibility of engineering department and applications staffs located in the U.S.,
Germany, Finland 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.
Coherent 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 1999 expenditures for research and
development were $46,759,000, 10% of sales,
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compared to $44,534,000, 11% of sales, and $39,406,000, 10% of sales, during
fiscal 1998 and 1997, respectively.
IMPACT OF ENVIRONMENTAL REGULATION. Coherent believes that compliance with
federal, state and local environmental protection regulations will not have a
material adverse effect on the capital expenditures, earn ings, competitive and
financial position of Coherent. Coherent 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. Coherent'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. Pursuant to the 1976 Medical Device Amendments to
the Federal Food, Drug and Cosmetic Act, 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 Coherent. Coherent's medical products are subject to similar
regulations in its major international markets. Complying with these regulations
is necessary for Coherent'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. Coherent's competitors in the medical field
are subject to the same regulations.
Coherent 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.
EMPLOYEES. At October 2, 1999, Coherent employed 2,417 persons. Coherent's
continued success will depend in large measure on its ability to attract and
retain highly skilled employees, who are in great demand, particularly in the
Silicon Valley of California, where the Company is based.
THE LASER COMPANY
Coherent, Inc., a Delaware corporation, (herein referred to as "Coherent" or
"Company") is a global leader in the design, manufacture and sales of lasers,
laser systems, precision optics and related accessories. Coherent 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/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." Energy is amplified to extremely high intensity by an
atomic process called stimulated emission. The term
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"radiation" is often misinterpreted because the term is also used to describe
radioactive materials or ionizing radiation. The use of the word in this
context, however, refers to an energy transfer. Energy moves from one location
to another by conduction, convection, and radiation. The color of laser light is
normally expressed in terms of the laser's wavelength. The most common unit in
expressing a laser's wavelength is a nanometer ("nm"). There are one billion
nanometers in one meter.
A laser uses a source of energy such as electricity, light or a chemical
reaction to excite electrons in a "lasing medium." When these excited electrons
return to their grounded or normal state, energy is emitted in the form of light
at one or a few specific wavelengths. The lasing medium can be gasses such as
CO(2) or argon, liquid dyes, or solid-state crystals such as the commonly used
yttrium aluminum garnet ("YAG"). The emitted light is collected and refined
using a series of mirrors and lenses, forming a high intensity, tightly focused
beam of "coherent" light. A laser beam can be made powerful enough to cut steel
or precise enough to perform eye surgery.
The semiconductor or diode laser uses these same physical principles, but
miniaturizes the entire assembly into a monolithic structure using semiconductor
wafer fabrication processes to build the device. In addition to miniaturizing
the laser, the use of solid-state materials greatly increases the life of the
device and provides power efficiencies over 100 times greater than a typical gas
or lamp based laser. A widely used analogy in the laser industry is that the
development of the semiconductor laser will have as significant an impact on the
use of lasers as the transition of the vacuum tube to the transistor to the
integrated circuit has on the electronics industry.
INDUSTRY LEADERSHIP
Since inception in 1966, Coherent 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 228 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.
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's mission is to focus 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, commercial and OEM customers with
cost effective laser products that provide performance breakthroughs and
application innovations.
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.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Coherent operates in two industry segments: the design, manufacture and
marketing of 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. Coherent has two operating segments
within the Electro-Optical industry segment: Electro-Optics and Lambda. The
Medical industry segment is also an operating segment. (See Note 13).
PRODUCTS
BUSINESS STRUCTURE
Coherent's business structure reflects its three major operating segments:
Medical, Electro-Optics and Lambda. Medical serves the medical-surgical
community, while Electro-Optics and Lambda segments serve the needs of
commercial and scientific customers (both end users and OEMs), including
customers who purchase components.
PRODUCT AND MARKET APPLICATIONS
Coherent currently produces more than 150 lasers, laser systems, precision
optics and component products. Medical products range in price from $25,000 to
$185,000. Commercial and scientific products range from $10,000 to $1,000,000.
Component products (including diodes) range in price from $500 to $50,000 and
consist of semiconductor lasers, precision optics, thin film coatings,
accessories, laser measurement and testing instruments. Some of the applications
within Coherent's market segments are shown in the table below:
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APPLICATIONS BY MARKET
MEDICAL SCIENTIFIC COMMERCIAL
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<S> <C> <C>
Ophthalmology Spectroscopy Optics & Optical Coating
Photodynamic Therapy Chemistry Semiconductor Processing &
Aesthetic/Cosmetic Surgery Photochemistry Inspection
Dermatology/Plastic Surgery Physics DUV Photolithography
Cosmetic, Plastic and Viral Research Interferometric Wafer
Inspection
Reconstructive Surgery Genetics Optics Inspection
Orthopedics Environmental Research Optical Data Storage
Urology Semiconductor Research Fiber Bragg Gratings
Gynecology Biology Machine Vision
Otolaryngology Biochemistry Holography
Neurological Surgery Engineering Marking
Oral Maxillofacial Surgery Forensics Materials Processing & Control
Oncology Isotope Separation Process Control
Podiatry Atom Trapping Magnetic Disk Texturing
General Surgery Metrology Video & DVD Disk Mastering
Medical Therapy Seismic Monitoring Stereolithography/Rapid
Medical Imaging Non-destructive Testing Prototyping
Combustion Analysis Reprographics/Printing
Graphic & Architectural Display
Multimedia Entertainment
Micromachining
Soldering
Wire Stripping
Circuit Board Drilling
Via Hole Drilling
Rubidium Vapour Pumping
Flow Cytometry
Analytical Instrumentation
Pulsed Laser Deposition
Telecommunications
</TABLE>
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PRODUCT NARRATIVE
MEDICAL OPERATING SEGMENT
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 patient hospitalization.
AESTHETIC PRODUCTS
Coherent is a leading supplier of lasers to the rapidly growing aesthetic
laser market. Starting in 1994, with the UltraPulse-TM- for treatment of
wrinkles, Coherent has introduced a complete line of innovative laser products
for aesthetic procedures including laser skin resurfacing, cosmetic eyelid
surgery, treatment of tattoos, treatment of pigmented lesions, treatment of
vascular lesions including leg veins, and laser-assisted hair transplant. In
addition, in April 1999, Coherent finalized the acquisition of Star Medical
(Star) from Palomar Medical Technologies, Inc. for the LightSheer brand of
laser-based hair removal products.
Prior to concluding the acquisition of Star, Coherent had been the exclusive
distributor for the LightSheer, and introduced it to the market in
February 1998. This compact, solid-state system is the only high-energy, short
pulse laser diode system available for hair removal. The treatment light is
generated by high power diode arrays using patented packaging and cooling
technology. The high efficiency of the diodes is easily transported to multiple
locations. The diode wavelength is well suited for laser hair removal and when
combined with the patented ChillTip-TM- contact skin cooling system, allows
treatment of a wide range of patients. In March of 1999, the LightSheer received
clearance from the FDA to claim permanence in hair removal or reduction, the
only company to have achieved this for a diode laser system.
The UltraPulse 5000C with Computer Pattern Generator (CPG) is a leading
laser for treatment of wrinkles. Called laser skin resurfacing, this procedure
uses the unique high energy pulsed output of the UltraPulse laser to produce
precise, controlled and repeatable vaporization of a thin outer layer of skin.
The laser is also widely used for aesthetic incisional procedures including
cosmetic eyelid surgery. Since its introduction in 1994, it has become one of
the largest selling lasers to aesthetic surgeons for these procedures.
In August 1997, the UltraFine erbium laser for skin resurfacing was
introduced. This system complements the UltraPulse 5000C and provides new
treatment capabilities for the aesthetic surgeon. While the UltraPulse remains
the laser of choice for mild to severe wrinkles, the UltraFine erbium laser
extends this treatment to a new group of patients who are seeking more
superficial treatment. In addition, this laser can be used in concert with the
UltraPulse to enhance the overall therapy.
In 1996, Coherent introduced the multiwavelength VersaPulse C aesthetic
laser. Featuring four lasers in one instrument, this product can be used for a
wide variety of skin procedures such as the removal of tattoos, the treatment of
pigmented lesions, including birthmarks and port wine stains, and the removal of
"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.
The UltraCut incisional scanner for laser-assisted hair transplant was
introduced in October 1997. Used with the UltraPulse line of lasers, the
UltraCut laser prepares sites in the scalp to receive hair grafts.
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This system offers a number of advantages to hair-transplant surgery including
reduced bleeding, faster procedures and improved cosmetic results.
OPHTHALMIC PRODUCTS
Coherent pioneered the use of lasers in the ophthalmology market segment
30 years ago and is continuing this leadership both domestically and globally
today. CMG offers green and multicolor lasers for photocoagulation and treatment
of retinal disease and glaucoma. Coherent's Nd:YAG lasers for photodisruption
are used for treatment of secondary cataracts. Recently Coherent introduced a
new product for Ophthalmic Photodynamic Therapy (PDT) for the treatment of
neovascular Age-Related Macular Degeneration (AMD).
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 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 Ophthalmoscopic 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-Registered Trademark- Verdi-TM- photocoagulator was introduced in
1999 and represents Coherent's first fully solid-state photocoagulator. The
Novus Verdi features rugged portable design, advanced diode pumped green
technology, and patented ClearView-TM- optics all backed by Coherent's solid
commitment to customer service. The Verdi fills out Coherent's photocoagulator
product line resulting in the widest range of choices available to the customer.
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. For example, as surgeons use lasers in operations and bleeding occurs, a
normal red light will be blended in with the blood of the patient and will not
work correctly. Allowing the doctor to switch the colors of the lasers
eliminates this problem with a more efficient solution.
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 tears) 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 1996, Coherent introduced the Selecta 7000-TM- laser, designed to perform
Selective Laser Trabeculotherapy (SLT). Coherent is working with the FDA to
obtain approval for the Selecta 7000. SLT is an exciting new therapy for the
treatment of open angle glaucoma, the leading cause of preventable blindness in
Americans over the age of 40. SLT lowers intraocular pressure by using short
pulses of low energy laser light to illuminate specific cells in the eye's
trabecular meshwork--resulting in increased fluid outflow SLT is being performed
today in many international markets using Coherent's Selecta 7000.
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Domestically, Coherent has received exclusive license to commercialize SLT and
market the relevant laser technology.
In October 1997, Coherent introduced the next generation EPIC-TM-ophthalmic
laser system that enables the ophthalmologist to perform most laser treatments
with one system. In December 1997, Coherent received government approval to sell
this product. This three-in-one laser incorporates a new clip-on Nd:YAG laser, a
frequency doubled laser and an argon laser. The EPIC laser system is a portable
laser, which adapts to the ophthalmologists' existing examination slit lamp.
In 1999, Coherent introduced the Opal Photoactivator for Visudyne-TM- PDT
therapy for neovascular AMD (the therapy). In November 1999, the FDA Ophthalmic
Drugs Subcommittee recommended approval of the Opal Photoactivator and Visudyne
Therapy for the wet form of age-related macular degeneration. The FDA is
expected to make a final decision regarding the approval of the Visudyne
application on or before February 2, 2000. Regulatory applications are also
pending in the European Union, Canada, Switzerland, Norway, Iceland, Australia
and New Zealand. This new therapy offers a treatment option for the wet form of
AMD, the leading cause of blindness in people over the age of 50 in the western
world. The results of the pivotal Phase III trials showed a statistically
significant benefit at 12 months to those patients treated with Visudyne therapy
compared to those administered a placebo. Results also showed that Visudyne
therapy was well tolerated, with the majority of adverse events occurring in
similar numbers among the treatment and placebo groups.
SURGICAL PRODUCTS
Coherent introduced the first solid state holmium laser, the
VersaPulse-Registered Trademark-, in 1988. With its wide variety of fiber optic
delivery devices, which are much smaller than conventional instrumentation, the
VersaPulse quickly established itself as a first choice for minimally invasive
surgery. Since that time, product enhancements and improvements have allowed
Coherent to maintain its leadership position.
In 1993, the VersaPulse Select-TM- was introduced. This revolutionary
product doubled the holmium laser power available to the arthroscopic surgeon
while reducing the physical size of the system to just half that of previous
models. The tissue effects allowed cutting, ablation and smoothing of
cartilaginous tissue with minimal bleeding. An additional effect of precise
collagen shrinkage has emerged as the procedure of choice for joint instability.
In urology, the VersaPulse-Registered Trademark- Select-TM- holmium laser is
emerging as a revolutionary option for lithotripsy. With the advent in the
mid-1990's of more flexible, miniturized endoscopic devices, all areas of the
urinary system could be accessed, opening the door for new treatment options.
The holmium laser, coupled with flexible fiber optic delivery devices has proven
to be the most effective lithotrite and the VersaPulse Select is the choice of
leading urologists around the world.
In 1994, Coherent introduced the VersaPulse Select Dual Wavelength laser for
urology. For the first time, two complementary laser wavelengths, Holmium and
ND:YAG, were incorporated in one system. Via a single delivery device and with
the touch of a foot pedal, the surgeon can quickly switch from the precise
cutting and ablation of Holmium to the deep penetration and coagulation of
Nd:YAG. This combination not only allows maximal versatility in treating the
broadest range of urologic applications but also provides maximal utilization of
the VersaPulse Select within the surgical arena.
In 1998, Coherent was the first Company to obtain FDA clearance for Holmium
laser prostatectomy. This procedure replaces the conventional treatment,
transurethral resection of the prostrate (TURP), with a procedure that offers
identical surgical effects with less morbidity, shorter hospitalization, and a
quicker return to normal activity. The VersaPulse Select-TM- is quickly becoming
the standard of care for the urologist.
10
<PAGE>
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 $185,000.
ELECTRO-OPTICS OPERATING SEGMENT
Coherent's electro-optical products include lasers and laser systems for
micromachining, commercial applications, semiconductor inspection,
telecommunications, scientific, medical research, precision optics and related
accessories. The principal types of lasers produced by Coherent's Electro-Optics
segment are diode-pumped solid-state (DPSS), semiconductor lasers (laser
diodes), argon and krypton ion, excimer, carbon dioxide (CO(2)), liquid dye,
Nd:YAG, and Titanium:Sapphire (Ti:Sapphire). These lasers have a broad range of
power and operate in the visible (V), ultraviolet (UV) and infrared (IR)
portions of the electromagnetic spectrum. Coherent's optics and optical products
include special purpose lenses, mirrors and advanced optical coatings.
Coherent's electro-optical products are sold for commercial and OEM
applications, scientific and medical end users.
LASER AND COMPONENTS GROUP
The Coherent Laser Group (CLG) and Coherent Auburn, a division of the
Coherent Laser Group, comprise the Laser and Components Group.
CLG is headquartered in Santa Clara, California, and is a leading developer
and manufacturer of DPSS, diode, ion, dye, solid-state Nd:YAG, Ti:Sapphire, and
CO(2) lasers for the OEM, micromachining and scientific 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, telecommunications and manufacturing process control.
In fiscal 1997, CLG continued to provide its customers with lasers for a
growing range of applications, especially in the CO(2) (i.e., material drilling
and marking) and diode-pumped solid state (DPSS) product lines. The Group also
purchased the assets and technology of Micracor, Inc. of Massachusetts to
position CLG for entrance into the telecommunications market. Also, CLG saw
continued strong growth for the Lubeck operation, including shipments of the ZT
laser for the disk texturing market. With these acquisitions and aforementioned
products, 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 for such products. The first shipments of the Verdi-TM-, a CW
diode-pumped solid-state visible laser that provides a compact, high-power,
efficient option for many scientific and commercial laser applications occurred
in fiscal 1997.
In fiscal 1998, CLG shipped the first units of Avia, a high-power,
high-repetition laser serving the printed circuit board (PCB) via drilling
market. In early 1998, CLG also shipped its first Vittesse laser, offering
customers a self-contained, maintenance free, Ultrafast alternative. Vittesse is
another good example of CLG developing a product for its scientific customers
and then leveraging the technology into commercial applications. CLG continued
to provide its customers with lasers for the growing range of applications,
especially in the CO(2) (i.e., material drilling and marking) and diode-pumped
solid state (DPSS) (i.e., reprographics, holography and rapid prototyping)
product lines. Also, CLG saw continued strong growth for the Lubeck operation,
including shipments of the 315M minilaser for the reprographics market.
11
<PAGE>
Also in fiscal 1998, CLG entered into a worldwide distribution and minority
ownership agreement with Microlase, located in Glasgow, Scotland. The agreement
provides Microlase with the technical and service support offered by CLG while
CLG benefits from the synergy of combining Microlase's products with its own
diverse product offerings. Microlase has developed a series of technologically
advanced lasers, including extremely narrow linewidth ring lasers and
frequency-doubling technology used in scientific research and precise process
monitoring. Microlase has also developed a series of promising products based on
diode-pumped ultrafast laser sources.
In 1999, CLG announced a new 980-nm Optically Pumped Semiconductor (OPS)
laser technology that provides the highest power 980-nm laser output from a
single-mode device. High-power 980 nm is critical for pumping Erbium-doped Fiber
Amplifiers (EDFAs)--key components in Dense Wavelength Division Multiplexed
(DWDM) telecommunication systems.
EDFAs are used to boost optical telecommunications signals that have
degraded after being transported over long distances. Amplifiers for DWDM
networks require higher pump-powers as the number of wavelengths transmitted
through the system is increased. Current 980 nm pump lasers are fundamentally
limited to less than 200 mW (technology limit) necessitating the "ganging" of
several pump lasers with complex schemes to provide adequate pump power for
wide-bandwidth, high-gain DWDM telecommunications systems.
In 1999, CLG expanded the Verdi and AVIA DPSS lasers as well as the CO(2)
laser product line. Higher power and increased speed lasers were introduced to
the market place with great success. The material processing and electronic
packaging applications for these lasers continued to grow in 1999.
The lasers and laser systems produced by CLG, with the exception of
semiconductor lasers, typically range in price from $10,000 to $250,000.
Coherent Auburn (Auburn) manufactures optics, thin films coatings for
high-performance laser optics, laser accessories and electro-optical components
for Coherent 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 Coherent's own laser products,
in low-loss coated optics for OEMs and other commercial applications. In
addition to their normal laser business, in fiscal year 1998, the Optics product
line supplied a number of large specialized optics for the Keck Telescope and
Lawrence Livermore Labs NIF program. In England, our Leicester facility received
a UK Design Council Award for the "Millennium Products" recognizing their newly
introduced system for manufacturing graded interference filters.
Auburn also designs and manufactures laser measurement instruments and
accessories that are used to measure and maximize the performance of laser
systems. The instrument product line continued to see growth in low power diode
laser module sales, and continued demand for their standard line of
instrumentation.
As a result of the acquisition of Ealing Electro-Optics in fiscal year 1997,
Auburn successfully entered the market for E-O assembly modules, capturing
several major programs from U.S. and European contractors. Also the Catalog
product line, which had taken over the Ealing "Gold" catalog, printed and
distributed in September 1998 the new 480 page Coherent catalog containing 5,000
products, of which 2,000 were new, to the Electro-Optics Industry.
Products made by Auburn typically range in price from $500 to $50,000 and
are sold through Auburn's field and telemarketing salesforce, the new Coherent
catalog, and through an international network of independent distributors as
well as other Coherent sales groups.
SEMICONDUCTOR GROUP
CSG, was spun off from the Laser Group in 1997 to specifically serve
customers in the semiconductor area with high-power laser diodes. Coherent has
been designing and manufacturing a wide variety of lasers
12
<PAGE>
based on diodes since 1986. In 1995, the Company acquired the laser diode
operations of Uniphase Corporation. This acquisition added high power
semiconductor laser diodes with wavelength emission to Coherent's product line.
These 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 used in medical, printing, OEM instrumentation, remote sensing,
and machine vision industries.
In December 1996, Coherent 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. This
acquisition added capabilities to the line that no other significant supplier
had and allows for a considerable competitive advantage.
These high-powered diode lasers are expected to have a tremendous impact on
the future of the laser market. These lasers will be used in applications such
as heat-treating, welding, and direct-to-plate printing. These lasers are
created by building rows of miniature lasers on a gallium arsenide wafer, using
semiconductor deposition and etching technology, thereby creating laser bars.
These bars have power outputs equivalent to lasers several cubic feet in size,
therefore making them more portable. Coherent currently has the highest power
bars available in the commercial markets. Larger competitors such as SDL, Inc.,
and Spectra Physics Lasers also make such lasers but produce them containing
aluminum. With the Tutcore acquisition, the semiconductor group is in the
forefront on this laser technology producing aluminum free lasers.
In February 1997, CSG completed a new, purpose-built diode manufacturing
factory in Santa Clara, California. This 10,000-square foot facility includes
large cleanrooms for wafer processing and packaging, as well as extensive
life-testing and R&D labs.
Semiconductor laser diode prices range from $200 to $4,000; semiconductor
laser systems range from $3,000 to $20,000. Both laser diodes and laser diode
systems are used in a variety of commercial and OEM applications, including
material processing, reprographics, medical instruments, and laser pumping. CSG
products are incorporated in several other systems manufactured by CLG and CMG.
LAMBDA OPERATING SEGMENT
Coherent Lambda Physik (CLP), Coherent's 80% owned subsidiary, in Gottingen,
Germany, develops and manufactures excimer, DPSS, and tunable lasers including
dye lasers and optical parametric oscillators (OPOs). These powerful pulsed
lasers cover the spectral range from 157 nm to over 2.5mm. The excimer laser is
very efficient in producing UV light without frequency conversion techniques,
gaining strong market share in commercial 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 up to 3 kHz.
All Lambda Physik products are certified with the CE-mark, a prerequisite
for the European market. This is an important milestone of Lambda Physik's
quality program and opens up excellent opportunities in the medical and
industrial marketplace. Some lasers, which are produced primarily for medical
applications, are even further certified with the CE mark for systems used in
medical products.
In fiscal year 1999, Lambda Physik pioneered the development of 157 nm
lasers for various applications. The Lambda LPF and the portable OPTex excimer
laser optimized for the wavelength at 157 nm were released. The LPF laser is the
only commercial available laser system at 157 nm that delivers several Watts of
output power. Typical applications are found in spectroscopy, microelectronics,
material processing, material characterization and in chemical vapor deposition.
The OPTex has been especially developed for customers who require a small and
economical, but highly sophisticated, excimer laser.
The NovaLine F600 and F1000 series are designed for material testing and
feasibility studies of lithography at 157 nm wavelength. These lasers
demonstrate stable operation up to 1 kHz. Lambda Physik
13
<PAGE>
also sells large industrial systems into the TFT annealing market via the
cooperation of an OEM customer in Japan.
New models, have been added to the product line of 248 nm and 193 nm excimer
lasers for microlithography in order to follow up on the trend of higher power
and tighter laser bandwidth requirements. In September 1999, Lambda Physik
received its first multiple production orders for their high performance excimer
laser systems from a semiconductor equipment manufacturer. The orders are for
Lambda Physik's 248 NovaLine-Registered Trademark- excimer laser systems
operating at 2 kHz pulse rate and will be used in conjunction with a
semiconductor equipment manufacturer's systems. These systems are
high-productivity tools, capable of processing more than 200 mm wafers per hour,
and designed to achieve cost-effective, mix-and-match lithography solutions.
Presently, only Lambda Physik has delivered 2 kHz lasers for 193 nm.
The LAMBDA StarLine-TM- family of diode-pumped Nd:YAG lasers has been
optimized in close cooperation with industrial key customers. These lasers open
a variety of applications ranging from spectroscopy through LIDAR to hole
drilling and micromachining. Lambda Physik has produced some of the most
respected pulsed laser models for spectroscopy in the world. The present pulsed
dye laser, SCANmate-TM-OG set a new standard in the scientific world in
narrow-linewidth tunable light sources for high resolution spectroscopy in the
range from 189 nm to over 1 mm. SCANmate-TM-OG is the only commercial dye laser
with automatic Autocalibration system.
Also in fiscal year 1999, ongoing development of the L4308, 200 watt laser
series and line beam optics produced by MicroLas with respect to special needs
of production conditions of polycrystalline flat panel displays has gained a 90%
market share in this fast growing market.
The lasers and laser systems produced by CLP typically range in price from
$50,000 to $1,000,000.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Financial information relating to foreign and domestic operations for the
three years ended October 2, 1999, is set forth in Note 13, "Operating
Segments", of the Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
At the end of fiscal 1999, Coherent's primary locations were as follows:
Coherent's corporate headquarters and major electro-optics facility is
located in Santa Clara, California, consisting of approximately 8.5 acres of
land and a 200,000-square-foot building owned by Coherent.
Additional electro-optics 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 Coherent as well as a
12,000-square-foot building leased until June 2000.
Coherent's principal medical products facility is located in Santa Clara,
California consisting of a building of approximately 216,000 square feet of
floor area leased until December 2001.
During fiscal 1993, Coherent 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 Coherent in Sturbridge, Massachusetts. This building is currently
leased (until June 2000) to the acquirer of Coherent General, Inc.
Lambda Physik GmbH's facility in Gottingen, Germany consists of two owned
buildings totaling 63,500 square feet on 3.7 acres of owned land.
14
<PAGE>
Lambda Physik's domestic facility is located in Fort Lauderdale, Florida,
consisting of an 18,597-square-foot building leased until March 2002.
Lambda Physik Japan's facilities are located in Yokohama, Japan, consisting
of a 7,081-square-foot building leased until October 2000 and two buildings
consisting of 2,914 total square feet in Tokyo, Japan leased through
October 2000.
Coherent GmbH's facility in Dieburg, Germany consists of a
21,571-square-foot building leased by Coherent until 2003 with a five year
renewal option.
Coherent Lubeck's facility in Lubeck, Germany consists of a
30,157-square-foot building leased by Coherent until March 2000 with a one 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 Ealing Electro-Optics Ltd.'s facility consists of one owned
building in Watford, England totaling 37,900 square feet on 1.6 acres of owned
land.
Coherent Tutcore's facility is located in Tampere, Finland where they
manufacture semiconductor wafers. The facility is 17,438 square feet and is
leased until 2007.
Coherent Japan's facilities include 39,706 square feet consisting of four
buildings leased until April 2001.
During fiscal 1999, Coherent acquired Star Medical Technologies, Inc., which
leases four buildings totaling 28,581 square feet in Pleasanton, California. The
leases expire from 2002 to 2003.
Coherent maintains sales and service offices under varying leases expiring
from 2003 through 2005 in France and the Netherlands, and under short-term
leases in Mexico, the United Kingdom, Hong Kong, Sweden, and the People Republic
of China.
In general, Coherent's facilities are considered both suitable and adequate
to provide for future requirements.
ITEM 3. LEGAL PROCEEDINGS
Coherent 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.
15
<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 1999 FISCAL 1998
----------------------------------------- -----------------------------------------
DEC. 26 APR. 3 JULY 3 OCT. 2 DEC. 27 MAR. 28 JUNE 27 SEPT. 26
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Price:
High................................. $13.91 $16.88 $18.94 $22.31 $28.75 $24.38 $24.19 $17.38
Low.................................. $ 7.75 $11.75 $12.25 $16.00 $16.94 $17.56 $16.75 $ 8.75
</TABLE>
The number of stockholders of record as of November 18, 1999 was 2,038. No
cash dividends have been declared or paid since Coherent was founded and
Coherent has no present intention to declare or pay cash dividends. Coherent's
agreements with its banks restrict the payment of dividends on its Common Stock.
See Note 5, "Short-term Borrowings", of Notes to Consolidated Financial
Statements.
The Board of Directors declared a 2-for-1 stock split of its common stock
effected in the form of a 100% stock dividend distributed on March 2, 1998 to
holders of record as of February 17, 1998. The financial statements, notes and
other references to share and per share data reflect the stock split for all
periods presented.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------
OCT. 2, SEPT. 26, SEPT. 27, SEPT. 28, SEPT. 30,
1999 1998 1997 1996 1995
-------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $468,869 $410,449 $391,038 $364,430 $285,499
Gross profit.............................. 220,666 197,865 205,502 187,218 142,483
Income from operations.................... 18,077 24,132 42,310 44,700 29,912
-------- -------- -------- -------- --------
Net income (1), (2), (3).................. $ 11,841 $ 18,811 $ 26,292 $ 30,314 $ 19,323
-------- -------- -------- -------- --------
Net income per share data: (1), (2), (3)
Basic................................... $ .49 $ .80 $ 1.16 $ 1.37 $ .91
Diluted................................. $ .48 $ .79 $ 1.12 $ 1.31 $ .87
-------- -------- -------- -------- --------
Total assets.............................. $495,468 $390,761 $361,650 $311,516 $255,874
-------- -------- -------- -------- --------
Long-term obligations..................... 74,745 12,828 9,665 3,921 5,139
Other long-term liabilities............... 16,819 12,599 13,927 12,403 9,597
Minority interest in subsidiaries......... 3,945 3,664 4,348 2,738 1,782
-------- -------- -------- -------- --------
Stockholders' equity...................... $277,305 $262,623 $231,233 $197,587 $161,191
-------- -------- -------- -------- --------
</TABLE>
No dividends have been declared in any of the periods presented. See "Item
5" for a discussion of Coherent's dividend history.
(1) Includes in fiscal 1999, a $10.7 million ($0.44 per diluted share), after
tax charge for the write-off of purchased in-process research and
development. See Note 2 "Acquisitions" of Notes to Consolidated Statements.
(2) Includes in fiscal 1998, a $2.7 million ($0.11 per diluted share)
non-recurring tax benefit.
(3) Includes in fiscal 1997, a $9.0 million ($0.38 per diluted share), after tax
charge for the write-off of purchased in-process technology. See Note 2
"Acquisitions" of Notes to Consolidated Financial Statements.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
During fiscal 1999, Coherent's net income was $11.8 million ($0.48 per
diluted share), which includes the third quarter $10.7 million ($0.44 per
diluted share) after tax write-off of purchased in-process research and
development resulting from the acquisition of Star Medical Technologies, Inc. of
Pleasanton, California. Proforma net income (exclusive of this write-off) for
fiscal 1999 was $22.6 million ($0.92 per diluted share). Fiscal 1998 net income
was $18.8 million ($0.79 per diluted share), including a $2.7 million ($0.11 per
diluted share) non-recurring tax benefit. Fiscal 1997 proforma net income
(excluding the $9.0 million after tax write-off of purchased in-process
technology) was $35.3 million ($1.50 per diluted share). Proforma income before
income taxes, excluding the aforementioned write-off, increased $8.5 million
(36%) to $32.2 million for fiscal 1999 compared to income before income taxes of
$23.7 million for fiscal 1998, which decreased $23.9 million (43%) compared to
proforma income before income taxes of $56.1 million for fiscal 1997, excluding
the aforementioned write-off. The current year increase was primarily
attributable to increases in international sales volumes and lower SG&A expenses
as a percentage of net sales.
1999 COMPARED TO 1998
NET SALES AND GROSS PROFITS
<TABLE>
<CAPTION>
YEARS ENDED
--------------------
OCT. 2, SEPT. 26,
1999 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
NET SALES
Consolidated:
Domestic.............................................. $198,599 $185,004
International......................................... 270,270 225,445
-------- --------
Total................................................. $468,869 $410,449
======== ========
Electro-Optics:
Domestic.............................................. $ 95,399 $ 87,119
International......................................... 137,658 106,319
-------- --------
Total................................................. $233,057 $193,438
======== ========
Medical:
Domestic.............................................. $ 82,433 $ 78,893
International......................................... 80,286 76,797
-------- --------
Total................................................. $162,719 $155,690
======== ========
Lambda:
Domestic.............................................. $ 20,767 $ 18,992
International......................................... 52,326 42,329
-------- --------
Total................................................. $ 73,093 $ 61,321
======== ========
</TABLE>
17
<PAGE>
CONSOLIDATED
During fiscal 1999, net sales increased $58.5 million (14%) to
$468.9 million from $410.4 million in the prior fiscal year, primarily as a
result of increased sales volumes in the Electro-Optics and Lambda segments
(OEMs and commercial customers). International sales grew at a higher rate than
domestic sales for a total increase of $44.8 million (20%). In particular,
Asia-Pacific sales increased by 26% while European sales increased 16%. The
increase in Asia-Pacific sales reflects signs of an economic recovery.
Accordingly, international sales were 58% of net sales in fiscal 1999 compared
to 55% for fiscal 1998, reflecting Coherent's commitment to grow its
international business.
The gross margin rate decreased to 47% for the current fiscal year compared
to 48% for fiscal 1998. The deterioration in the overall margin resulted
primarily from higher sales of lower margin products and inventory obsolescence
write-downs of $1.3 million in the Lambda segment.
ELECTRO-OPTICS
Electro-Optics net sales increased $39.7 million (20%) in the current fiscal
year to $233.1 million from $193.4 million in the prior fiscal year. Domestic
sales increased $8.3 million (10%) and international sales increased
$31.3 million (29%) in the current fiscal year. Sales increased primarily due to
higher sales volumes in commercial solid state products and in commercial
systems.
The gross margin rate remained at 47%, consistent with the prior fiscal
year.
MEDICAL
Medical net sales increased $7.0 million (5%) to $162.7 million in fiscal
1999 from $155.7 million in fiscal 1998. International sales increased
$3.5 million (5%) and domestic sales increased $3.5 million (4%) in the current
fiscal year. The increase in sales is primarily due to an increase of almost
$28 million in sales of LightSheer hair removal systems partially offset by
lower sales of non-hair removal Aesthetic products and the expiration of our
agreement to distribute ophthalmic refractive systems for a German manufacturer.
The gross margin rate decreased 0.2% to 48.3% from 48.5% in the prior fiscal
year.
LAMBDA
Lambda net sales increased $11.8 million (19%) in the current fiscal year to
$73.1 million from $61.3 million in the prior fiscal year. International sales
increased $10.0 million (24%) and domestic sales increased $1.8 million (9%).
The increase in sales is primarily due to increased shipments of commercial
products, primarily photolithography laser systems.
The gross margin rate decreased to 45% from 51% in the prior fiscal year.
The decrease from the prior year resulted primarily from increased manufacturing
costs for photolithography systems, lower average selling prices for sales of
scientific products and additional provisions for inventory obsolescence of
$1.3 million.
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<PAGE>
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED
--------------------
OCT. 2, SEPT. 26,
1999 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Research & development.................................. $ 46,759 $ 44,534
In-process research and development..................... 16,000
Selling, general & administrative....................... 134,129 124,555
Intangibles amortization................................ 5,701 4,644
-------- --------
Total operating expenses................................ $202,589 $173,733
======== ========
</TABLE>
Total operating expenses increased $28.9 million (17%) from the prior fiscal
year. As a percentage of sales, operating expenses increased to 43% from 42% in
the prior year. Exclusive of the third quarter fiscal 1999 write-off of
purchased in-process research and development, operating expenses increased
$12.9 million (7%), but as a percentage of sales decreased to 40% from 42%.
Current year research and development (R&D) expenses increased $2.3 million
(5%) from the prior fiscal year but decreased to 10% from 11% of sales. The
absolute dollar increase was primarily due to increased headcount and spending
on projects in the Electro-Optics segment.
Selling, general and administrative (SG&A) expenses increased $9.6 million
(8%) but decreased as a percentage of sales from 30% to 29%. The dollar increase
is primarily due to increases in headcount and related payroll costs in the
Electro-Optics segment to support increased sales volumes. This dollar increase
was also due in part to increased investments in information technology, outside
consulting costs and increased payroll related costs offset partially by the
non-recurrence of fiscal 1998 charges, including: (1) restructuring costs of
$2.9 million related to the medical segment, (2) the relocation of the medical
segment to a new facility, and (3) the Ealing Electro-Optics acquisition costs
associated with the development of a catalog.
Intangibles amortization increased $1.1 million (23%) primarily due to the
acquisition of Star.
OTHER INCOME (EXPENSE)
Other income (expense), net, decreased $1.4 million during the current year
compared to the corresponding prior year period. The decrease was primarily due
to increased interest expense related to financing of the Star acquisition,
partially offset by increased interest income.
INCOME TAXES
Coherent's effective tax rate for the current year was 27.0% and its
proforma effective tax rate for the current year (excluding the $10.7 million
write-off of purchased in-process research and development) was 30.0%.
Coherent's proforma effective tax rate for the prior fiscal year (excluding the
$2.7 million non-recurring tax benefit) was 32.1%. The proforma effective tax
rate decreased as a result of the non-recurrence of reserves for exposure items
offset by changes in the distribution taxable income by taxing jurisdiction.
19
<PAGE>
1998 COMPARED TO 1997
NET SALES AND GROSS PROFITS
<TABLE>
<CAPTION>
YEARS ENDED
---------------------
SEPT. 26, SEPT. 27,
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
NET SALES
Consolidated:
Domestic.............................................. $185,004 $177,803
International......................................... 225,445 213,235
-------- --------
Total................................................. $410,449 $391,038
======== ========
Electro-Optics:
Domestic.............................................. $ 87,119 $ 76,115
International......................................... 106,319 85,672
-------- --------
Total................................................. $193,438 $161,787
======== ========
Medical:
Domestic.............................................. $ 78,893 $ 81,490
International......................................... 76,797 88,462
-------- --------
Total................................................. $155,690 $169,952
======== ========
Lambda:
Domestic.............................................. $ 18,992 $ 20,198
International......................................... 42,329 39,101
-------- --------
Total................................................. $ 61,321 $ 59,299
======== ========
</TABLE>
CONSOLIDATED
During fiscal 1998, net sales increased $19.4 million (5%) to
$410.4 million from $391.0 million in fiscal 1997, primarily as a result of
increased sales volumes in the Electro-Optics segment (OEM and commercial
customers). International sales grew at a higher rate than domestic sales for a
total increase of $12.2 million (6%) and were 55% of net sales in both fiscal
1998 and 1997.
The gross margin rate decreased to 48% for fiscal 1998 compared to 53% for
fiscal 1997. The deterioration in the overall margin resulted primarily from
lower sales of higher margin medical products, a shift to higher sales of the
lower margin solid-state technology products in the Electro-Optics segment, and
the impact of the strengthening U.S. dollar against major foreign currencies.
ELECTRO-OPTICS
Electro-Optics net sales increased $31.7 million (20%) in fiscal 1998 to
$193.4 million from $161.8 million in fiscal 1997. Domestic sales increased
$11.0 million (14%) and international sales increased $20.6 million (24%) for
fiscal 1998. The increase in sales worldwide resulted primarily from higher
sales volumes in commercial solid-state products and due in part to the Auburn
Division's fiscal 1997 acquisition of Ealing Electro-Optics in Watford, England.
The impact of the strengthening of the U.S. dollar against major foreign
currencies partially offset the increase by adversely impacting international
sales by $5.1 million compared to fiscal 1997.
20
<PAGE>
The gross margin rate decreased to 47% from 51% in fiscal 1997. The decrease
from fiscal 1997 resulted primarily from a change to a higher mix of lower
margin solid-state, diode, and catalog products, as well as the strengthening of
the U.S. dollar against major foreign currencies.
MEDICAL
Medical net sales decreased $14.3 million (8%) to $155.7 million in fiscal
1998 from $170.0 million in fiscal 1997. International sales decreased
$11.7 million (13%) and domestic sales decreased $2.6 million (3%) in fiscal
1998. The decrease in sales resulted primarily from decreased sales volumes,
higher sales returns and allowances and lower average selling prices, as well as
the strengthening of the U.S. dollar against major foreign currencies. Such
strengthening of the U.S. dollar against major foreign currencies contributed to
the decrease in international sales by $3.9 million compared to fiscal 1997.
The gross profit rate decreased to 49% in fiscal 1998 from 55% in fiscal
1997 primarily due to lower sales and margins on skin resurfacing products,
lower manufacturing throughput, as well as higher inventory related costs,
warranty costs and manufacturing variances and due in part to the strengthening
of the U.S. dollar against major foreign currencies. These factors were
partially offset by the inaugural sales of the new LightSheer hair removal
laser, for which Coherent recognized a commission for its selling efforts.
LAMBDA
Lambda net sales increased $2.0 million (3%) in fiscal 1998 to
$61.3 million from $59.3 million in fiscal 1997. Domestic sales decreased
$1.2 million (6%) and international sales increased $3.2 million (8%) for fiscal
1998. The increase in sales worldwide resulted primarily from higher sales
volumes in the lithography business. The impact of the strengthening of the U.S.
dollar against major foreign currencies partially offset the increase by
adversely impacting international sales by $3.4 million compared to fiscal 1997.
The gross margin rate increased to 51% from 50% in fiscal 1997. The increase
from fiscal 1997 resulted primarily from the strengthening of the U.S. dollar
against major foreign currencies.
OPERATING EXPENSES
<TABLE>
<CAPTION>
YEARS ENDED
---------------------
SEPT. 26, SEPT. 27,
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Research & development.................................. $ 44,534 $ 39,406
Purchased in-process technology......................... 9,315
Selling, general & administrative....................... 124,555 110,813
Intangibles amortization................................ 4,644 3,658
-------- --------
Total operating expenses................................ $173,733 $163,192
======== ========
</TABLE>
Total operating expenses increased $10.5 million (6%) from fiscal 1997.
Exclusive of the first quarter fiscal 1997 write-off of purchased in-process
technology, operating expenses increased $19.9 million (13%), and as a
percentage of sales increased to 42% from 39%.
Fiscal 1998 research and development (R&D) expenses increased $5.1 million
(13%) from fiscal 1997 and increased to 11% from 10% of sales. The absolute
dollar increase was primarily in Coherent's Electro-Optics and Lambda segments
due to due to more headcount and related expenses associated with Coherent's
continued emphasis on product development, including lithography, and its recent
strategic acquisitions.
21
<PAGE>
Selling, general and administrative (SG&A) expenses increased $13.7 million
(12%) and increased as a percentage of sales from 28% to 30% in fiscal 1998. The
increase, primarily in the Electro-Optics business segment, was driven by recent
business acquisitions, the ramp-up of catalog operations, increased costs
associated with higher headcount and higher costs associated with the
Asia-Pacific region. This increase was also driven by (1) restructuring costs of
$2.9 million related to the medical segment, (2) the relocation of the medical
segment to a new facility, (3) the Ealing Electro-Optics acquisition costs
associated with launching the catalog and (4) higher costs in Asia-Pacific
associated with the Laser Group selling direct in Japan since mid fiscal 1997.
Intangibles amortization expense increased $1.0 million (27%) due to
amortization of Palomar distribution rights in the medical segment.
OTHER INCOME (EXPENSE)
Other income (expense), net, decreased $4.9 million during fiscal 1998
compared to fiscal 1997. Fiscal 1997 other income included a $3.5 million gain
on Coherent's sale of its former headquarters facility. The remaining
fluctuation of $1.4 million was primarily due to higher foreign exchange losses
due to the strengthening of the U.S. dollar against major foreign currencies,
lower royalty income and lower interest income on lower average cash and
investment balances.
INCOME TAXES
Coherent's effective tax rate for fiscal 1998 was 20.6% and the proforma
effective tax rate for fiscal 1998 (excluding the $2.7 million non-recurring tax
benefit) was 32.1%. Coherent's proforma effective tax rate for fiscal 1997
(excluding the $9.2 million pre-tax write-off of purchased in-process
technology) was 37%. The proforma effective tax rate decreased as a result of
increases in foreign tax credit utilization and increased research and
development credits offset by changes in the distribution of taxable income by
taxing jurisdiction, as well as the proportionately greater impact of these
items due to the lower income before taxes in fiscal 1998.
BUSINESS ENVIRONMENT
YEAR 2000 COMPLIANCE
As is true for most companies, the Year 2000 computer issue creates a risk
for Coherent. If systems do not correctly recognize date information when the
year changes to 2000, there could be an adverse impact on Coherent's operations.
The risk for Coherent exists in four areas: (i) information technology used by
Coherent to run its business, (ii) systems used by Coherent's suppliers,
(iii) potential warranty or other claims from Coherent's customers, and
(iv) the potential for reduced spending by customers for Coherent's products as
a result of significant spending on Year 2000 issues and related adverse effects
of such issues on the customer's business. Coherent evaluated its exposure in
all of these areas.
Coherent completed a comprehensive inventory and evaluation of its internal
systems, equipment and facilities on July 30, 1999. Coherent has completed a
number of projects that replaced or upgraded systems, equipment and facilities
that were already known not to be Year 2000 ready. Coherent substantially
completed these projects on October 8, 1999. Coherent has determined that
upgrades and replacements to its primary systems will allow Coherent to
transition into the new millenium with little or no disruption. Coherent has
established contingency problem management programs to address and resolve Y2K
related issues as the Company crosses through and into the millenium period. For
the Year 2000 issues identified to date, the cost of upgrade or replacement has
been less than $1.5 million through October 31, 1999. If significant new issues
are identified, Coherent's results of operation or financial condition could be
adversely affected.
22
<PAGE>
Coherent also contacted its critical suppliers to determine that the
suppliers' operations and the products and services they provide are Year 2000
ready. Critical suppliers have provided Coherent Y2K information that indicates
they will continue to be a viable supplier into the Year 2000. Where practical,
Coherent has attempted to mitigate its risks with respect to the failure of
suppliers to be Year 2000 ready. In the event that suppliers are not Year 2000
compliant, Coherent will seek alternative sources of supplies. However, such
failures remain a possibility and could have an adverse impact on Coherent's
results of operations or financial condition.
Coherent believes the large majority of its current products are Year 2000
compliant; however, since all customer situations cannot be anticipated,
particularly those involving third party products, Coherent may see an increase
in warranty and other claims as a result of the Year 2000 transition. While
litigation regarding Year 2000 compliance issues is expected to escalate,
Coherent does not believe that the impact of customer claims would materially
affect Coherent's results of operations or financial condition.
Year 2000 readiness is an issue for virtually all businesses, whose systems
and applications may require significant hardware and software upgrades or
modifications. Companies owning and operating such systems may plan to devote a
substantial portion of their information systems' spending to fund such upgrades
and modifications and divert spending away from the purchase of Coherent
products and services. Such changes in customers' spending patterns could have
an adverse impact on Coherent's sales, operating results and financial
condition.
EURO CONVERSION
As with many multinational companies operating in Europe, beginning in
January 1999, Coherent was affected by the conversion of eleven European
currencies into a common currency, the euro. Based on its assessment, Coherent
does not believe the conversion will have a material impact on the
competitiveness of its products or increase the likelihood of contract
cancellations in Europe, where there already exists substantial price
transparency. Coherent also believes its current accounting systems will
accommodate the euro conversion with minimal intervention and does not expect to
experience material adverse tax consequences as a result of the conversion. The
convergence of currencies into the euro has simplified Coherent's currency risk
management process, including its use of derivatives to manage that risk. The
cost of addressing the euro conversion is not expected to be material and will
be charged to operations as incurred. Coherent will continue to assess the
impact of the introduction of the euro currency over the transition period as
well as the period subsequent to the transition period, as applicable.
MARKETING, DISTRIBUTION AND CUSTOMER SERVICE AND 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, Finland, Germany, Italy, Austria, France,
Belgium, The Netherlands, Japan (Lambda Physik for commercial products only),
The Peoples Republic of China and Hong Kong, as well as through independent
representatives in other parts of the world. Coherent'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 Coherent 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, export/import controls and
sovereign risk. Coherent's products are broadly distributed and no one customer
accounted for more than 10% of total sales during fiscal 1999.
Coherent commenced direct sales and service for its Medical and
Electro-Optics industry segments in Japan effective February 1996 and
April 1997, respectively. Japan is the largest international market for both
industry segments. The local presence continues to build closer relationships
with Japanese customers
23
<PAGE>
and enable the Company to provide stronger support and allow development of new
products more rapidly for the Japanese market.
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, customer groups and independent
representatives in servicing equipment, training customers to use Coherent's
products and exploring additional applications of Coherent's technologies.
Additionally, Coherent gives various warranties on its products and offers
service on a contractual basis after the initial product warranty has expired.
The Company has also implemented a 24-hour a day service station, where
customers can call a number at any time and receive service on their particular
products. If components of the laser need to be fixed, then the customers can
Federal Express the component back to Coherent as Coherent sends a new part, so
that time is not lost in the production process of the customer.
BACKLOG
At October 2, 1999 Coherent's backlog of orders scheduled for shipment was
approximately $101,556,000 compared with $87,816,000 at September 26, 1998.
Orders used to compute backlog are generally cancelable without substantial
penalties. Historically, the rate of cancellation experienced by Coherent has
not been significant; however, since orders are cancelable, the backlog of
orders, at any one time, is not necessarily indicative of future revenues.
Coherent anticipates filling the present backlog during fiscal 2000. Backlog at
October 2, 1999 was higher than at September 26, 1998, in all three operating
segments.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At October 2, 1999, Coherent's primary sources of liquidity are cash and
short-term investments of $68.9 million. Additional sources of liquidity are
Coherent's multi-currency line of credit and bank credit facilities totaling
$58.9 million as of October 2, 1999, of which $46.9 million is unused and
available under these credit facilities. During fiscal 1999, such facilities
have been used in Europe and Japan. Because of Coherent's low debt to equity
ratio (.35), 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 2000. Coherent has certain financial covenants related to
its lines of credit. At October 2, 1999, Coherent is in compliance with these
covenants (see Note 5, "Short-term Borrowings", of Notes to Consolidated
Financial Statements).
During the first quarter of fiscal 1997, Coherent signed a lease for 216,000
square feet of office, research and development and manufacturing space for its
Medical Group headquarters in Santa Clara, California. The lease expires in
December 2001. Coherent has an option to purchase the property for
$24.0 million, or at the end of the lease arrange for the sale of the property
to a third party with Coherent retaining an obligation to the owner for the
difference between the sale price, if less than $24.0 million, and
$24.0 million, subject to certain provisions of the lease. If Coherent does not
purchase the property or arrange for its sale as discussed above, Coherent would
be obligated for an additional lease payment of approximately $21.5 million.
Coherent occupied the building in July 1998 and commenced lease payments at that
time. The lease requires Coherent to maintain specified financial covenants, all
of which Coherent was in compliance with as of October 2, 1999.
CHANGES IN FINANCIAL CONDITION
Cash and equivalents at October 2, 1999 increased by $22.3 million (140%)
from September 26, 1998. Operations and changes in exchange rates generated
$37.2 million including an increase in short-term
24
<PAGE>
investments of $13.7 million. Investing activities used $90.3 million;
$21.3 million was used to acquire property and equipment (net of proceeds from
disposition of property and equipment) and $64.0 million was used for business
acquisitions. Financing activities provided $75.4 million; sales of shares under
employee benefit plans generated $3.3 million and increased net borrowings
provided $72.1 million.
Cash and equivalents at September 26, 1998 decreased by $5.5 million (26%)
from September 27, 1997. Operations and changes in exchange rates generated
$17.7 million including an increase in short-term investments of $6.8 million.
Investing activities used $26.2 million; $22.2 million was used to acquire
property and equipment (net of proceeds from disposition of property and
equipment) and $0.8 million was used for business acquisitions. Financing
activities provided $3.0 million; sales of shares under employee benefit plans
generated $6.8 million and decreased net borrowings used $3.8 million.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY
Coherent maintains a short-term investment portfolio consisting mainly of
income securities with an average maturity of less than one year. These trading
securities are subject to interest rate risk and will fall in value if market
interest rates increase. If market interest rates were to increase immediately
and uniformly by 10 percent from levels at October 2, 1999, the fair value of
the portfolio would decline by an immaterial amount. Coherent has the ability to
generally hold its fixed income investments until maturity and therefore
Coherent would not expect is operating results or cash flows to be affected to
any significant degree by the effect of a sudden change in market interest rates
on its securities portfolio.
Coherent has fixed rate long-term debt of approximately $77.1 million, and a
hypothetical 10 percent decrease in interest rates would not have a material
impact on the fair market value of this debt. Coherent does not hedge any
interest rate exposures.
FOREIGN CURRENCY EXCHANGE RISK
Coherent has foreign subsidiaries, which sell and manufacture its products
in various global markets. As a result, Coherent's earnings and cash flows are
exposed to fluctuations in foreign currency exchange rates. Coherent attempts to
limit these exposures through operational strategies and financial market
instruments. Coherent utilizes hedge instruments, primarily forward contracts
with maturities of twelve months or less, to manage its exposure associated with
firm intercompany and third-party transactions and net asset and liability
positions denominated in non-functional currencies. Coherent does not use
derivative financial instruments for trading purposes.
Coherent had $24.1 million of short-term forward exchange contracts,
denominated in major foreign currencies, which approximated the fair value of
such contracts and their underlying transactions at October 2, 1999. Gains and
losses related to these instruments at October 2, 1999 were not material.
Looking forward, Coherent does not anticipate any material adverse effect on its
consolidated financial position, results of operations, or cash flows resulting
from the use of these instruments. There can be no assurance that these
strategies will be effective or that transaction losses can be minimized or
forecasted accurately.
The following table provides information about Coherent's foreign exchange
forward contracts at October 2, 1999. The table presents the value of the
contracts in U.S. dollars at the contract exchange rate as of the contract
maturity date. Due to the short-term nature of these contracts, the fair value
approximates the weighted average contractual foreign currency exchange rate
value of the contracts at October 2, 1999.
25
<PAGE>
Net forward contracts to sell (buy) foreign currencies for U.S. dollars:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT CONTRACT RATES)
--------------------------------------
AVERAGE U.S.
CONTRACT NOTIONAL FAIR
RATE AMOUNT VALUE
-------- -------- --------
<S> <C> <C> <C>
Euro....................................... 1.077 $9,675 $9,635
Japanese Yen............................... 114.715 7,806 8,528
British Pound Sterling..................... 1.602 2,963 3,060
Swedish Krone.............................. 8.285 1,485 1,511
Hong Kong Dollar........................... 7.771 579 579
Danish Kroner.............................. 7.081 395 404
Norwegian Kroner........................... 7.900 228 234
Canadian Dollar............................ 1.466 171 169
</TABLE>
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.
26
<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 2000, (the "1999 Proxy Statement") and is incorporated herein by
reference. The 1999 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 Coherent:
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD
- ---- -------- ---------------------------------------------------
<S> <C> <C>
Bernard J. Couillaud, Ph.D................ 55 President and Chief Executive Officer
Robert J. Quillinan....................... 52 Executive Vice President and Chief Financial
Officer
John R. Ambroseo, Ph.D.................... 38 Executive Vice President, President and General
Manager, Coherent Laser Group
Vittorio Fossati-Bellani, Ph.D............ 52 Executive Vice President, President and General
Manager, Coherent Semiconductor Group
James Taylor.............................. 50 Executive Vice President, President and General
Manager, Coherent Medical Group
Dennis C. Bucek........................... 54 Senior Vice President, Treasurer and Assistant
Secretary
Scott H. Miller........................... 45 Senior Vice President and General Counsel
Larry W. Sonsini.......................... 58 Secretary
</TABLE>
There are no family relationships between any of the executive officers and
directors.
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. Dr. Couillaud has been with Coherent since 1983, received his Ph.D. from
Bordeaux University and was a Professor of Physics at Stanford University.
Mr. Quillinan has served as Executive 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. Quillinan received his masters of science in accounting from
Clarkson University and is a CPA.
Dr. Ambroseo became Executive Vice President, and President and General
Manager of Coherent Laser Group in September 1997. He joined Coherent in 1988 as
a Sales Engineer and has served as Product Marketing Manager, U. S. Sales
Manager, Director of European Operations and most recently as Scientific
Business Unit Manager. Dr. Ambroseo received his Ph.D. in chemistry from the
University of Pennsylvania.
Dr. Fossati-Bellani became Executive Vice President, and President and
General Manager of Coherent Semiconductor Group in September 1997. He joined the
Italian office of Coherent in 1979 as a Scientific Sales Engineer and has served
in the capacity of Product Manager, Director of Marketing, Director of Business
Development, Scientific Business Unit Manager and Diode Laser Business Unit
Manager for the Coherent Laser Group. Dr. Fossati-Bellani received his doctorate
degree in physics in 1970 from the University of Milano, Italy.
Mr. Taylor has served as Executive Vice President and President and General
Manager of Coherent Medical Group since February 1999. From 1997 to 1999,
Mr. Taylor served as President and CEO of Andros, Inc., an analytical
instruments company headquartered in Berkeley, CA. From 1995 through 1997,
27
<PAGE>
Mr. Taylor served as President of Ohmeda Medical Systems Division and from
1993-1994 as Vice President, Marketing, Medical Systems Division of Ohmeda
Medical, Inc. Mr. Taylor holds a master's degree from John Hopkins University
and attended the Stanford Executive Institute.
Mr. Bucek has served as Senior Vice President, Treasurer and Assistant
Secretary since August 1985. He received a bachelor's degree from Mankato State
University and is a CPA.
Mr. Miller has served as General Counsel to Coherent since October 1988 and
as Senior Vice President since March 1994. He received a bachelor's degree in
economics from UCLA in 1977 and J.D. in 1980 from Stanford Law School.
For over eight years, Mr. Larry Sonsini has served as Coherent's Secretary.
He is a member of the law firm Wilson, Sonsini, Goodrich & Rosati, P.C. in Palo
Alto, California.
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 1999 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 1999 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 1999 Proxy Statement and is incorporated herein by reference.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND FORM 8-K REPORTS
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
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.............................. 33
Consolidated Balance Sheets--October 2, 1999 and September
26, 1998................................................ 34
Consolidated Statements of Income--Years ended October 2,
1999, September 26, 1998 and September 27, 1997......... 35
Consolidated Statements of Stockholders' Equity--Years
ended October 2, 1999, September 26, 1998 and September
27, 1997................................................ 36
Consolidated Statements of Cash Flows--Years ended October
2, 1999, September 26, 1998 and September 27, 1997...... 37
Notes to Consolidated Financial Statements.................. 39
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts.............. 62
</TABLE>
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
None
29
<PAGE>
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS
- ---------------------
<C> <S>
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.)
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 Coherent and the Bank of Boston.
(Previously filed as Exhibit 4.1 to Form 8K filed on
November 3, 1989.)
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.
(Previously filed as Exhibit 10.34 to Form 10-K for the
fiscal year ended September 29, 1990.)
10.36 Note Purchase Agreement by and between Coherent, Inc. and
the purchasers of $70 million series notes dated May 18,
1999.
21.1 Subsidiaries.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
27 Financial Data Schedule
</TABLE>
- ------------------------
* These exhibits were previously filed with the Commission as indicated and are
incorporated herein by reference.
30
<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 15, 1999.
<TABLE>
<S> <C> <C>
COHERENT, INC.
By: /s/ BERNARD COUILLAUD
-----------------------------------------
Bernard Couillaud
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
31
<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:
<TABLE>
<S> <C>
/s/ BERNARD J. COUILLAUD December 15, 1999
- ------------------------------------------- ----------------------------------------
Bernard J. Couillaud Date
(Director, President & Chief Executive Officer)
/s/ ROBERT J. QUILLINAN December 15, 1999
- ------------------------------------------- ----------------------------------------
Robert J. Quillinan Date
(Executive Vice President & Chief Financial Officer)
/s/ HENRY E. GAUTHIER December 15, 1999
- ------------------------------------------- ----------------------------------------
Henry E. Gauthier Date
(Director, Chairman of the Board)
/s/ CHARLES W. CANTONI December 15, 1999
- ------------------------------------------- ----------------------------------------
Charles W. Cantoni Date
(Director)
/s/ FRANK CARRUBBA December 15, 1999
- ------------------------------------------- ----------------------------------------
Frank Carrubba Date
(Director)
/s/ THOMAS SLOAN NELSEN December 15, 1999
- ------------------------------------------- ----------------------------------------
Thomas Sloan Nelsen Date
(Director)
/s/ JERRY E. ROBERTSON December 15, 1999
- ------------------------------------------- ----------------------------------------
Jerry E. Robertson Date
(Director)
</TABLE>
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Coherent, Inc.:
We have audited the accompanying consolidated balance sheets of
Coherent, Inc. and its subsidiaries, as of October 2, 1999 and September 26,
1998, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended
October 2, 1999. 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 Coherent'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 October 2, 1999 and September 26, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
October 2, 1999 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
November 1, 1999
33
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 26,
1999 1998
---------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 38,279 $ 15,944
Short-term investments.................................... 30,637 16,954
Accounts receivable--net of allowances of $4,592 in 1999
and $4,817 in 1998...................................... 95,003 86,822
Inventories............................................... 97,902 103,541
Prepaid expenses and other assets......................... 18,738 22,895
Deferred tax assets....................................... 37,014 26,618
-------- --------
TOTAL CURRENT ASSETS........................................ 317,573 272,774
-------- --------
PROPERTY AND EQUIPMENT...................................... 165,630 147,775
ACCUMULATED DEPRECIATION AND AMORTIZATION................... (75,676) (64,918)
-------- --------
Property and equipment--net............................... 89,954 82,857
-------- --------
GOODWILL--net of accumulated amortization of $9,372 in 1999
and $6,912 in 1998........................................ 39,490 11,595
OTHER ASSETS................................................ 48,451 23,535
-------- --------
$495,468 $390,761
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 14,371 $ 11,645
Current portion of long-term obligations.................. 8,599 788
Accounts payable.......................................... 18,343 17,851
Income taxes payable...................................... 8,221 9,160
Other current liabilities................................. 73,120 59,603
-------- --------
TOTAL CURRENT LIABILITIES................................... 122,654 99,047
-------- --------
LONG-TERM OBLIGATIONS....................................... 74,745 12,828
OTHER LONG-TERM LIABILITIES................................. 16,819 12,599
MINORITY INTEREST IN SUBSIDIARIES........................... 3,945 3,664
STOCKHOLDERS' EQUITY:
Common stock, par value $.01:
Authorized--100,000 shares
Outstanding--24,142 in 1999 and 23,736 in 1998.......... 240 236
Additional paid-in capital................................ 106,748 102,469
Notes receivable from stock sales......................... (557) (310)
Accumulated other comprehensive income.................... 136 1,331
Retained earnings......................................... 170,738 158,897
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 277,305 262,623
-------- --------
$495,468 $390,761
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
34
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
OCT. 2, SEPT. 26, SEPT. 27,
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
NET SALES................................................... $468,869 $410,449 $391,038
COST OF SALES............................................... 248,203 212,584 185,536
-------- -------- --------
GROSS PROFIT................................................ 220,666 197,865 205,502
-------- -------- --------
OPERATING EXPENSES:
Research and development.................................. 46,759 44,534 39,406
In-process research and development....................... 16,000 9,315
Selling, general and administrative....................... 134,129 124,555 110,813
Intangibles amortization.................................. 5,701 4,644 3,658
-------- -------- --------
TOTAL OPERATING EXPENSES.................................... 202,589 173,733 163,192
-------- -------- --------
INCOME FROM OPERATIONS...................................... 18,077 24,132 42,310
OTHER INCOME (EXPENSE):
Interest and dividend income.............................. 3,042 1,274 1,404
Interest expense.......................................... (3,755) (1,236) (1,226)
Foreign exchange loss..................................... (163) (711) (350)
Other--net................................................ (971) 246 4,656
-------- -------- --------
TOTAL OTHER INCOME (EXPENSE), NET........................... (1,847) (427) 4,484
-------- -------- --------
INCOME BEFORE INCOME TAXES.................................. 16,230 23,705 46,794
PROVISION FOR INCOME TAXES.................................. 4,389 4,894 20,502
-------- -------- --------
NET INCOME.................................................. $ 11,841 $ 18,811 $ 26,292
======== ======== ========
NET INCOME PER SHARE:
Basic..................................................... $ .49 $ .80 $ 1.16
Diluted................................................... $ .48 $ .79 $ 1.12
======== ======== ========
SHARES USED IN COMPUTATION:
Basic..................................................... 23,957 23,374 22,664
Diluted................................................... 24,633 23,749 23,480
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
35
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 2, 1999, SEPTEMBER 26, 1998, AND SEPTEMBER 27, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK ACCUM.
------------------- ADD. NOTES REC. OTHER TOTAL
PAR PAID-IN FROM STOCK RETAINED COMP. COMP.
SHARES VALUE CAPITAL SALES EARNINGS INCOME TOTAL INCOME
-------- -------- -------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1996... 22,422 $ 222 $ 82,828 $(845) $113,794 $1,588 $197,587
Net income.................... 26,292 26,292 $26,292
Other comprehensive income,
translation adjustment, net
of tax...................... (1,321) (1,321) (1,321)
-------
Total comprehensive
income................ $24,971
=======
Sales of shares under Employee
Stock Option Plan........... 310 4 2,358 2,362
Productivity Incentive Plan
distributions............... 38 730 730
Sales of shares under Employee
Stock Purchase Plan......... 156 2 2,435 2,437
Tax benefit of Employee Stock
Option Plan................. 1,505 1,505
Acquisition of business....... 894 894
Collection of notes
receivable.................. 747 747
------ ------ -------- ----- -------- ------ -------- -------
BALANCE, SEPTEMBER 27, 1997... 22,926 228 90,750 (98) 140,086 267 231,233
Net income.................... 18,811 18,811 $18,811
Other comprehensive income,
translation adjustment, net
of tax...................... 1,064 1,064 1,064
-------
Total comprehensive
income................ $19,875
=======
Sales of shares under Employee
Stock Option Plan........... 459 5 3,692 (212) 3,485
Productivity Incentive Plan
distributions............... 17 401 401
Sales of shares under Employee
Stock Purchase Plan......... 209 2 3,355 3,357
Tax benefit of Employee Stock
Option Plan................. 1,397 1,397
Issuance of shares pursuant to
1995 business acquisition... 125 1 2,874 2,875
------ ------ -------- ----- -------- ------ -------- -------
BALANCE, SEPTEMBER 26, 1998... 23,736 236 102,469 (310) 158,897 1,331 262,623
Net income.................... 11,841 11,841 $11,841
Other comprehensive income,
translation adjustment, net
of tax...................... (1,195) (1,195) (1,195)
-------
Total comprehensive
income................ $10,646
=======
Sales of shares under Employee
Stock Option Plan........... 201 2 1,974 (247) 1,729
Productivity Incentive Plan
distributions............... 25 329 329
Sales of shares under Employee
Stock Purchase Plan......... 180 2 1,540 1,542
Tax benefit of Employee Stock
Option Plan................. 436 436
------ ------ -------- ----- -------- ------ --------
BALANCE, OCTOBER 2, 1999...... 24,142 $ 240 $106,748 $(557) $170,738 $ 136 $277,305
====== ====== ======== ===== ======== ====== ========
</TABLE>
36
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
OCT. 2, SEPT. 26, SEPT. 27,
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 11,841 $ 18,811 $26,292
Adjustments to reconcile net income to net cash provided
by operating activities:
Purchased in-process research and development........... 16,000 9,315
Purchases of short-term trading investments............. (118,933) (139,943) (82,605)
Proceeds from sales of short-term trading investments... 105,250 133,171 98,400
Depreciation and amortization........................... 14,155 12,535 10,932
Intangibles amortization................................ 5,701 4,644 3,658
Issuance of common stock under Productivity Incentive
Plan.................................................. 329 401 730
Deferred income taxes................................... (10,453) (4,229) 710
Minority interest in subsidiaries....................... 1,118 909 1,610
Dividends paid to minority stockholders................. (1,196) (1,421)
Equity in (income) loss of joint ventures............... (436) (131) (287)
Changes in assets and liabilities:
Accounts receivable................................... (824) 8,958 (12,830)
Inventories........................................... 7,914 (16,030) (19,803)
Prepaid expenses and other assets..................... 387 (3,887) (7,571)
Accounts payable...................................... (895) (500) 5,952
Other current liabilities............................. 8,662 5,064 (5,187)
-------- -------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 38,620 18,352 29,316
======== ======== =======
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (24,225) (22,351) (24,864)
Dispositions of property and equipment, net............. 2,934 102 541
Sale of Porter Drive facility........................... 9,631
Acquisition of businesses, net of cash acquired......... (64,012) (841) (15,351)
Other--net.............................................. (4,910) (3,126) (2,215)
-------- -------- -------
NET CASH USED FOR INVESTING ACTIVITIES...................... (90,213) (26,216) (32,258)
======== ======== =======
(CONTINUED)
</TABLE>
37
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
OCT. 2, SEPT. 26, SEPT. 27,
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term debt borrowings............................... $ 71,784 $ 4,301 $ 3,444
Long-term debt repayments............................... (1,333) (1,347) (3,372)
Short-term borrowings................................... 18,271 24,018 40,107
Short-term repayments................................... (17,084) (30,843) (24,432)
Cash overdrafts......................................... 694 (7,957)
Repayments of capital lease obligations................. (163) (24)
Sales of shares under employee stock option and purchase
plans, net............................................ 3,271 6,842 4,799
Collection of notes receivable from stock sales......... 747
-------- -------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES................... 75,440 2,971 13,312
======== ======== =======
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND EQUIVALENTS..... (1,512) (618) 1,871
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............. 22,335 (5,511) 12,241
Cash and equivalents, beginning of year................. 15,944 21,455 9,214
-------- -------- -------
CASH AND EQUIVALENTS, END OF YEAR........................... $ 38,279 $ 15,944 $21,455
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.............................................. $ 3,755 $ 1,236 $ 1,226
Income taxes.......................................... $ 14,972 $ 10,282 $26,644
======== ======== =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for 1995 acquisition
obligation............................................ $ 2,875
Equipment acquired under capital leases................. $ 1,278
ISSUANCE OF COMMON STOCK FOR NOTES RECEIVABLE........... $ 247 $ 212
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38
<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 or
Coherent). All significant intercompany balances and transactions have been
eliminated. Investments in business entities in which Coherent 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.
FISCAL YEAR
Coherent's fiscal year for 1999 included 53 weeks, fiscal 1998 and 1997 each
included 52 weeks.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates include, but are not limited to, allowances for
uncollectible accounts receivable and sales returns reserves, inventory
reserves, warranty costs, depreciation and amortization, taxes and
contingencies. Actual results could differ from those estimates.
ADOPTION OF NEW ACCOUNTING STANDARDS
Coherent adopted Financial Accounting Standards Board Statement (SFAS)
No. 131, "Disclosure about Segments of an Enterprise and Related Information" in
fiscal 1999. The statement requires certain financial and descriptive
information about operating segments, profit or loss, certain specific revenue
and expense items and segment assets. (See Note 13). The adoption of SFAS
No. 131 has no impact on the Company's net income, balance sheet or
stockholders' equity.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. In May 1999,
SFAS 133 was amended to defer its effective date. SFAS 133 will be effective for
Coherent's first quarterly filing of 2001. Management believes that this
statement will not have a significant impact on the Company's financial position
or results of operations.
FOREIGN CURRENCY TRANSLATION
The functional currency of Coherent'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 accumulated other comprehensive income. Foreign currency
transaction gains and losses are included in net earnings.
39
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Coherent'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.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Purchased parts and assemblies........................... $26,200 $ 30,421
Work-in-process.......................................... 33,098 33,684
Finished goods........................................... 38,604 39,436
------- --------
Inventories.............................................. $97,902 $103,541
======= ========
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 USEFUL LIFE
-------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land..................................... $ 7,212 $ 7,282
Buildings and improvements............... 41,939 41,217 20-31 years
Equipment, furniture and fixtures........ 103,373 88,942 3-10 years
Leasehold improvements................... 13,106 10,334 Terms of lease
-------- --------
Property and equipment................... $165,630 $147,775
======== ========
</TABLE>
GOODWILL
Goodwill relates to acquired subsidiaries and is being amortized on a
straight-line basis over estimated useful lives of three to forty years.
Coherent evaluates its long-lived assets, including goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable.
INTANGIBLE ASSETS
Intangible assets, recorded as other assets, include distribution rights,
acquired existing technology, licenses and patents and are amortized on a
straight-line basis over estimated useful lives of two to seventeen years.
Coherent evaluates its long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.
40
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
WARRANTY
Coherent warrants certain of its products and provides for estimated product
warranty costs at the time of sale.
REVENUE RECOGNITION
Coherent 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 Coherent to
concentrations of credit risk consist principally of cash equivalents,
short-term investments and accounts receivable. Coherent invests 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. At
October 2, 1999, the majority of its short-term investments are in repurchase
agreements, corporate obligations and federal agency obligations. The majority
of Coherent's accounts receivable are derived from sales to customers for
medical and surgical applications, scientific research applications, and
commercial applications. Coherent performs ongoing credit evaluations of its
customers' financial condition and limits the amount of credit extended when
deemed necessary but generally requires no collateral. Coherent maintains
reserves for potential credit losses.
INCOME TAXES
Coherent accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities. A valuation allowance is
established to reduce the deferred tax asset if it is "more likely than not"
that the related tax benefits will not be realized in the future.
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 $46,142,000 at October 2,
1999. Withholding taxes of approximately $2,270,000 would be payable upon
repatriation of such earnings which would result in additional foreign tax
credits.
DERIVATIVES
Coherent enters into forward exchange contracts to minimize the short-term
impact of foreign currency fluctuations on assets and liabilities and firm
commitments denominated in currencies other than the functional currency of the
reporting entity. All foreign exchange forward contracts are designated as and
effective as a hedge and are highly inversely correlated to the hedged item as
required by generally accepted accounting principles. Gains and losses on the
contracts that hedge foreign currency assets and liabilities are included in
other income and offset foreign exchange gains or losses from the revaluation of
intercompany balances or other current assets and liabilities denominated in
currencies other than the functional currency of the reporting entity. The cash
flow impact of Coherent's derivative hedges offsets the cash flow impact of the
foreign exchange movements on the underlying exposed asset and liability.
41
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Gains and losses on contracts that hedge firm commitments of foreign currency
purchases or sales are deferred and recognized at the time the hedged
transaction is recorded as an offset to the amount of the related purchase or
sale. Fair values of foreign exchange contracts are determined by obtaining
quoted market prices of comparable contracts, adjusted through interpolation
where necessary for maturity differences.
EARNINGS PER SHARE
Earnings per share (EPS) are computed as basic EPS using the weighted
average number of common shares outstanding and diluted EPS using the weighted
average number of common and dilutive common shares outstanding, in accordance
with SFAS 128 (See Note 10).
COMPREHENSIVE INCOME
On September 27, 1998, Coherent adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources.
STOCK-BASED COMPENSATION
As permitted under SFAS 123, "Accounting for Stock-Based Compensation"
Coherent accounts for stock-based awards to employees using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees". (See Note 9).
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation. Such reclassifications had no impact on net income or
stockholders' equity for any year presented.
2. ACQUISITIONS
During the three fiscal years ended October 2, 1999, Coherent made the
acquisitions described in the following paragraphs, each of which has been
accounted for as a purchase. The consolidated financial statements include the
operating results of each business from the date of acquisition. Proforma
results of operations have not been presented, except for the acquisition of
Star Medical Technologies, Inc., because the effects of these acquisitions were
not material on either an individual or an aggregate basis. The amounts
allocated to purchased in-process research and development were determined
through established valuation techniques in the high technology industry and
were expensed upon acquisition, because technological feasibility had not been
established and no future alternative uses existed. Research and development
costs to complete development of the research and development from these
acquired companies to technological feasibility are not expected to have a
material impact on Coherent's future results of operations or cash flows.
Amounts allocated to goodwill and other intangibles arising from such
acquisitions are amortized on a straight-line basis over periods ranging from
three to fifteen years.
In April 1999, Coherent acquired all of the outstanding shares of Star
Medical Technologies, Inc. (Star) for approximately $67.0 million (consisting of
$65.0 million in cash, $1.7 million of unamortized distribution rights and
$0.3 million of acquisition costs) from Palomar Medical Technologies, Inc. and
from
42
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
certain Star employees. Star, based in Pleasanton, California, manufactures
LightSheer-TM- laser diode systems, which have received FDA approval for hair
removal and the treatment of leg veins. The acquisition was treated as a
purchase and, accordingly, the acquired assets and liabilities were recorded at
their fair market values at the date of acquisition.
The aggregate purchase price of $67.0 million (including acquisition costs)
has been allocated to the assets and in-process research and development
acquired. The total purchase price was allocated among the assets acquired
(including acquired in-process research and development) as follows (in
thousands):
<TABLE>
<S> <C>
Purchase price allocation:
Tangible assets............................................. $ 11,214
In-process research and development......................... 16,000
Intangible assets:
Goodwill................................................ 30,868
Existing technology..................................... 19,200
Workforce............................................... 1,700
Liabilities assumed......................................... (10,841)
Deferred tax liabilities.................................... (1,170)
--------
Total....................................................... $ 66,971
========
</TABLE>
The goodwill is being amortized over its estimated useful life of 15 years.
The existing technology and workforce assets are being amortized over their
estimated useful lives of 7 and 3 years, respectively.
The purchase price allocation and intangible valuation was based on
management's estimates of the after-tax net cash flows and gave explicit
consideration to the Securities and Exchange Commission's views on purchased
in-process research and development as set forth in its September 9, 1998 letter
to the American Institute of Certified Public Accountants. Specifically, the
valuation gave consideration to the following: (i) the employment of a fair
market value premise excluding any Coherent-specific considerations which could
result in estimates of investment value for the subject assets;
(ii) comprehensive due diligence concerning all potential intangible assets
including trademarks\trade names, patents, copyrights, noncompete agreements,
assembled workforce, customer relationships and sales channel; (iii) the value
of existing technology was specifically addressed, with a view toward ensuring
the relative allocations to existing technology and in-process research and
development were consistent with the relative contributions of each to the final
product; and (iv) the allocation to in-process research and development was
based on a calculation that considered only the efforts completed as of the
transaction date, and only the cash flow associated with said completed efforts
for one generation of the products currently in process.
As indicated above, Coherent recorded a one-time charge of $16,000,000
($10,734,000 net of tax) in 1999 for purchased in-process research and
development related to five development projects. The charge related to the
portion of these products, excluding existing technology, that had not reached
technological feasibility, had no alternative future use and for which
successful development was uncertain. Management's conclusion that the
in-process development effort had no alternative future use was reached in
consultation with the engineering personnel from both Coherent and Star.
The first of these projects is a new product in the LightSheer family that
results in a 50% increase in power and twice the coverage by incorporating a new
heat exchanger, thermoelectric cooling system,
43
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
sapphire tip and software. At the time of acquisition, the development was 86%
complete and the estimated cost to complete was $0.2 million. Coherent began
shipping the product in May 1999. The second of these projects is a next
generation LightSheer product that incorporates a new microprocessor and
touch-screen as well as redesigns the packaging to improve serviceability. At
the time of acquisition, the development was 78% complete and the estimated cost
to complete was $0.5 million. Coherent began shipping the product in July 1999.
The third of these projects is a new product in the LightSheer family that will
result in increased coverage and will require a new clinical trial. At the time
of acquisition, the development was 72% complete and the estimated cost to
complete was $0.6 million. Management expects that the product will become
available for sale in fiscal 2000. The fourth project is a new application of
the semiconductor diode array technology, originally developed for hair removal,
in a laser-based diagnostic system. At the time of acquisition, the development
was 58% complete and the estimated cost to complete was $1.0 million. Management
expects that the product will become available for sale in fiscal 2001. The
fifth development project is an ensemble of diode array products. At the time of
acquisition, the development was 54% complete and the estimated cost to complete
was $1.4 million. Management expects that the product will become available for
sale in fiscal 2001, however, no assurances can be given as to the availability,
if any.
Coherent will begin to benefit from the acquired research and development of
these products once they begin shipping. Failure to reach successful completion
of these projects could result in impairment of the associated capitalized
intangible assets and could require Coherent to accelerate the time period over
which the intangibles are being amortized, which could have a material adverse
effect on Coherent's business, financial condition, or results of operation.
Significant assumptions used to determine the value of in-process research
and development included several factors, including the following: (i) forecast
of net cash flows that were expected to result from the development effort using
projections prepared by Coherent's and Star's management; (ii) percentage
complete for the projects estimated by considering a number of factors,
including the costs invested to date relative to total cost of the development
effort and the amount of progress completed as of the acquisition date, on a
technological basis, relative to the overall technological achievements required
to achieve the functionality of the eventual product. The technological issues
were addressed by engineering representatives from both Coherent and Star, and
when estimating the value of the technology, the projected financial results of
the acquired assets were estimated on a stand-alone basis without any
consideration to potential synergic benefits or "investment value" related to
the acquisition. Accordingly, separate projected cash flows were prepared for
both the existing as well as the in-process projects. These projected results
were based on the number of units sold times average selling price less the
associated costs. After preparing the estimated cash flows from the products
being developed, a portion of these cash flows were attributed to the existing
technology, which was embodied in the in-process product lines and enabled a
quicker and more cost-effective development of these products. When estimating
the value of the existing and in-process technologies, discount rates of 15% and
30% were used, respectively. The discount rates considered both the status and
risks associated with the respective cash flows at the acquisition date.
44
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
Selected unaudited proforma combined results of operations for the years
ended October 2, 1999 and September 26, 1998, assuming the Star acquisition had
occurred on September 28, 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.................................. $485,617 $422,387
Net income................................. 22,334 980
Net income per diluted share............... 0.91 0.04
</TABLE>
In May 1999, Coherent issued $70 million of Senior Notes in a private bond
placement to finance the acquisition of Star. $44 million of the notes are due
in annual installments from May 2000 through May 2006, at a fixed interest rate
of 6.7%, and $26 million of the notes are due in annual installments from
May 2004 through May 2006, at a fixed interest rate of 6.91%.
In December 1997, Coherent entered into a joint venture agreement with Fiber
Optic Network Solutions Corporation (FONS) and Fiber Optic Transmission Systems
Corporation to engage in the business of the design, development, production and
marketing of fiber optic transmission and distribution systems in the field of
CATV, telecommunications and high-speed data transmission. A limited liability
company was formed, CFX Communication Systems, LLC, to which Coherent paid
$0.5 million to FONS' owners in exchange for 60% ownership of CFX. Coherent
recorded $0.4 million of goodwill associated with the purchase. The CFX joint
venture was unable to achieve its business objectives and ceased operations in
May 1999. The related goodwill has been fully amortized.
In May 1997, Coherent acquired the assets and operations of Ealing
Electro-Optics, located in Watford, England and its U.S. subsidiary located in
Holliston, Massachusetts for approximately $9.5 million in cash. Ealing is a
recognized leader in the design and manufacture of precision optical assemblies
as well as complete lens and thermal imaging test systems. In addition, Ealing
is a distributor of electro-optic components and its "Gold" catalog sells over
5,000 components to the photonics industry. The acquisition was accounted for as
a purchase and, accordingly, Coherent has recorded the approximately
$4.0 million excess of the purchase price over the fair value of net assets
acquired as goodwill, which is being amortized over 10 years.
In December 1996, Coherent acquired 80% of the outstanding shares of Tutcore
OY Ltd., located in Tampere, Finland for approximately $10.0 million (consisting
of $4.0 million of cash, $5.4 million of deferred payment obligations and
$0.6 million of acquisition costs). Tutcore specializes in the growth and
processing of aluminum-free epitaxial wafers used in semiconductor lasers. Also
in December 1996, Coherent purchased the net assets of Micracor, Inc. of Acton,
Massachusetts for approximately $0.9 million (consisting of $0.8 million of cash
and $0.1 million of acquisition costs). Micracor manufactures materials used in
semiconductor-based solid state microchip lasers for the telecommunications
market. These acquisitions were accounted for as purchases and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair market
values at the dates of the acquisitions. The aggregate purchase price of
$10.9 million (including acquisition costs) has been allocated to the assets and
liabilities acquired. Approximately $9.3 million of the total purchase price for
these entities represented the value of in-process technology that had not yet
reached technological feasibility and had no alternative future use, and was
charged to operations during the first quarter of fiscal 1997. Coherent's
consolidated results of operations include the operating results of the acquired
companies from their acquisition dates.
45
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS (CONTINUED)
In March 1998, Coherent issued 124,645 shares of Company stock ($2,875,000)
as payment for the remaining obligation relating to the 1995 acquisition of
Adlas GmbH and Co. KG, located in Lubeck, Germany.
3. BALANCE SHEET DETAILS
Prepaid expenses and other assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Prepaid income taxes...................................... $ 4,943 $10,275
Prepaid expenses and other................................ 13,795 12,620
------- -------
Prepaid expenses and other assets......................... $18,738 $22,895
======= =======
</TABLE>
Other assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Intangible assets......................................... $24,729 $ 8,609
Other assets.............................................. 22,470 13,419
Assets held for investment................................ 1,252 1,507
------- -------
Other assets.............................................. $48,451 $23,535
======= =======
</TABLE>
Assets held for investment at October 2, 1999 and September 26, 1998 include
Coherent's former manufacturing facility in Sturbridge, Massachusetts which
Coherent is leasing to Convergent Energy. Accumulated amortization of intangible
assets is $8,534,000 and $6,713,000 at October 2, 1999 and September 26, 1998.
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accrued payroll and benefits.............................. $25,132 $20,803
Accrued expenses and other................................ 22,567 14,495
Reserve for warranty...................................... 13,269 10,938
Deferred income........................................... 9,695 10,517
Customer deposits......................................... 2,457 2,850
------- -------
Other current liabilities................................. $73,120 $59,603
======= =======
</TABLE>
46
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET DETAILS (CONTINUED)
Other long-term liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred compensation..................................... $11,233 $ 8,200
Deferred income and other................................. 3,435 3,082
Environmental remediation costs........................... 1,169 1,269
Deferred tax liabilities.................................. 982 48
------- -------
Other long-term liabilities............................... $16,819 $12,599
======= =======
</TABLE>
4. 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 Coherent's long-term obligations
approximates fair market value.
The carrying amount and fair value of foreign exchange contracts was
$24.1 million at October 2, 1999. The carrying amount and fair value of foreign
exchange contracts was $29.5 million and $30.0 million at September 26, 1998,
respectively. 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, Coherent has exposures to foreign currency
fluctuations arising from foreign currency sales and purchases and intercompany
transactions, among other things. Coherent uses foreign exchange forward
contracts to limit its exposure to foreign exchange losses arising from
nonfunctional currency payables and receivables and firm commitments. Coherent
evaluates its net exposure therefrom and enters into forward contracts to hedge
the net exposure over a specified amount. 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 Coherent's financial
results. Costs associated with entering into such contracts are generally
amortized over the life of the instruments and are not material to Coherent's
financial results.
At October 2, 1999 and September 26, 1998, Coherent had foreign currency
forward contracts outstanding to hedge foreign currency accounts receivable and
accounts payable and sales backlog usually shippable within 90 days. These
contracts have maturities, which typically range from 90 to 360 days and
47
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FINANCIAL INSTRUMENTS (CONTINUED)
are intended to reduce exposure to foreign currency exchange risk. The aggregate
fair value and unrealized gain (loss) of foreign exchange contracts are as
follows:
<TABLE>
<CAPTION>
OCT. 2, 1999 SEPT. 26, 1998
------------------------ ------------------------
UNREALIZED UNREALIZED
FAIR VALUE GAIN (LOSS) FAIR VALUE GAIN (LOSS)
---------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Euro............................................... $ 9,635 $ 302
Japanese Yen....................................... 8,528 703 $10,317 $ 106
British Pound Sterling............................. 3,060 80 978 23
Swedish Krone...................................... 1,511 27 622 (6)
Hong Kong Dollar................................... 579 699 (15)
Danish Kroner...................................... 404 9
Norwegian Kroner................................... 234 7 486 (20)
Canadian Dollar.................................... 169 172 2
German Deutschemark................................ 9,465 (184)
French Franc....................................... 6,241 (322)
Austrian Schilling................................. 1,529 (51)
Belgian Franc...................................... 406 (30)
Finnish Mark....................................... (314) 21
Dutch Guilder...................................... (610) 34
------- ------ ------- -----
$24,120 $1,128 $29,991 $(442)
======= ====== ======= =====
</TABLE>
5. SHORT-TERM BORROWINGS
Short-term borrowings consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Borrowings under bank lines............................... $11,850 $ 9,479
Note payable to minority shareholder in subsidiary........ 2,521 2,166
------- -------
Short-term borrowings..................................... $14,371 $11,645
======= =======
</TABLE>
The note payable to minority shareholder in subsidiary is due upon four
weeks notice from the noteholder and bears interest at EURIBOR (Euro Interbank
Offered Rate) plus 0.5% with a maximum of 9.0%.
Coherent maintains lines of credit worldwide with several banks. Coherent's
primary domestic line of credit is a $20,000,000 unsecured revolving account
from Bank of America, which expires April 23, 2002. In addition, Coherent has
several foreign lines of credit which allow it to borrow in the applicable local
currency. These lines of credit total $38,852,000 and are concentrated in
Germany and Japan. Coherent'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. Amounts outstanding at October 2, 1999 were at a weighted
average interest rate of 2.4%. The Company's domestic lines of credit are
generally subject to standard covenants related to financial ratios,
profitability and dividend payments. Coherent was in compliance with all
financial covenants at October 2, 1999.
48
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal......................................... $ 5,138 $ 5,126 $ 9,789
State........................................... (853) 65 1,666
Foreign......................................... 10,367 7,171 10,660
-------- ------- -------
14,652 12,362 22,115
-------- ------- -------
Deferred:
Federal......................................... (9,772) (7,069) 1,601
State........................................... (342) (757) (35)
Foreign......................................... (149) 358 (3,179)
-------- ------- -------
(10,263) (7,468) (1,613)
-------- ------- -------
Provision for income taxes...................... $ 4,389 $ 4,894 $20,502
======== ======= =======
</TABLE>
The components of income before income taxes consist of:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States.................................... $(3,769) $ 8,037 $31,244
Foreign.......................................... 19,999 15,668 15,550
------- ------- -------
Income before income taxes....................... $16,230 $23,705 $46,794
======= ======= =======
</TABLE>
The reconciliation of the statutory federal income tax rate to the effective
rate is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
% OF % OF % OF
PRETAX PRETAX PRETAX
INCOME INCOME INCOME
-------- -------- --------
<S> <C> <C> <C>
Federal statutory tax rate........................... 35.0% 35.0% 35.0%
Benefit from favorable IRS ruling.................... (10.3)
Non-deductible purchased in-process technology....... 6.3
Foreign tax rates in excess of U.S. rates............ 19.8 7.8 4.4
Foreign tax credit................................... (13.6) (8.6) (1.8)
Foreign sales corporation benefit.................... (1.8)
State income taxes, net of federal income tax
benefit............................................ (4.8) (1.9) 2.3
Goodwill............................................. 1.1 0.3
Research and development credit...................... (2.6) (4.7) (2.9)
Other................................................ (5.0) 2.2 0.2
----- ----- ----
Provision for income taxes........................... 27.0% 20.6% 43.8%
===== ===== ====
</TABLE>
49
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The significant somponents of deferred tax assets and liabilities were:
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 26,
1999 1998
---------- -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not currently deductible........ $26,600 $18,402
Operating loss carry forwards and tax credits......... 6,464 6,683
Intercompany profit................................... 2,240 1,179
Deferred service revenue.............................. 2,813 2,462
State taxes........................................... 1,114
Depreciation and amortization......................... 5,891 620
Other................................................. 2,685 2,456
------- -------
46,693 32,916
Valuation allowance................................... (2,300) (3,567)
------- -------
44,393 29,349
Deferred tax liabilities:
Other................................................. 2,735 2,779
------- -------
2,735 2,779
------- -------
Total deferred tax assets and liabilities............. $41,658 $26,570
======= =======
</TABLE>
Coherent decreased its valuation allowance in fiscal 1999 by $1,267,000
related to the write-off foreign tax credit carryforwards that expired.
The total net deferred tax asset is classified on the balance sheet at
October 2, 1999 and September 26, 1998 as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current deferred income tax assets........................ $37,014 $26,618
Non-current deferred income tax assets.................... 5,626
Non-current deferred income tax liabilities............... (982) (48)
------- -------
Net deferred tax assets................................... $41,658 $26,570
======= =======
</TABLE>
Total net operating losses of $1,855,000 for tax return purposes expire in
2004. Total tax credits of $923,000 for tax return purposes expire as follows:
2003--$759,000 and 2004--$164,000.
Utilization of certain of these carryforwards is subject to restrictions
relating to taxable income of subsidiaries not previously consolidated for
income tax purposes.
50
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. LONG-TERM OBLIGATIONS
The components of long-term obligations are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Notes payable............................................. $77,142 $ 8,292
Bonds payable............................................. 1,800 2,200
Capital leases............................................ 1,297 19
Deferred acquisition payment (Note 2)..................... 3,105 3,105
------- -------
83,344 13,616
Current portion........................................... (8,599) (788)
------- -------
Long-term obligations..................................... $74,745 $12,828
======= =======
</TABLE>
NOTES PAYABLE--At October 2, 1999, notes payable consists of $70.0 million
($44.0 million at 6.7% and $26.0 million at 6.9%) to finance the Star
acquisition, $2.1 million at 8.0% for the mortgage on the CEEL facility,
$3.1 million at 1.0% to 8.2% of outside financing for Tutcore and $2.0 million
at 4.5% of outside financing by Lambda GmbH. 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 bonds are payable in installments through 2008 with a variable
interest rate (4.71% at October 2, 1999) not to exceed 12%. The bonds are
guaranteed by a letter of credit issued by Union Bank with an annual fee of
1.5%.
Annual maturities of debt are: 2000--$8,349,000, 2001--$7,523,000,
2002--$9,663,000, 2003--$7,452,000, 2004--$15,826,000 and thereafter
$33,234,000.
8. STOCKHOLDERS' EQUITY
Each outstanding share of Coherent's common stock carries a stock purchase
right (right) issued pursuant to a dividend distribution declared by Coherent'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
Coherent'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 of Coherent'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. Coherent 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 Coherent's
common stock.
If, prior to redemption of the rights, Coherent is acquired in a merger or
other business combination in which Coherent is the surviving corporation, or a
person or group acquires 30% or more of Coherent'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 Coherent having a fair market value equal to twice the right's
exercise price. If Coherent 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.
51
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE STOCK OPTION AND 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
Coherent'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 1999, 25,097 shares (fair market value of $402,003) and $3,080,306 were
accrued for the benefit of employees. For fiscal 1998, 20,674 shares (fair
market value of $346,889) and $2,467,724 were accrued for the benefit of
employees. For fiscal 1997, 30,616 shares (fair market value of $686,029) and
$4,247,005 were accrued for the benefit of employees. At October 2, 1999,
Coherent had 25,397 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, Coherent matches
employee contributions to the Plan up to a maximum of 6% of the employee's
individual earnings. Employees become eligible for participation and for Company
matching contributions after completing one year of service. Coherent's
contributions (net of forfeitures) for fiscal 1999, 1998, and 1997 were
$3,757,000, $3,322,000 and $3,057,000, respectively.
SUPPLEMENTAL RETIREMENT PLAN
Coherent 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. Coherent will match these contributions up to an amount
equal to 6% of such participants' earnings less any amounts contributed by
Coherent to such participant under the Coherent Employee Retirement and
Investment Plan. Coherent's contributions (net of forfeitures) for fiscal 1999,
1998, and 1997 were $18,117, $13,602 and $17,834, respectively.
EMPLOYEE STOCK PURCHASE PLAN
Coherent 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 1999, 180,295 shares were purchased by
and distributed to employees at an average price of $8.55 per share. In fiscal
1998, 208,270 shares were purchased by and distributed to employees at an
average price of $16.11 per share. In fiscal 1997, 155,206 shares were purchased
by and distributed to employees at an average price of $15.69 per share.
At October 2, 1999, $3,686,000 had been contributed by employees that will
be used to purchase a maximum of 559,988 shares in fiscal 2000 at a price
determined under the terms of the Plan. At October 2, 1999, Coherent had
2,223,000 shares of its common stock reserved for future issuance under the
plan.
STOCK OPTION PLANS
Coherent has two Stock Option Plans and a non-employee Directors' Stock
Option Plan. Under these plans, Coherent may grant options to purchase up to
9,000,000 and 400,000 shares of common stock, respectively. Employee options are
generally exercisable three years from the grant date, at the fair market
52
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE STOCK OPTION AND BENEFIT PLANS (CONTINUED)
value of the common stock on the date of the grant, which typically coincides
with the annual shareholders meeting, however, initial grants to employees vest
25% annually. Director options are automatically granted to non-employee
directors of Coherent. Such directors initially receive a stock option for
20,000 shares exercisable over a four-year period. Additionally, the
non-employee directors receive an annual grant of 5,000 shares exercisable four
years from the date of grant. Grants under all plans expire six years from the
original grant date.
Option activity for all plans is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------------
NUMBER OF WEIGHTED AVERAGE EXERCISE
SHARES PRICE PER SHARE
--------- -------------------------
<S> <C> <C>
OUTSTANDING, SEPTEMBER 28, 1996 (462,200 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $6.51).......................... 2,180,600 $13.17
Options granted (weighted avg. fair value of $9.00)......... 898,100 20.56
Options exercised........................................... (315,200) 7.64
Options canceled............................................ (143,700) 17.24
--------- ------
OUTSTANDING, SEPTEMBER 27, 1997 (634,900 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $8.58).......................... 2,619,800 16.17
Options granted (weighted average fair value of $5.25)...... 983,900 11.71
Options exercised........................................... (473,800) 8.68
Options canceled............................................ (247,600) 18.56
--------- ------
OUTSTANDING, SEPTEMBER 26, 1998 (757,500 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $14.00)......................... 2,882,300 15.67
Options granted (weighted average fair value of ($6.82)..... 1,405,300 14.71
Options exercised........................................... (201,000) 9.83
Options canceled............................................ (393,100) 17.58
--------- ------
OUTSTANDING, OCTOBER 2, 1999 (1,099,000 EXERCISABLE AT A
WEIGHTED AVERAGE PRICE OF $16.59)......................... 3,693,500 $15.40
========= ======
</TABLE>
53
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE STOCK OPTION AND BENEFIT PLANS (CONTINUED)
At October 2, 1999, 2,821,500 options were available for future grant under
all plans. The following table summarizes information about fixed stock options
outstanding at October 2, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ----------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ------------ -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$6.00--6.56.......... 110,170 0.60 $ 6.44 110,180 $ 6.44
6.75--8.94.......... 672,650 4.89 8.92 95,850 8.85
9.00--13.06......... 397,760 5.41 12.61 10,250 9.83
13.19--14.50........ 621,540 3.95 14.15 245,650 13.75
14.63--15.88........ 510,440 5.54 15.69 8,500 15.81
15.94--19.56........ 441,340 3.27 18.99 301,450 19.49
19.63--19.63........ 455,050 3.57 19.63 81,700 19.63
19.94--24.13........ 371,050 3.68 22.12 175,120 21.69
24.25--27.44........ 92,300 3.50 24.46 49,900 24.46
27.75--27.75........ 21,200 2.61 27.75 20,400 27.75
- -------------------- --------- ----- ------ --------- ------
$6.00--27.75......... 3,693,500 4.22 $15.40 1,099,000 $16.59
========= =========
</TABLE>
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of proforma net income (loss) and earnings (loss) per share had
Coherent adopted the fair value method as of the beginning of fiscal 1996. Under
SFAS 123, the fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such models were developed
to estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from Coherent's stock
option awards. These models also require subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values.
Coherent's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Expected life in years................... 3.82 - 4.08 3.87 - 3.98 3.85 - 4.07
Expected volatility...................... 52.3% 50.2% 46.7%
Risk-free interest rate.................. 5.3% 5.5% 6.2%
Expected dividends....................... NONE none none
</TABLE>
54
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE STOCK OPTION AND BENEFIT PLANS (CONTINUED)
Coherent's calculations are based on a single option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1999, 1998 and 1997 awards had been amortized to expense over the vesting period
of the awards, proforma net income and earnings per share would appear as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net income.......................................... As reported $11,841 $18,811 $26,292
Proforma $ 7,306 $15,283 $23,765
Net income per diluted share........................ As reported $ 0.48 $ 0.79 $ 1.12
Proforma $ 0.30 $ 0.64 $ 1.01
</TABLE>
The impact of outstanding non-vested stock options granted prior to fiscal
1996 has been excluded from the proforma calculation; accordingly, the fiscal
1999, 1998 and 1997 proforma amounts are not indicative of future period
proforma amounts, when the calculation will apply to all applicable stock
options.
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 4.7
to 7.1% and are collateralized by the stock issued upon exercise of the stock
options. Interest is payable annually and principal is due through 2004.
10. EARNINGS PER SHARE
Basic earnings per share is computed based on the weighted average number of
shares outstanding during the period. Diluted earnings per share is computed
based on the weighted average number of shares outstanding during the period
increased by the effect of dilutive stock options and stock purchase contracts,
using the treasury stock method, and shares issuable under the Productivity
Incentive Plan.
The following table presents information necessary to calculate basic and
diluted earnings per common and common equivalent share:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Weighted average shares outstanding--Basic.................. 23,957 23,374 22,664
Common stock equivalents.................................. 435 354 755
Employee stock purchase plan equivalents.................. 241 21 61
------- ------- -------
Weighted average shares and equivalents--Diluted............ 24,633 23,749 23,480
======= ======= =======
Net income for basic and diluted earnings per share
computation............................................... $11,841 $18,811 $26,292
======= ======= =======
Net income per share--basic................................. $ 0.49 $ 0.80 $ 1.16
Net income per share--diluted............................... $ 0.48 $ 0.79 $ 1.12
</TABLE>
1,602,000, 1,546,000, and 69,000 anti-dilutive weighted shares have been
excluded from the dilutive share equivalents calculation at October 2, 1999,
September 26, 1998 and September 27, 1997, respectively.
55
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. OTHER INCOME (EXPENSE)
Other income (expense) is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------
OCT. 2, SEPT. 26, SEPT. 27,
1999 1998 1997
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Gain on sale of facility.................................... $ 3,526
Minority interest in subsidiaries........................... $(1,118) $(908) (1,324)
Royalty income.............................................. 328 683 951
Equity in income of joint ventures.......................... 436 131 287
Gain (loss) on investments, net............................. (224) 45 (41)
Other--net.................................................. (393) 295 1,257
------- ----- -------
Other income (expense) net.................................. $ (971) $ 246 $ 4,656
======= ===== =======
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Coherent leases several of its facilities under operating leases. In
addition, Coherent leases the land for its Auburn manufacturing facilities under
long-term fixed leases.
During the first quarter of fiscal 1997, Coherent signed a lease for 216,000
square feet of office, research and development and manufacturing space for its
Medical Group headquarters in Santa Clara, California. The lease expires in
December 2001. Coherent has an option to purchase the property for
$24.0 million, or at the end of the lease arrange for the sale of the property
to a third party with Coherent retaining an obligation to the owner for the
difference between the sale price, if less than $24.0 million, and
$24.0 million, subject to certain provisions of the lease. If Coherent does not
purchase the property or arrange for its sale as discussed above, Coherent would
be obligated for an additional lease payment of approximately $21.5 million
(included in future minimum lease payments below). Coherent occupied the
building in July 1998 and commenced lease payments at that time. The lease
requires Coherent to maintain specified financial covenants, all of which
Coherent was in compliance with as of October 2, 1999.
Future minimum payments under Coherent's leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
- ------------------ -------- ---------
(IN THOUSANDS)
<S> <C> <C>
2000........................................................ $ 308 $ 5,766
2001........................................................ 303 3,096
2002........................................................ 303 23,443
2003........................................................ 303 1,054
2004........................................................ 226 555
Thereafter.................................................. 4,894
------ -------
Total....................................................... $1,443 $38,808
=======
Amount representing interest................................ 146
------
Present value of minimum lease payments..................... $1,297
======
</TABLE>
56
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense was $8,986,000 in fiscal 1999, $7,593,000 in fiscal 1998, and
$7,462,000 in fiscal 1997.
In September 1988, Coherent entered into several agreements with Patlex
Corporation (Patlex) whereby Coherent was granted licenses to several laser
related patents developed by Dr. Gordon Gould and assigned to Patlex. Under the
terms of the agreements, Coherent 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 $699,000 in fiscal 1999, $893,000 in fiscal 1998, and $1,131,000 in fiscal
1997. The patents expire on various dates through May 2005.
CONTINGENCIES
Certain claims and lawsuits have been filed or are pending against Coherent.
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 Coherent's consolidated financial
position or results of operations.
Coherent, 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 Coherent's former
headquarters facility is located. The responding parties to the Regional Order
(including Coherent) 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.
Coherent 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 Coherent for this site. Coherent has been operating remedial systems
at the site to remove subsurface chemicals since April 1992. During fiscal 1997,
Coherent settled 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.
Management believes that Coherent's probable, nondiscounted net liability at
October 2, 1999 for remaining costs associated with the above environmental
matters is $1.0 million, which has been previously accrued. This amount consists
of total estimated probable costs of $1.3 million ($0.1 million included in
other current liabilities and $1.2 million included in other long-term
liabilities) reduced by minimum probable recoveries of $0.3 million included in
other assets from other parties named to the order.
13. OPERATING SEGMENTS
In fiscal 1999, Coherent adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The statement establishes standards
for reporting information about operating segments and related disclosures about
products, geographic information and major customers.
Coherent is organized around four separately managed business units: the
Laser Group, the Semiconductor Group, the Medical Group and the Lambda Group.
Consistent with the rules of SFAS No. 131, we have aggregated these four
business units into three reportable segments. The Semiconductor Group was
57
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. OPERATING SEGMENTS (CONTINUED)
combined with the Laser Group in the Electro-Optics segment as they have similar
economic characteristics and are similar in the following: nature of
products\services, nature of production process, type/class of customer,
distribution methods and nature of regulatory environment. The Electro-Optics
segment produces lasers and laser systems for scientific, medical research,
micromachining, commercial applications, semiconductor inspection,
telecommunications, precision optics and related accessories, including optics
and optical products such as special purpose lenses, mirrors and advanced
optical coatings. The Medical segment 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. The Lambda segment develops and manufactures excimer, DPSS, and
tunable lasers including dye lasers and optical parametric oscillators.
Coherent's Chief Executive Officer and Chief Financial Officer have been
identified as the chief operating decision makers (CODMs) for SFAS 131 purposes
as they assess the performance of the business units and decide how to allocate
resources to the business units. Pretax income is the measure of profit and loss
that our CODMs use to assess performance and make decisions. Pretax income
represents the sales less the cost of sales and direct expenses incurred within
the operating segments. In addition, Coherent's corporate expenses, except for
depreciation of corporate assets and general legal expenses, are allocated to
the operating segments and are included in the results below. Corporate expenses
not allocated to the groups (depreciation of corporate assets and general legal
expenses) are included in Corporate and Other in the reconciliation of operating
results. Further, interest expense, interest income and the provision for income
taxes are included in Corporate and Other in the reconciliation of operating
results.
Intersegment sales are accounted for primarily at domestic selling prices.
As the CODMs monitor headcount, depreciation and amortization expense and
capital expenditures by operating segment, these amounts are presented below.
The CODMs do not review total assets by segment, but they do review net trade
receivables, net inventories and net property and equipment by operating
segment. The accounting policies for reported segments are the same as for
Coherent as a whole (see Note 1).
58
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. OPERATING SEGMENTS (CONTINUED)
REPORTABLE OPERATING SEGMENTS
Information on reportable segments for the three years ended October 2,
1999, September 26, 1998 and September 27, 1997 is as follows (in thousands,
except headcount):
<TABLE>
<CAPTION>
ELECTRO- CORPORATE
1999 OPTICS MEDICAL LAMBDA AND OTHER TOTAL
- ---- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net Sales.................................. $233,057 $162,719 $73,093 $468,869
Intersegment Net Sales..................... 20,823 934 999 22,756
Gross Profit............................... 109,291 78,662 32,713 220,666
Research & Development Expense............. 22,694 14,661 9,404 46,759
Purchased Research & Development........... 4,000 12,000 16,000
Selling, General & Administration.......... 55,679 60,616 17,109 $ 725 134,129
Amortization of Intangibles................ 2,241 3,295 165 5,701
-------- -------- ------- -------- --------
Total Operating Expenses................... 84,614 90,572 26,678 725 202,589
Pretax Income (Loss)....................... 23,998 (11,633) 5,480 (1,615) 16,230
Depreciation & Amortization................ 10,747 5,848 2,624 637 19,856
Capital Expenditures....................... 16,456 2,754 3,587 1,428 24,225
Net Trade Receivables...................... 43,529 30,673 21,135 (334) 95,003
Net Inventories............................ 45,404 34,599 17,924 (25) 97,902
Net Property & Equipment................... $ 67,971 $ 7,631 $11,668 $ 2,684 $ 89,954
Headcount.................................. 1,347 698 291 81 2,417
</TABLE>
<TABLE>
<CAPTION>
ELECTRO- CORPORATE
1998 OPTICS MEDICAL LAMBDA AND OTHER TOTAL
- ---- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net Sales.................................. $193,438 $155,690 $61,321 $410,449
Intersegment Net Sales..................... 23,612 566 2,688 26,866
Gross Profit............................... 91,284 75,584 30,997 197,865
Research & Development Expense............. 20,472 15,427 8,635 44,534
Selling, General & Administration.......... 46,911 61,105 15,874 $ 665 124,555
Amortization of Intangibles................ 2,280 2,183 181 4,644
-------- -------- ------- -------- --------
Total Operating Expenses................... 69,663 78,715 24,690 665 173,733
Pretax Income (Loss)....................... 21,761 (2,667) 4,416 195 23,705
Depreciation & Amortization................ 10,361 4,698 1,742 378 17,179
Capital Expenditures....................... 12,166 4,295 5,647 243 22,351
Net Trade Receivables...................... 37,096 35,658 14,190 (122) 86,822
Net Inventories............................ 43,398 41,143 19,025 (25) 103,541
Net Property & Equipment................... $ 63,463 $ 7,843 $11,157 $ 394 $ 82,857
Headcount.................................. 1,276 656 279 50 2,261
</TABLE>
59
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
ELECTRO- CORPORATE
1997 OPTICS MEDICAL LAMBDA AND OTHER TOTAL
- ---- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net Sales.................................. $161,787 $169,952 $59,299 $391,038
Intersegment Net Sales..................... 19,563 152 1,959 21,674
Gross Profit............................... 83,081 92,626 29,795 205,502
Research & Development Expense............. 17,878 14,994 6,534 39,406
Purchased Research & Development........... 9,315 9,315
Selling, General & Administration.......... 38,594 57,489 14,081 $ 649 110,813
Amortization of Intangibles................ 2,096 1,322 240 3,658
-------- -------- ------- -------- --------
Total Operating Expenses................... 67,883 73,805 20,855 649 163,192
Pretax Income (Loss)....................... 15,138 19,771 8,216 3,669 46,794
Depreciation & Amortization................ 8,144 4,194 1,466 786 14,590
Capital Expenditures....................... 19,910 2,400 2,307 247 24,864
Net Trade Receivables...................... 35,303 46,979 13,684 (122) 95,844
Net Inventories............................ 36,996 35,224 14,251 (25) 86,446
Net Property & Equipment................... $ 58,663 $ 6,029 $ 6,687 $ 445 $ 71,824
Headcount.................................. 1,186 686 220 39 2,131
</TABLE>
GEOGRAPHIC INFORMATION
Coherent's foreign operations consist primarily of sales offices and
manufacturing facilities in Europe and Asia. Sales, marketing and customer
service activities are conducted through sales subsidiaries throughout the
world. Geographic sales information for the last three fiscal years is based on
the location of the end customer. Geographic long-lived asset information is
based on the physical location of the assets at the end of each fiscal year.
Sales to unaffiliated customers and long-lived assets by geographic region
are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
SALES
United States............................................... $198,599 $185,004 $177,803
Japan....................................................... 104,096 75,464 73,049
Europe, other............................................... 70,632 61,089 53,476
Germany..................................................... 57,124 49,584 45,895
Asia-Pacific, other......................................... 19,793 22,274 23,973
Rest of World............................................... 18,625 17,034 16,842
-------- -------- --------
Total Sales................................................. $468,869 $410,449 $391,038
======== ======== ========
</TABLE>
60
<PAGE>
COHERENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. OPERATING SEGMENTS (CONTINUED)
For the fiscal years 1999, 1998 and 1997, no one customer accounted for 10%
or more of total net sales.
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1997
---------- ------------- -------------
<S> <C> <C> <C>
LONG-LIVED ASSETS
United States............................................ $ 77,896 $72,641 $67,361
Germany.................................................. 12,605 11,382 6,831
Europe, other............................................ 11,781 9,217 6,782
Asia-Pacific............................................. 4,190 3,316 3,251
-------- ------- -------
Total Long-lived Assets.................................. $106,472 $96,556 $84,225
======== ======= =======
</TABLE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED OCTOBER 2, 1999:
Net sales........................................... $105,631 $116,537 $115,051 $131,650
Gross profit........................................ 50,959 54,249 54,745 60,713
Net income (loss)................................... 4,266 5,380 (5,064) 7,259
Net income (loss) per diluted share................. .18 .22 (.21) .29
Net income (loss) per basic share................... .18 .22 (.21) .30
======== ======== ======== ========
YEAR ENDED SEPTEMBER 26, 1998:
Net sales........................................... $101,369 $105,881 $ 98,552 $104,647
Gross profit........................................ 52,450 52,696 44,691 48,028
Net income (loss)................................... 7,510 6,838 (1,727) 6,190
Net income (loss) per diluted share................. .32 .29 (.07) .26
Net income (loss) per basic share................... .33 .29 (.07) .26
======== ======== ======== ========
</TABLE>
61
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED OCTOBER 2, 1999, SEPTEMBER 26, 1998,
AND SEPTEMBER 27, 1997
(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 OCTOBER 2, 1999:
Accounts receivable allowances...................... $ 4,817 $ 3,207 $ (3,432) $ 4,592
Warranty............................................ 10,938 15,566 (13,235) 13,269
======= ======= ======== =======
YEAR ENDED SEPTEMBER 26, 1998:
Accounts receivable allowances...................... $ 3,499 $ 6,945 $ (5,627) $ 4,817
Warranty............................................ 7,498 10,681 (7,241) 10,938
======= ======= ======== =======
YEAR ENDED SEPTEMBER 27, 1997:
Accounts receivable allowances...................... $ 3,285 $ 1,905 $ (1,691) $ 3,499
Warranty............................................ 9,450 12,164 (14,116) 7,498
======= ======= ======== =======
</TABLE>
- ------------------------
(1) Reductions from the reserves are for the purpose for which the reserves were
created.
62
<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 OCTOBER 2, 1999
-------------------
COHERENT, INC.
EXHIBITS
-------------------
63
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT
NUMBER EXHIBIT
------ -------
<C> <S>
10.36 Note Purchase Agreement by and between Coherent, Inc. and
the purchasers of $70 million series notes dated May 18,
1999
21.1 Subsidiaries
23.1 Independent Auditors' Consent
24.1 Power of Attorney
27 Financial Data Schedules
</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.
64
<PAGE>
COHERENT, INC.
$70,000,000
$44,000,000 6.70% Series A Senior Notes due May 18, 2006
$26,000,000 6.91% Series B Senior Notes due May 18, 2006
--------
NOTE PURCHASE AGREEMENT
--------
Dated May 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
1. AUTHORIZATION OF NOTES.. . . . . . . . . . . . . . . . . . . . . . . . . 1
2. SALE AND PURCHASE OF NOTES . . . . . . . . . . . . . . . . . . . . . . . 1
3. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
4. CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Representations and Warranties . . . . . . . . . . . . . . . . . 2
4.2 Performance; No Default. . . . . . . . . . . . . . . . . . . . . 2
4.3 Compliance Certificates. . . . . . . . . . . . . . . . . . . . . 2
4.4 Opinions of Counsel. . . . . . . . . . . . . . . . . . . . . . . 2
4.5 Purchase Permitted By Applicable Law, etc. . . . . . . . . . . . 3
4.6 Sale of Other Notes. . . . . . . . . . . . . . . . . . . . . . . 3
4.7 Payment of Special Counsel Fees. . . . . . . . . . . . . . . . . 3
4.8 Private Placement Number . . . . . . . . . . . . . . . . . . . . 3
4.9 Changes in Corporate Structure . . . . . . . . . . . . . . . . . 3
4.10 Funding Instructions . . . . . . . . . . . . . . . . . . . . . . 3
4.11 Proceedings and Documents. . . . . . . . . . . . . . . . . . . . 3
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . 3
5.1 Organization; Power and Authority. . . . . . . . . . . . . . . . 4
5.2 Authorization, etc.. . . . . . . . . . . . . . . . . . . . . . . 4
5.3 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates 4
5.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 5
5.6 Compliance with Laws, Other Instruments, etc.. . . . . . . . . . 5
5.7 Governmental Authorizations, etc.. . . . . . . . . . . . . . . . 5
5.8 Litigation; Observance of Agreements, Statutes and Orders. . . . 6
5.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.10 Title to Property; Leases. . . . . . . . . . . . . . . . . . . . 6
5.11 Licenses, Permits, etc . . . . . . . . . . . . . . . . . . . . . 6
5.12 Compliance with ERISA. . . . . . . . . . . . . . . . . . . . . . 7
5.13 Private Offering by the Company. . . . . . . . . . . . . . . . . 7
5.14 Use of Proceeds; Margin Regulations. . . . . . . . . . . . . . . 8
5.15 Existing Indebtedness; Future Liens. . . . . . . . . . . . . . . 8
5.16 Foreign Assets Control Regulations, etc. . . . . . . . . . . . . 8
5.17 Status under Certain Statutes. . . . . . . . . . . . . . . . . . 8
5.18 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . 8
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5.19 Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . 9
6.1 Purchase for Investment. . . . . . . . . . . . . . . . . . . . . 9
6.2 Source of Funds. . . . . . . . . . . . . . . . . . . . . . . . . 9
7. INFORMATION AS TO COMPANY. . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Financial and Business Information . . . . . . . . . . . . . . . 10
7.2 Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . 12
7.3 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. PREPAYMENT OF THE NOTES. . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Required Prepayments . . . . . . . . . . . . . . . . . . . . . . 13
8.2 Optional Prepayments with Make-Whole Amount. . . . . . . . . . . 13
8.3 Allocation of Partial Prepayments. . . . . . . . . . . . . . . . 14
8.4 Maturity; Surrender, etc.. . . . . . . . . . . . . . . . . . . . 14
8.5 Purchase of Notes. . . . . . . . . . . . . . . . . . . . . . . . 14
8.6 Make-Whole Amount. . . . . . . . . . . . . . . . . . . . . . . . 14
9. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.1 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . 15
9.2 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.3 Maintenance of Properties. . . . . . . . . . . . . . . . . . . . 16
9.4 Payment of Taxes and Claims. . . . . . . . . . . . . . . . . . . 16
9.5 Corporate Existence, etc.. . . . . . . . . . . . . . . . . . . . 16
10. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.1 Transactions with Affiliates . . . . . . . . . . . . . . . . . . 16
10.2 Merger, Consolidation, Sale of Assets, etc . . . . . . . . . . . 16
10.3 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.4 Minimum Consolidated Net Worth . . . . . . . . . . . . . . . . . 20
10.5 Limitation on Consolidated Debt. . . . . . . . . . . . . . . . . 20
10.6 Minimum Fixed Charges Coverage . . . . . . . . . . . . . . . . . 20
10.7 Limitation on Subsidiary Indebtedness. . . . . . . . . . . . . . 20
10.8 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . 20
11. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12. REMEDIES ON DEFAULT, ETC.. . . . . . . . . . . . . . . . . . . . . . . . 22
12.1 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.2 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.3 Rescission . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
12.4 No Waivers or Election of Remedies, Expenses, etc. . . . . . . . 23
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. . . . . . . . . . . . . . 23
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13.1 Registration of Notes. . . . . . . . . . . . . . . . . . . . . . 23
13.2 Transfer and Exchange of Notes . . . . . . . . . . . . . . . . . 23
13.3 Replacement of Notes . . . . . . . . . . . . . . . . . . . . . . 24
14. PAYMENTS ON NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.1 Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . 24
14.2 Home Office Payment. . . . . . . . . . . . . . . . . . . . . . . 24
15. EXPENSES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15.1 Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . 25
15.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT . . . . . . 25
17. AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.1 Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 25
17.2 Solicitation of Holders of Notes . . . . . . . . . . . . . . . . 26
17.3 Binding Effect, etc. . . . . . . . . . . . . . . . . . . . . . . 26
17.4 Notes held by Company, etc.. . . . . . . . . . . . . . . . . . . 26
18. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
19. REPRODUCTION OF DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . 27
20. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 27
21. SUBSTITUTION OF PURCHASER. . . . . . . . . . . . . . . . . . . . . . . . 28
22. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
22.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 28
22.2 Payments Due on Non-Business Days. . . . . . . . . . . . . . . . 28
22.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 28
22.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 28
22.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 28
22.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 28
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary
Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Patents, etc.
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SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness
SCHEDULE 10.3 -- Liens
EXHIBIT 1-A -- Form of 6.70% Series A Senior Note due May 18, 2006
EXHIBIT 1-B -- Form of 6.91% Series B Senior Note due May 18, 2006
EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of General Counsel of the Company
EXHIBIT 4.4(c) -- Form of Opinion of Special Counsel for the Purchasers
</TABLE>
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EXHIBIT 10.36
6.70% Series A Senior Notes due May 18 , 2006
6.91% Series B Senior Notes due May 18, 2006
May 18, 1999
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Coherent, Inc., a Delaware corporation (the "COMPANY"), agrees
with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $70,000,000 aggregate
principal amount of its Senior Notes as follows: $44,000,000 6.70% Series A
Senior Notes due May 18, 2006 and $26,000,000 6.91% Series B Senior Notes due
May 18, 2006 (respectively, the "SERIES A NOTES" and the "SERIES B NOTES", and
collectively the "NOTES", such terms to include any such notes issued in
substitution therefor pursuant to Section 13 of this Agreement or the Other
Agreements (as hereinafter defined)). The Series A Notes shall be substantially
in the form set out in Exhibit 1-A and the Series B Notes shall be substantially
in the form set out in Exhibit 1-B, in each case with such changes therefrom, if
any, as may be approved by you and the Company. Certain capitalized terms used
in this Agreement are defined in Schedule B; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached
to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount specified opposite your
name in Schedule A at the purchase price of 100% of the principal amount
thereof. Contemporaneously with entering into this Agreement, the Company is
entering into separate Note Purchase Agreements (the "OTHER AGREEMENTS")
identical with this Agreement with each of the other purchasers named in
Schedule A (the "OTHER PURCHASERS"), providing for the sale at such Closing to
each of the Other Purchasers of Notes in the principal amount specified opposite
its name in Schedule A. Your obligation hereunder and the obligations of the
Other Purchasers under the Other Agreements are several and not joint
obligations and you shall have no obligation under any Other Agreement and no
liability to any Person for the performance or non-performance by any Other
Purchaser thereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of O'Melveny & Myers LLP, 400 South Hope
Street, Los Angeles, California 90071 at 8:00 a.m., Los Angeles time, at a
closing (the "CLOSING") on May 18, 1999, or on such other Business Day
thereafter on
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or prior to May 31, 1999, as may be agreed upon by the Company and you and
the Other Purchasers. At the Closing the Company will deliver to you the
Notes to be purchased by you in the form of a single Note (or such greater
number of Notes in denominations of at least $100,000 as you may request)
dated the date of the Closing and registered in your name (or in the name of
your nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by
wire transfer of immediately available funds for the account of the Company
to: Bank of America, San Francisco, California, ABA # 121000358, account
name: Incoming Money Transfer, account # 12331-83980, ref: attn. Louise
Hosey FBO Coherent. If at the Closing the Company shall fail to tender such
Notes to you as provided above in this Section 3, or any of the conditions
specified in Section 4 shall not have been fulfilled to your satisfaction,
you shall, at your election, be relieved of all further obligations under
this Agreement, without thereby waiving any rights you may have by reason of
such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this Agreement shall
be correct when made and at the time of the Closing.
4.2 PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Notes (and the application of the proceeds thereof as contemplated by
Schedule 5.14) no Default or Event of Default shall have occurred and be
continuing. Neither the Company nor any Subsidiary shall have entered into any
transaction since the date of the Memorandum that would have been prohibited by
Section 10 hereof had such Section applied since such date.
4.3 COMPLIANCE CERTIFICATES.
(a) OFFICER'S CERTIFICATE. The Company shall have delivered to you an
Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) SECRETARY'S CERTIFICATE. The Company shall have delivered to you
a certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
the Notes and the Agreements.
4.4 OPINIONS OF COUNSEL.
You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing (a) from Irell & Manella LLP, special counsel
for the Company, covering the matters set forth in Exhibit 4.4(a) and covering
such other matters incident to the transactions contemplated hereby as you or
your counsel may reasonably request (and the Company hereby instructs its
counsel to deliver such opinion to you), (b) from Scott H. Miller, Esq., General
Counsel of the Company, covering the matters set forth in Exhibit 4.4(b) and
covering such other matters incident to the transactions contemplated hereby as
you or your counsel may reasonably request (and the Company hereby instructs its
counsel to deliver such opinion to you), and (c) from O'Melveny & Myers LLP,
your special counsel in connection with such transactions, substantially in the
form set forth in Exhibit 4.4(c) and covering such other matters incident to
such transactions as you may reasonably request.
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4.5 PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the
New York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii)
not violate any applicable law or regulation (including, without limitation,
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant
to any applicable law or regulation, which law or regulation was not in
effect on the date hereof. If requested by you, you shall have received an
Officer's Certificate certifying as to such matters of fact known to the
Company as you may reasonably specify to enable you to determine whether such
purchase is so permitted.
4.6 SALE OF OTHER NOTES.
Contemporaneously with the Closing the Company shall sell to the Other
Purchasers and the Other Purchasers shall purchase the Notes to be purchased
by them at the Closing as specified in Schedule A.
4.7 PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company shall
have paid on or before the Closing the reasonable fees, charges and
disbursements of your special counsel referred to in Section 4.4 to the
extent reflected in a statement of such counsel rendered to the Company at
least one Business Day prior to the Closing.
4.8 PRIVATE PLACEMENT NUMBER.
A Private Placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the
Notes.
4.9 CHANGES IN CORPORATE STRUCTURE.
Except as specified in Schedule 4.9, the Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or consolidation
and shall not have succeeded to all or any substantial part of the liabilities
of any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.
4.10 FUNDING INSTRUCTIONS.
At least three Business Days prior to the date of the Closing, you shall
have received written instructions executed by a Responsible Officer of the
Company directing the manner of the payment of funds and setting forth (a) the
name and address of the transferee bank, (b) such transferee bank's ABA number,
(c) the account name and number into which the purchase price for the Notes is
to be deposited, and (d) the name and telephone number of the account
representative responsible for verifying receipt of such funds.
4.11 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be reasonably satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
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5.1 ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or
hold under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Other Agreements and the Notes and to perform the
provisions hereof and thereof.
5.1 ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or
hold under lease the properties it purports to own or hold under lease, to
transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Other Agreements and the Notes and to perform the
provisions hereof and thereof.
5.2 AUTHORIZATION, ETC.
This Agreement, the Other Agreements and the Notes have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement constitutes, and upon execution and delivery thereof each Note
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
5.3 DISCLOSURE.
The Company, through its agent, NationsBanc Montgomery Securities, LLC,
has delivered to you and each Other Purchaser a copy of a Private Placement
Memorandum, dated March 1999 (the "MEMORANDUM"), relating to the transactions
contemplated hereby. The Memorandum fairly describes, in all material respects,
the general nature of the business and principal properties of the Company and
its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the
Memorandum, the documents, certificates or other writings delivered to you by or
on behalf of the Company in connection with the transactions contemplated hereby
and the financial statements listed in Schedule 5.5, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since September 26, 1998, there has been no
change in the financial condition, operations, business or properties of the
Company or any Restricted Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Company that could reasonably be expected to have
a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company specifically for use in connection with
the transactions contemplated hereby.
5.4 ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein) complete and
correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary,
the correct name thereof, the jurisdiction of its
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organization, the percentage of shares of each class of its capital stock or
similar equity interests outstanding owned by the Company and each other
Subsidiary and whether such Subsidiary is a Restricted Subsidiary or an
Unrestricted Subsidiary, (ii) of the Company's Affiliates, other than
Subsidiaries, and (iii) of the Company's directors and senior officers.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Restricted Subsidiary shown in Schedule 5.4 as being owned by
the Company and its Restricted Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned by the Company or another Restricted
Subsidiary free and clear of any Lien, except for directors qualifying shares or
any Permitted Lien.
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
(d) No Restricted Subsidiary is a party to, or otherwise subject to
any legal restriction or any agreement (other than this Agreement and customary
limitations imposed by corporate law statutes) restricting the ability of such
Restricted Subsidiary to pay dividends out of profits or make any other similar
distributions of profits to the Company or any of its Restricted Subsidiaries
that owns outstanding shares of capital stock or similar equity interests of
such Restricted Subsidiary.
5.5 FINANCIAL STATEMENTS.
The Company has delivered to each Purchaser copies of the financial
statements of the Company and its Restricted Subsidiaries listed on Schedule
5.5. All of said financial statements (including in each case the related
schedules and notes) fairly present in all material respects the consolidated
financial position of the Company and its Restricted Subsidiaries as of the
respective dates specified in such Schedule and the consolidated results of
their operations and cash flows for the respective periods so specified and have
been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments).
5.6 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect
of any property of the Company or any Restricted Subsidiary under, any
indenture, mortgage, deed of trust, loan, note purchase or credit agreement,
corporate charter or by-laws, or any other Material agreement or instrument
to which the Company or any Restricted Subsidiary is bound or by which the
Company or any Restricted Subsidiary or any of their respective properties
may be bound or affected, (ii) conflict with or result in a breach of any of
the terms, conditions or provisions of any order, judgment, decree, or ruling
of any court, arbitrator or Governmental Authority applicable to the Company
or any Restricted Subsidiary or (iii) violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to the
Company or any Restricted Subsidiary.
5.7 GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes.
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5.8 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.8, there are no actions, suits
or proceedings pending or, to the knowledge of the Company, threatened against
or affecting the Company or any Restricted Subsidiary or any property of the
Company or any Restricted Subsidiary in any court or before any arbitrator of
any kind or before or by any Governmental Authority that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Restricted Subsidiary is in default
under any term of any agreement or instrument to which it is a party or by which
it is bound, or any order, judgment, decree or ruling of any court, arbitrator
or Governmental Authority or is in violation of any applicable law, ordinance,
rule or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
5.9 TAXES.
The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which is not
individually or in the aggregate Material or (ii) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case
may be, has established adequate reserves in accordance with GAAP or have been
determined by the Company and, to the best of the Company's knowledge, are
beyond the applicable limitations period for audit by the Internal Revenue
Service. The Company knows of no basis for any other tax or assessment that
could reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Company and its Subsidiaries in
respect of Federal, state or other taxes for all fiscal periods are adequate.
The Federal income tax liabilities of the Company and its Subsidiaries have been
determined by the Internal Revenue Service and paid for all fiscal years up to
and including the fiscal year ended September 30, 1995.
5.10 TITLE TO PROPERTY; LEASES.
The Company and its Restricted Subsidiaries have good and sufficient
title to their respective properties that individually or in the aggregate are
Material, to the extent reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or
any Restricted Subsidiary after said date (except as sold or otherwise disposed
of in the ordinary course of business), in each case free and clear of Liens
prohibited by this Agreement, except for those defects in title and Liens that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. All leases that individually or in the aggregate are
Material are valid and subsisting and are in full force and effect in all
material respects.
5.11 LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.11,
(a) the Company and its Restricted Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that individually or in
the aggregate are Material and necessary to operate their respective businesses,
without known conflict with the rights of others, except for any failure to own
or possess that, individually or in aggregate, could not reasonably be expected
to have a Material Adverse Effect;
(b) to the best knowledge of the Company, no product of the Company
infringes in any Material respect any license, permit, franchise, authorization,
patent, copyright, service mark, trademark, trade name or other right owned by
any other Person; and
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(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its Restricted
Subsidiaries with respect to any patent, copyright, service mark, trademark,
trade name or other right owned or used by the Company or any of its Restricted
Subsidiaries.
5.12 COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities, or such deficit, if any, did not exceed
5% of Consolidated Net Worth as of the end of the most recently ended fiscal
quarter of the Company. The term "BENEFIT LIABILITIES" has the meaning
specified in section 4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT
VALUE" have the meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Company and its Restricted Subsidiaries is not Material or has
otherwise been disclosed in the most recent audited consolidated financial
statements of the Company and its Restricted Subsidiaries.
(e) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of section 406 of ERISA or in connection with which a tax could
be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The
representation by the Company in the first sentence of this Section 5.12(e) is
made in reliance upon and subject to the accuracy of your representation in
Section 6.2 as to the sources of the funds used to pay the purchase price of the
Notes to be purchased by you.
5.13 PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has offered the Notes
or any similar securities for sale to, or solicited any offer to buy any of the
same from, or otherwise approached or negotiated in respect thereof with, any
person other than you, the Other Purchasers and not more than sixty (60) other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of Section 5 of the Securities Act.
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5.14 USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes as set forth
in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder
will be used, directly or indirectly, for the purpose of buying or carrying any
margin stock within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or
trading in any securities under such circumstances as to involve the Company in
a violation of Regulation X of said Board (12 CFR 224) or to involve any broker
or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin
stock does not constitute more than 5% of the value of the consolidated assets
of the Company and its Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 5% of the value of such
assets. As used in this Section, the terms "MARGIN STOCK" and "PURPOSE OF
BUYING OR CARRYING" shall have the meanings assigned to them in said Regulation
U.
5.15 EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth a complete
and correct list of all outstanding Indebtedness of the Company and its
Subsidiaries, the outstanding principal amount of which exceeds $1,000,000, as
of the date hereof, since which date there has been no Material change in the
amounts, interest rates, sinking funds, installment payments or maturities of
the Indebtedness of the Company or its Subsidiaries. Neither the Company nor
any Subsidiary is in default and no waiver of default is currently in effect, in
the payment of any principal or interest on any Indebtedness of the Company or
such Subsidiary and no event or condition exists with respect to any
Indebtedness of the Company or any Subsidiary that would permit (or that with
notice or the lapse of time, or both, would permit) one or more Persons to cause
such Indebtedness to become due and payable before its stated maturity or before
its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company nor any
Restricted Subsidiary has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien not permitted by
Section 10.3.
5.16 FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its use of the
proceeds thereof will violate the Trading with the Enemy Act, as amended, or any
of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17 STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Restricted Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
5.18 ENVIRONMENTAL MATTERS.
Neither the Company nor any Restricted Subsidiary has knowledge of any
claim or has received any notice of any claim, and no proceeding has been
instituted raising any claim against the Company or any of its Restricted
Subsidiaries or any of their respective real properties now or formerly owned,
leased or operated by any of them or other assets, alleging any damage to the
environment or violation of any Environmental Laws, except, in each case, such
as could not reasonably be expected to result in a Material Adverse Effect.
Except as otherwise disclosed to you in writing.
(a) neither the Company nor any Restricted Subsidiary has knowledge of any
facts which would, in the aggregate, constitute the basis for any claim, public
or private, of violation of Environmental Laws or damage to the environment
emanating from, occurring on or in any way related to real properties now or
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formerly owned, leased or operated by any of them or to other assets or their
use, except, in each case, such as could not reasonably be expected to result in
a Material Adverse Effect;
(b) neither the Company nor any of its Restricted Subsidiaries has
stored any Hazardous Materials on real properties now or formerly owned, leased
or operated by any of them in a manner contrary to any Environmental Laws and
has not disposed of any Hazardous Materials in a manner contrary to any
Environmental Laws, in each case in any manner that could reasonably be expected
to result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or operated
by the Company or any of its Restricted Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.
5.19 YEAR 2000.
The Company has initiated a review and assessment of all areas within its
and each of its Restricted Subsidiaries' businesses and operations that could be
materially adversely affected by the risk that computer applications used by the
Company or any of its Restricted Subsidiaries may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to any
date after December 31, 1999. Based on the foregoing, the Company is taking all
steps the Company considers reasonably necessary to ensure that all computer
applications that are necessary to its or any of its Restricted Subsidiaries'
businesses and operations are able to perform properly date-sensitive functions
for all dates before and after January 1, 2000, except to the extent that any
such Year 2000 non-compliance could not reasonably be expected to have a
Material Adverse Effect.
6. REPRESENTATIONS OF THE PURCHASER.
6.1 PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own account or
for one or more separate accounts maintained by you or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
PROVIDED that the disposition of your or their property shall at all times be
within your or their control. You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
6.2 SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account" within the
meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60
(issued July 12, 1995) and there is no employee benefit plan, treating as a
single plan, all plans maintained by the same employer or employee
organization, with respect to which the amount of the general account
reserves and liabilities for all contracts held by or on behalf of such plan,
exceed ten percent (10%) of the total reserves and liabilities of such
general account (exclusive of separate account liabilities) plus surplus, as
set forth in the NAIC Annual Statement filed with your state of domicile; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a
bank collective investment fund, within the meaning of the PTE 91-38 (issued
July 12, 1991) and, except as you have disclosed to the Company in writing
pursuant to this paragraph (b), no employee benefit plan or group of plans
maintained by the same employer or employee organization beneficially owns more
than 10% of all assets allocated to such pooled separate account or collective
investment fund; or
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(c) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified professional
asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption),
no employee benefit plan's assets that are included in such investment fund,
when combined with the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client assets
managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption
are satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity of
such QPAM and (ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in writing
pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each of
which has been identified to the Company in writing pursuant to this paragraph
(e); or
(f) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1 FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes:
(a) QUARTERLY STATEMENTS -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the last
quarterly fiscal period of each such fiscal year), duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such
quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial
position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments, PROVIDED that delivery within the time period specified
above of copies of the Company's Quarterly Report on Form 10-Q,
without exhibits unless requested by a holder of Notes, prepared in
compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(a), PROVIDED, that such Form 10-Q
shall include a quarterly statement containing a consolidated balance
sheet of the Company and its Subsidiaries as at the end of such
quarter, and consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with such
quarter;
(b) ANNUAL STATEMENTS -- within 105 days after the end of each fiscal
year of the Company, duplicate copies of,
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(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year, and
(ii) consolidated statements of income, changes in shareholders'
equity and cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by:
(A) an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall
state that such financial statements present fairly, in all
material respects, the financial position of the companies being
reported upon and their results of operations and cash flows and
have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and
(B) a certificate of such accountants stating that they
have reviewed this Agreement and stating further whether, in
making their audit, they have become aware of any condition or
event that then constitutes a Default or an Event of Default, and,
if they are aware that any such condition or event then exists,
specifying the nature and period of the existence thereof (it
being understood that such accountants shall not be liable,
directly or indirectly, for any failure to obtain knowledge of any
Default or Event of Default unless such accountants should have
obtained knowledge thereof in making an audit in accordance with
generally accepted auditing standards or did not make such an
audit),
PROVIDED that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K, without exhibits unless requested
by a holder of Notes, for such fiscal year (together with the Company's
annual report to shareholders, if any, prepared pursuant to Rule 14a-3
under the Exchange Act) prepared in accordance with the requirements
therefor and filed with the Securities and Exchange Commission, together
with the accountant's certificate described in clause (B) above, shall be
deemed to satisfy the requirements of this Section 7.1(b), PROVIDED, that
such Form 10-K shall include an annual statement containing a
consolidated balance sheet of the Company and its Subsidiaries as at the
end of such year, and consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its Subsidiaries,
for such year;
(c) SEC AND OTHER REPORTS --promptly upon their becoming available,
one copy of (i) each financial statement and each report, notice or proxy
statement, in each case containing Material financial information, filed by the
Company with the Securities and Exchange Commission, and (ii) any press release
of the Company generally made available concerning a Material development;
(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any
event within five Business Days after a Responsible Officer becoming aware of
the existence of any Default or Event of Default or that any Person has given
any notice or taken any action with respect to a claimed default hereunder or
that any Person has given any notice or taken any action with respect to a
claimed default of the type referred to in Section 11(f), a written notice
specifying the nature and period of existence thereof and what action the
Company is taking or proposes to take with respect thereto;
(c) ERISA MATTERS -- promptly, and in any event within five Business
Days after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any, that the
Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the date hereof; or
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(ii) the taking by the PBGC of formal steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien, taken
together with any other such liabilities or Liens then existing, could
reasonably be expected to have a Material Adverse Effect;
(f) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event
within 30 days of receipt thereof by a Responsible Officer, copies of any notice
to the Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or regulation that
could reasonably be expected to have a Material Adverse Effect;
(g) ADDITIONAL REPORTING REQUIREMENT --in the event that Unrestricted
Subsidiaries account for more than 10% of the consolidated total assets of the
Company and its Subsidiaries or more than 10% of the consolidated revenue of the
Company and its Subsidiaries, then each set of financial information delivered
pursuant to Sections 7.1(a) and (b) shall be accompanied by unaudited financial
statements for all Unrestricted Subsidiaries of the Company taken as a group,
together with consolidating statements reflecting eliminations or adjustments
required to reconcile such group statements to the consolidated financial
statements of the Company and its Subsidiaries certified in each case by a
Senior Financial Officer as fairly presenting, in all material respects, such
information; and
(h) REQUESTED INFORMATION -- with reasonable promptness and subject to
applicable confidentiality requirements, such other data and information
relating to the business, operations, affairs, financial condition, assets or
properties of the Company or any of its Subsidiaries or relating to the ability
of the Company to perform its obligations hereunder and under the Notes as from
time to time may be reasonably requested by any such holder of Notes, including
without limitation, so long as the Company is not subject to the reporting
requirements of the Exchange Act, such information as is required by Rule
144A(d)(4) under the Securities Act to be delivered to a prospective transferee
of the Notes.
7.2 OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes pursuant
to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate
of a Senior Financial Officer setting forth:
(a) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.2(c), 10.3(n), 10.4, 10.5,
10.6 and 10.7 hereof, during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such Section,
where applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such Sections,
and the calculation of the amount, ratio or percentage then in existence); and
(b) EVENT OF DEFAULT -- a statement that such officer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Company and its
Restricted Subsidiaries from the beginning of the quarterly or annual period
covered by the statements then being furnished to the date of the certificate
and that such review shall not have disclosed the existence during such period
of any condition or event that constitutes a Default or an Event of Default or,
if any such condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Company or any
Subsidiary to comply with any Environmental Law), specifying
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the nature and period of existence thereof and what action the Company shall
have taken or proposes to take with respect thereto.
7.3 INSPECTION.
The Company shall permit the representatives of each holder of Notes:
(a) NO DEFAULT -- if no Default or Event of Default then exists, at
the expense of such holder and upon reasonable prior notice to the Company,
to visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Restricted Subsidiaries
with the Company's officers, and (with the consent of the Company, which
consent will not be unreasonably withheld) its independent public
accountants, and (with the consent of the Company, which consent will not be
unreasonably withheld) to visit the other offices and properties of the
Company and each Restricted Subsidiary, all at such reasonable times and as
often as may be reasonably requested in writing; and
(b) DEFAULT -- if a Default or Event of Default then exists, at the
expense of the Company to visit and inspect any of the offices or properties of
the Company or any Restricted Subsidiary, to examine all their respective books
of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Company authorizes said accountants to discuss the affairs,
finances and accounts of the Company and its Restricted Subsidiaries), all at
such times and as often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1 REQUIRED PREPAYMENTS.
On May 18, 2000, and on each May 18 thereafter to and including May 18,
2005, the Company will prepay $6,286,000 principal amount (or such lesser
principal amount as shall then be outstanding) of the Series A Notes and on May
18, 2004 and May 18, 2005, the Company will prepay $8,667,000 principal amount
(or such lesser principal amount as shall then be outstanding) of the Series B
Notes, each at par and without payment of the Make-Whole Amount or any premium,
PROVIDED that upon any partial prepayment of the Notes pursuant to Section 8.2
or purchase of the Notes permitted by Section 8.5 the principal amount of each
required prepayment of the Notes becoming due under this Section 8.1 on and
after the date of such prepayment or purchase shall be reduced in the same
proportion as the aggregate unpaid principal amount of the Notes is reduced as a
result of such prepayment or purchase.
8.2 OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below, prepay
on any Business Day all, or from time to time any part of, the Notes, in an
amount not less than 5% of the aggregate principal amount of the Notes then
outstanding in the case of a partial prepayment, at 100% of the principal
amount so prepaid, plus the Make-Whole Amount determined for the prepayment
date with respect to such principal amount. The Company will give each
holder of Notes written notice of each optional prepayment under this Section
8.2 not less than 30 days and not more than 60 days prior to the date fixed
for such prepayment. Each such notice shall specify such date which shall be
a Business Day, the aggregate principal amount of the Notes to be prepaid on
such Business Day, the principal amount of each Note held by such holder to
be prepaid (determined in accordance with Section 8.3), and the interest to
be paid on the prepayment date with respect to such principal amount being
prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make-Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount as of the specified prepayment date.
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8.3 ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated among all of the Notes
of all Series (provided that required prepayments pursuant to Section 8.1
shall be allocated only among all of the Notes of the Series being prepaid)
at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
prepayment.
8.4 MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section 8,
the principal amount of each Note to be prepaid shall mature and become due
and payable on the date fixed for such prepayment, together with interest on
such principal amount accrued to such date and the applicable Make-Whole
Amount, if any. From and after such date, unless the Company shall fail to
pay such principal amount when so due and payable, together with the interest
and Make-Whole Amount, if any, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and cancelled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of any Note.
8.5 PURCHASE OF NOTES.
The Company will not and will not permit any Subsidiary to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Subsidiary pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.6 MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, PROVIDED that the Make-Whole Amount may in no event be
less than zero. For the purposes of determining the Make-Whole Amount, the
following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to Section 8.2 or
has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from
their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted
financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable)
based upon the Reinvestment Yield with respect to such Called
Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal
of any Note, 0.50% over the yield to maturity implied by (i) the
yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to
such Called Principal, on the display designated as "Page PX1" of
the Bloomberg Financial Markets Services Screen (or such other
display as may replace Page PX1 on the Bloomberg Financial Markets
Services Screen) for actively traded U.S. Treasury securities
having a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or (ii) if such
yields are not reported as of such time or the yields reported as
of such time are not ascertainable (including by way of
interpolation), the Treasury Constant Maturity Series Yields
reported, for the latest day for which such yields have been so
reported as of
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the second Business Day preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date. Such
implied yield will be determined, if necessary, by (a)
converting U.S. Treasury bill quotations to bond-equivalent
yields in accordance with accepted financial practice and (b)
interpolating linearly between (1) the actively traded U.S.
Treasury security with the duration closest to and greater than
the Remaining Average Life and (2) the actively traded U.S.
Treasury security with the duration closest to and less than
the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called
Principal, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called
Principal into (ii) the sum of the products obtained by
multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b)
the number of years (calculated to the nearest one-twelfth
year) that will elapse between the Settlement Date with respect
to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date, PROVIDED that
if such Settlement Date is not a date on which interest payments
are due to be made under the terms of the Notes, then the amount
of the next succeeding scheduled interest payment will be reduced
by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to
Section 8.2 or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be
immediately due and payable pursuant to Section 12.1, as the
context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
9.1 COMPLIANCE WITH LAW.
The Company will and will cause each of its Subsidiaries to comply with
all laws, ordinances or governmental rules or regulations to which each of them
is subject, including, without limitation, Environmental Laws, and will obtain
and maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.2 INSURANCE.
The Company will and will cause each of its Restricted Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
similar size and of comparable reputations engaged in the same or a similar
business and similarly situated.
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9.3 MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Restricted Subsidiaries to maintain
and keep, or cause to be maintained and kept, their respective properties in
good repair, working order and condition (other than ordinary wear and tear), so
that the business carried on in connection therewith may be properly conducted
at all times, PROVIDED that this Section shall not prevent the Company or any
Restricted Subsidiary from discontinuing the operation and the maintenance of
any of its properties if such discontinuance is desirable in the conduct of its
business and the Company has concluded that such discontinuance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
9.4 PAYMENT OF TAXES AND CLAIMS.
The Company will and will cause each of its Subsidiaries to file all tax
returns required to be filed in any jurisdiction and to pay and discharge all
taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, PROVIDED
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonfiling or nonpayment, as the case may be, of
all such taxes and assessments in the aggregate could not reasonably be expected
to have a Material Adverse Effect.
9.5 CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force and effect
its corporate existence. Subject to Section 10.2, the Company will at all times
preserve and keep in full force and effect the corporate existence of each of
its Restricted Subsidiaries (unless merged into the Company or a Restricted
Subsidiary) and all rights and franchises of the Company and its Restricted
Subsidiaries unless, in the good faith judgment of the Company, the termination
of or failure to preserve and keep in full force and effect such corporate
existence, right or franchise could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
10.1 TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any Restricted Subsidiary to
enter into directly or indirectly any Material transaction or Material group of
related transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except in
the ordinary course and pursuant to the reasonable requirements of the Company's
or such Restricted Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Restricted Subsidiary than would be
obtainable in a comparable arm's-length transaction with a Person not an
Affiliate, PROVIDED that this limitation shall not apply to the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company or to customary indemnity and insurance arrangements
for directors, regardless of affiliation.
10.2 MERGER, CONSOLIDATION, SALE OF ASSETS, ETC.
(a) The Company will not and will not permit any Restricted Subsidiary
to consolidate with or merge with any other corporation or convey, transfer or
lease substantially all of its assets in a single transaction or series of
transactions to any Person, PROVIDED that:
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(i) any Restricted Subsidiary may (x) merge or consolidate with
or into, or convey, transfer or lease substantially all of its assets in
a single transaction or series of transactions to, the Company, another
Restricted Subsidiary or, in the case of a consolidation or merger, any
other Person so long as the surviving or continuing Person is a
Restricted Subsidiary (provided that the Company directly or indirectly
retains at least the same ownership interest in the surviving Restricted
Subsidiary as it held in the disappearing Restricted Subsidiary) and so
long as in any merger or consolidation involving the Company, either (1)
the Company shall be the surviving or continuing corporation or (2) the
merger or consolidation is permitted by clause (ii) of this Section
10.2(a) and (y) convey, transfer or lease all or substantially all of its
assets to any Person in compliance with the provisions of Section
10.2(b); and
(ii) the Company may consolidate or merge with or into, or
convey, transfer or lease substantially all of its assets to, any other
Person if,
(A) in the case of a consolidation or merger, the
surviving or continuing Person is the Company, or
(B) the successor Person which results from such
consolidation or merger or the corporation to which all or
substantially all of the Company's assets have been conveyed,
transferred or leased (the "SURVIVING CORPORATION") (x) shall be a
solvent non-individual Person organized and existing under the
laws of the United States of America or any state thereof or the
District of Columbia, and (y) shall have executed and delivered to
each holder of the Notes its assumption of the due and punctual
performance and observation of all of the covenants and agreements
in the Notes, this Agreement and the Other Agreements to be
performed or observed by the Company, and the due and punctual
payment of the principal of and premium, if any, and interest on
all of the Notes, according to their tenor, and shall furnish to
such holders an opinion of counsel reasonably satisfactory to the
Required Holders to the effect that the instrument of assumption
has been duly authorized, executed and delivered and constitutes
the legal, valid and binding contract and agreement of the
surviving corporation enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting
the enforcement of creditors' rights generally and by general
equitable principles, and
(C) immediately after giving effect to any transaction
described in clauses (A) or (B) above, no Default or Event of
Default would exist.
No such conveyance, transfer or lease of substantially all of the
assets of the Company shall have the effect of releasing the Company or
any successor Person that shall theretofore have become such in the
manner prescribed in this Section 10.2 from its liability under this
Agreement or the Notes.
(b) Subject to Section 10.2(a), the Company will not, and will
not permit any Restricted Subsidiary to, sell, lease (as lessor),
transfer, abandon or otherwise dispose of assets to any Person; PROVIDED
that the foregoing restrictions do not apply to:
(i) the sale, lease, transfer or other disposition of
assets of the Company to a Wholly-Owned Restricted Subsidiary or
of a Restricted Subsidiary to the Company or another Restricted
Subsidiary;
(ii) the sale in the ordinary course of business of (1)
inventory held for sale, or (2) equipment, fixtures, supplies or
materials no longer required in the operation of the business of
the Company or any of its Restricted Subsidiaries or that is
obsolete;
(iii) the sale by the Company or any Restricted Subsidiary
of property and the subsequent lease, as lessee, of the same
property, within 180 days following the acquisition or
construction of such property, PROVIDED that the rental payments
to be made by the
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Company or such Restricted Subsidiary, discounted at a reasonable
rate, will not exceed the fair market value of such property at
the time of such sale;
(iv) the sale of assets for cash or other property to a
Person or Persons (other than an Affiliate) if all of the
following conditions are met:
(1) such assets (valued at net book value) do not
constitute a "substantial part" of the assets of the
Company and its Restricted Subsidiaries;
(2) in the opinion of a Responsible Officer of
the Company, the sale is for fair value and is in the best
interests of the Company; and
(3) immediately after the consummation of the
transaction and after giving effect thereto, no Default or
Event of Default would exist; or
(v) the sale of assets meeting the conditions set forth
in clauses (2) and (3) of subparagraph (iv) above, as long as the
proceeds from such sale in excess of a substantial part of the
assets of the Company and its Restricted Subsidiaries are (i)
applied within 360 days of the date of sale of such assets to the
acquisition of fixed assets or other property useful and intended
to be used in the operation of the business of the Company or its
Restricted Subsidiaries, and/or (ii) used to repay any
Indebtedness of the Company or its Restricted Subsidiaries (other
than Subordinated Debt, Indebtedness owing to the Company, any of
its Subsidiaries or any Affiliate and Indebtedness in respect of
any revolving credit or similar credit facility providing the
Company or any of its Restricted Subsidiaries with the right to
obtain loans or other extensions of credit from time to time,
except to the extent that in connection with such payment of
Indebtedness the availability of credit under such credit facility
is permanently reduced by an amount not less than the amount of
such proceeds applied to the payment of such Indebtedness).
(c) For purposes of Section 10.2(b), a sale of assets will be
deemed to involve a "SUBSTANTIAL PART" of the assets of the Company and
its Restricted Subsidiaries if the book value of such assets, together
with all other assets sold during the immediately preceding 12-calendar
month period (except those assets sold pursuant to clauses (i) or (ii) of
Section 10.2(b)) exceeds 10% of the Consolidated Total Assets determined
as of the end of the immediately preceding fiscal year.
10.3 LIENS.
The Company will not and will not permit any of its Restricted
Subsidiaries to directly or indirectly create, incur or assume (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (including, without limitation, any document or instrument in
respect of goods or accounts receivable) of the Company or any such Restricted
Subsidiary, whether now owned or hereafter acquired, or any income or profits
therefrom, or assign or otherwise convey any right to receive income or profits
(unless it makes, or causes to be made, effective provision whereby the Notes
will be equally and ratably secured with any and all other obligations thereby
secured, such security to be pursuant to an agreement reasonably satisfactory to
the Required Holders and, in any such case, the Notes shall have the benefit, to
the fullest extent that, and with such priority as, the holders of the Notes may
be entitled under applicable law, of any equitable Lien on such property),
except for the following (which are collectively referred to as "PERMITTED
LIENS"):
(a) Liens for taxes, assessments or other governmental charges
which are not yet due and payable or the amounts of which individually or
in the aggregate are not Material or that are being contested in good
faith and for which adequate reserves have been set aside in accordance
with GAAP or that are being contested in good faith;
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(b) Liens incidental to the conduct of business or the
ownership of properties and assets (including without limitation
landlords', carriers', warehousemen's, mechanics' materialmen's and other
similar Liens) and Liens to secure the performance of bids, tenders,
leases, or trade contracts, or to secure statutory obligations (including
without limitation obligations under workers compensation, unemployment
insurance and other social security legislation), surety or appeal bonds
or other Liens incurred in the ordinary course of business and not in
connection with the borrowing of money;
(c) Liens arising from filing Uniform Commercial Code financing
statements regarding operating leases or other Uniform Commercial Code
financing statements filed for precautionary purposes relating to
arrangements not constituting Indebtedness;
(d) Liens incidental to the conduct of the ordinary course of
business of any Restricted Subsidiary, excluding Liens incurred for the
borrowing of money;
(e) any interest or title of a licensor in the property subject
to a license;
(f) Liens on the capital stock of Unrestricted Subsidiaries;
(g) Liens resulting from judgments, unless such judgments are
not, within 60 days, discharged or stayed pending appeal, or shall not
have been discharged within 60 days after the expiration of any such
stay;
(h) Liens securing Indebtedness of a Restricted Subsidiary to
the Company or to another Restricted Subsidiary;
(i) Liens in existence at Closing and reflected in Schedule
10.3 hereto;
(j) minor survey exceptions and the like which do not
Materially detract from the value of such property;
(k) leases, subleases, easements, rights-of-way, restrictions
and other similar charges or encumbrances incidental to the ownership of
property or assets or the ordinary conduct of the Company or any of its
Restricted Subsidiaries' businesses, PROVIDED that the aggregate of such
Liens do not Materially detract from the value of such property;
(l) Liens (i) existing on property at the time of its
acquisition or construction by the Company or a Restricted Subsidiary and
not created in contemplation thereof; (ii) on property created
contemporaneously with its acquisition or within 180 days of the
acquisition or completion or construction or improvement thereof to
secure the purchase price or cost of construction or improvement thereof;
or (iii) existing on property of a Person at the time such Person is
consolidated with or merged with the Company or a Restricted Subsidiary
and not created in contemplation thereof; PROVIDED that such Liens shall
attach solely to the property acquired or constructed and
directly-related assets such as proceeds, products, substitutions and
replacements and the principal amount of the Indebtedness secured by the
Lien shall not exceed the lesser of the cost of acquisition or
construction or fair market value of such property (as determined in
good faith by one or more officers of the Company or a Restricted
Subsidiary to whom authority to enter into the transaction has been
delegated by the board of directors of the Company or such Restricted
Subsidiary);
(m) any Liens renewing, extending or replacing Liens permitted
by Sections 10.3(a) through (l), other than 10.3(g), PROVIDED that (i)
the principal amount of the Indebtedness secured is not increased or the
maturity thereof reduced, (ii) such Lien is not extended to any other
property, and (iii) immediately after such extension or refunding, no
Default or Event of Default would exist; and
(n) other Liens securing Indebtedness of the Company or any
Restricted Subsidiary not otherwise permitted by Sections 10.3 (a)
through (m), PROVIDED that on the date the Company or such Restricted
Subsidiary incurs, assumes, guarantees or otherwise becomes liable with
respect to any such
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Indebtedness and immediately after giving effect thereto and the
concurrent retirement of any other Indebtedness, (i) no Default or
Event of Default exists, and (ii) Priority Debt does not exceed an
amount equal to 20% of Consolidated Net Worth as of the then most
recently ended fiscal quarter of the Company.
10.4 MINIMUM CONSOLIDATED NET WORTH.
The Company will not permit Consolidated Net Worth to be at any time less
than the sum of (i) $200,000,000 PLUS (ii) an aggregate amount equal to 30% of
Consolidated Net Income (but only if a positive number) for each completed
fiscal year beginning with the fiscal year ended September 26, 1998.
10.5 LIMITATION ON CONSOLIDATED DEBT.
The Company will not permit at any time the ratio of (i) Consolidated
Debt to (ii) Consolidated Total Capitalization to exceed 0.45 to 1.0.
10.6 MINIMUM FIXED CHARGES COVERAGE.
The Company will not permit, as of the end of any fiscal quarter of the
Company, the Fixed Charges Coverage Ratio to be less than 2.00 to 1.0.
10.7 LIMITATION ON SUBSIDIARY INDEBTEDNESS.
The Company will not at any time permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume, guarantee or otherwise become
directly or indirectly liable with respect to, any Indebtedness other than:
(a) Indebtedness of a Restricted Subsidiary owed to the Company or to
a Wholly-Owned Restricted Subsidiary;
(b) Indebtedness of a Restricted Subsidiary outstanding at the time
such Restricted Subsidiary becomes a Restricted Subsidiary, PROVIDED that (i)
such Indebtedness shall not have been incurred in contemplation of such
Restricted Subsidiary becoming a Restricted Subsidiary and (ii) immediately
after such Restricted Subsidiary becomes a Restricted Subsidiary no Default or
Event of Default shall exist; and
(c) Indebtedness of a Restricted Subsidiary in addition to that
otherwise permitted by the foregoing provisions of this Section 10.7, PROVIDED
that on the date the Restricted Subsidiary incurs, assumes, guarantees or
otherwise becomes liable with respect to any such additional Indebtedness and
immediately after giving effect thereto and the concurrent retirement of any
other Indebtedness, (i) no Default or Event of Default exists, and (ii) the
total amount of all Indebtedness incurred pursuant to this subparagraph (c) and
(without duplication) the Indebtedness secured by Liens permitted under Section
10.3(n) does not exceed an amount equal to 20% of Consolidated Net Worth as of
the then most recently ended fiscal quarter of the Company.
10.8 NATURE OF BUSINESS.
The Company will not, and will not permit any Restricted Subsidiary, to
engage in any business if, as a result, the general nature of the business of
the Company and its Restricted Subsidiaries, taken as a whole, which would then
be engaged in by the Company and its Restricted Subsidiaries would be
substantially changed from the general nature of the business engaged in by the
Company and its Restricted Subsidiaries, taken as a whole, on the date of the
Closing.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:
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(a) the Company defaults in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with any
term contained in Section 10; or
(d) the Company defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b) and
(c) of this Section 11) and such default is not remedied within 30 days after
the earlier of (i) a Responsible Officer obtaining actual knowledge of such
default and (ii) the Company receiving written notice of such default from any
holder of a Note (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on behalf of
the Company or by any officer of the Company in this Agreement or in any writing
furnished in connection with the transactions contemplated hereby proves to have
been false or incorrect in any material respect on the date as of which made; or
(d) (i) the Company or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal of or
premium or make-whole amount or interest on any Indebtedness that is outstanding
in an aggregate principal amount of at least 5% of Consolidated Net Worth as of
the end of the most recently ended fiscal quarter of the Company beyond any
period of grace provided with respect thereto, or (ii) the Company or any
Restricted Subsidiary is in default in the performance of or compliance with any
term of any evidence of any Indebtedness in an aggregate outstanding principal
amount of at least 5% of Consolidated Net Worth as of the end of the most
recently ended fiscal quarter of the Company or of any mortgage, indenture or
other agreement relating thereto or any other condition exists, and as a
consequence of such default or condition such Indebtedness has become, or has
been declared (or one or more Persons are entitled to declare such Indebtedness
to be), due and payable before its stated maturity or before its regularly
scheduled dates of payment, or (iii) as a consequence of the occurrence or
continuation of any event or condition (other than the passage of time or the
right of the holder of Indebtedness to convert such Indebtedness into equity
interests), (x) the Company or any Restricted Subsidiary has become obligated to
purchase or repay Indebtedness before its regular maturity or before its
regularly scheduled dates of payment in an aggregate outstanding principal
amount of at least 5% of Consolidated Net Worth as of the end of the most
recently ended fiscal quarter of the Company, or (y) one or more Persons have
the right to require the Company or any Restricted Subsidiary so to purchase or
repay such Indebtedness; or
(g) the Company or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by the Company or any of its Restricted
Subsidiaries, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any of its
Restricted Subsidiaries, or any such petition shall be filed against the Company
or any of its Restricted Subsidiaries and such petition shall not be dismissed
within 60 days; or
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(i) a final judgment or judgments outstanding at any one time for the
payment of money aggregating in excess of 5% of Consolidated Net Worth as of the
end of the most recently ended fiscal quarter of the Company are rendered
against one or more of the Company and its Restricted Subsidiaries and which
judgments are not, within 60 days after entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within 60 days after the expiration
of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined
in accordance with Title IV of ERISA, shall exceed an aggregate amount equal to
5% of Consolidated Net Worth as of the end of the most recently ended fiscal
quarter of the Company, (iv) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to Title I or
IV of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from
any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or
amends any employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company or any
Subsidiary thereunder; and any such event or events described in clauses (i)
through (vi) above, either individually or together with any other such event or
events, could reasonably be expected to have a Material Adverse Effect.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1 ACCELERATION.
If an Event of Default with respect to the Company described in
paragraph (g) or (h) of Section 11 (other than an Event of Default described in
clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by
virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has
occurred, all the Notes then outstanding shall automatically become immediately
due and payable.
(a) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 50% in principal amount of the Notes at the time
outstanding may at any time at its or their option, by notice or notices to the
Company, declare all the Notes then outstanding to be immediately due and
payable.
(b) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all the Notes held by
it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest
thereon and (y) the Make-Whole Amount determined in respect of such principal
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
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12.2 OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
12.3 RESCISSION.
At any time after any Notes have been declared due and payable pursuant
to clause (b) or (c) of Section 12.1, the holders of more than 50% in principal
amount of the Notes then outstanding, by written notice to the Company, may
rescind and annul any such declaration and its consequences if (a) the Company
has paid all overdue interest on the Notes, all principal of and Make-Whole
Amount, if any, on any Notes that are due and payable and are unpaid other than
by reason of such declaration, and all interest on such overdue principal and
Make-Whole Amount, if any, and (to the extent permitted by applicable law) any
overdue interest in respect of the Notes, at the Default Rate, (b) all Events of
Default and Defaults, other than non-payment of amounts that have become due
solely by reason of such declaration, have been cured or have been waived
pursuant to Section 17, and (c) no judgment or decree has been entered for the
payment of any monies due pursuant hereto or to the Notes. No rescission and
annulment under this Section 12.3 will extend to or affect any subsequent Event
of Default or Default or impair any right consequent thereon.
12.4 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
13 REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1 REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a register for
the registration and registration of transfers of Notes. The name and address
of each holder of one or more Notes, each transfer thereof and the name and
address of each transferee of one or more Notes shall be registered in such
register. Prior to due presentment for registration of transfer, the Person in
whose name any Note shall be registered shall be deemed and treated as the owner
and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2 TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable
23
<PAGE>
to such Person as such holder may request and shall be substantially in the
form of Exhibit 1. Each such new Note shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Note or
dated the date of the surrendered Note if no interest shall have been paid
thereon. The Company may require payment of a sum sufficient to cover any
stamp tax or governmental charge imposed in respect of any such transfer of
Notes. Notes shall not be transferred in denominations of less than
$100,000, PROVIDED that if necessary to enable the registration of transfer
by a holder of its entire holding of Notes, one Note may be in a denomination
of less than $100,000. Any transferee, by its acceptance of a Note
registered in its name (or the name of its nominee), shall be deemed to have
made the representations set forth in Sections 6.1 and 6.2.
13.3 REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (PROVIDED that if the holder of such Note is, or is a nominee
for, an original Purchaser or another holder of a Note with a minimum net worth
of at least $100,000,000, such Person's own unsecured agreement of indemnity
shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Company at the expense of the requesting holder shall execute and
deliver, in lieu thereof, a new Note, dated and bearing interest from the date
to which interest shall have been paid on such lost, stolen, destroyed or
mutilated Note or dated the date of such lost, stolen, destroyed or mutilated
Note if no interest shall have been paid thereon.
14. PAYMENTS ON NOTES.
14.1 PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole Amount, if
any, and interest (at the rate and on the dates specified in the applicable
Note) becoming due and payable on the Notes shall be made in the State of
California at the principal office of the Company in such jurisdiction. The
Company may at any time, by notice to each holder of a Note, change the place of
payment of the Notes so long as such place of payment shall be either the
principal office of the Company in such jurisdiction or the principal office of
a bank or trust company in such jurisdiction.
14.2 HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 14.1. Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company in exchange
for a new Note or Notes pursuant to Section 13.2. The Company will afford the
benefits of this Section 14.2 to any Institutional Investor that is the direct
or indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in this
Section 14.2.
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<PAGE>
15. EXPENSES, ETC.
15.1 TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated, the
Company will pay all costs and expenses (including reasonable attorneys' fees of
a special counsel and, if reasonably required, local or other counsel) incurred
by you and each Other Purchaser or holder of a Note in connection with such
transactions and in connection with any amendments, waivers or consents under or
in respect of this Agreement or the Notes (whether or not such amendment, waiver
or consent becomes effective), including, without limitation: (a) the costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the Notes or in responding
to any subpoena or other legal process or informal investigative demand issued
in connection with this Agreement or the Notes, or by reason of being a holder
of any Note, and (b) the costs and expenses, including financial advisors' fees,
incurred in connection with the insolvency or bankruptcy of the Company or any
Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes. The Company will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by you).
15.2 SURVIVAL.
The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.
15.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1 REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it
is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, (i) subject to
the provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes, (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or
20.
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<PAGE>
17.2 SOLICITATION OF HOLDERS OF NOTES.
(a) SOLICITATION. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. In any event, 30 days shall be deemed to constitute
sufficient notice. The Company will deliver executed or true and correct copies
of each amendment, waiver or consent effected pursuant to the provisions of this
Section 17 to each holder of outstanding Notes promptly following the date on
which it is executed and delivered by, or receives the consent or approval of,
the requisite holders of Notes.
(b) PAYMENT. The Company will not directly or indirectly pay or cause
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes or any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each holder of Notes then outstanding
even if such holder did not consent to such waiver or amendment.
17.3 BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note
nor any delay in exercising any rights hereunder or under any Note shall operate
as a waiver of any rights of any holder of such Note. As used herein, the term
"THIS AGREEMENT" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
17.4 NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Subsidiaries or Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in writing
and sent (a) by telecopy if the sender on the same day sends a confirming copy
of such notice by a recognized overnight delivery service (charges prepaid), or
(b) by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges
prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other address
as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set forth
at the beginning hereof to the attention of the President, or at such
other address as the Company shall have specified to the holder of each
Note in writing.
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<PAGE>
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by you as being confidential
information of the Company or such Subsidiary, PROVIDED that such term does not
include information that (a) was publicly known or otherwise known to you prior
to the time of such disclosure, (b) subsequently becomes publicly known through
no act or omission by you or any person acting on your behalf, (c) otherwise
becomes known to you other than through disclosure by the Company or any
Subsidiary or (d) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available. You will maintain the
confidentiality of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of third
parties delivered to you, PROVIDED that you may deliver or disclose Confidential
Information to (i) your directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes), (ii) your financial
advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor
to which you sell or offer to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this
Section 20), (v) any Person from which you offer to purchase any security of the
Company (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 20),
(vi) any federal or state regulatory authority having jurisdiction over you,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about your investment portfolio or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to you, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which you are a party or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to have agreed to
be bound by and to be entitled to the benefits of this Section 20 as though it
were a party to this Agreement. On reasonable request by the Company in
connection with the delivery to any holder of a Note of information required to
be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 20.
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<PAGE>
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
22. MISCELLANEOUS.
22.1 SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or on behalf
of any of the parties hereto bind and inure to the benefit of their respective
successors and assigns (including, without limitation, any subsequent holder of
a Note) whether so expressed or not.
22.2 PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary notwithstanding, any
payment of principal of or Make-whole Amount or interest on any Note that is due
on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.
22.3 SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
22.4 CONSTRUCTION.
Each covenant contained herein shall be construed (absent express provision to
the contrary) as being independent of each other covenant contained herein, so
that compliance with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with any other covenant. Where any
provision herein refers to action to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such Person.
22.5 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which together shall constitute one instrument.
Each counterpart may consist of a number of copies hereof, each signed by less
than all, but together signed by all, of the parties hereto.
22.6 GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
* * * * *
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<PAGE>
If you are in agreement with the foregoing, please sign the form of agreement on
the accompanying counterpart of this Agreement and return it to the Company,
whereupon the foregoing shall become a binding agreement between you and the
Company.
Very truly yours,
COHERENT, INC.
By
---------------------------------
Name:
Title:
The foregoing is hereby
agreed to as of the
date thereof.
[ADD PURCHASER SIGNATURE BLOCKS]
29
<PAGE>
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
<TABLE>
<CAPTION>
Principal Amount of
Name and Address of Purchaser Notes to be Purchased
- ----------------------------- ---------------------
<S> <C>
[NAME OF PURCHASER] Series A
$______________
Series B
$______________
</TABLE>
(1) All payments by wire transfer
of immediately available
funds to:
with sufficient information
to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
(3) All other communications:
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<PAGE>
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
"AFFILIATE" means, at any time, and with respect to any Person, (a) any other
Person (other than a Restricted Subsidiary) that at such time directly or
indirectly through one or more intermediaries Controls, or is Controlled by,
or is under common Control with, such first Person, and (b) any Person
beneficially owning or holding, directly or indirectly, 10% or more of any
class of voting or equity interests of the Company or any Subsidiary or any
corporation of which the Company and its Subsidiaries beneficially own or
hold, in the aggregate, directly or indirectly, 10% or more of any class of
voting or equity interests (other than Restricted Subsidiaries). As used in
this definition, "CONTROL" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise. Unless the context otherwise clearly requires, any reference to an
"Affiliate" is a reference to an Affiliate of the Company.
"BUSINESS DAY" means (a) for the purposes of Section 8.6 only, any day other
than a Saturday, a Sunday or a day on which commercial banks in New York City
are required or authorized to be closed, and (b) for the purposes of any other
provision of this Agreement, any day other than a Saturday, a Sunday or a day
on which commercial banks in New York, New York or San Francisco, California
are required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which the lessee is
required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time to time,
and the rules and regulations promulgated thereunder from time to time.
"COMPANY" means Coherent, Inc., a Delaware corporation.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED DEBT" means, at any date of determination, the total of all
Indebtedness of the Company and its Restricted Subsidiaries outstanding on such
date, after eliminating all offsetting debits and credits between the Company
and its Restricted Subsidiaries and all other items required to be eliminated in
the course of the preparation of consolidated financial statements of the
Company and its Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED INCOME AVAILABLE FOR FIXED CHARGES" means, with respect to any
period, Consolidated Net Income for such period PLUS all amounts deducted in the
computation thereof on account of (a) Fixed Charges and (b) taxes imposed on or
measured by income or excess profits.
"CONSOLIDATED NET INCOME" means, with respect to any period, the net income (or
loss) of the Company and its Restricted Subsidiaries for such period (taken as a
cumulative whole), as determined in accordance with GAAP, after eliminating all
offsetting debits and credits between the Company and its Restricted
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company and its
Restricted Subsidiaries in accordance with GAAP, PROVIDED that there shall be
excluded: (i) the income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or a Restricted Subsidiary, and the income (or loss) of any Person,
substantially all of the assets of which have been acquired in any manner,
realized by such other Person prior to the date of acquisition; (ii) the income
(or loss) of any Person (other than a Restricted Subsidiary) in which the
Company or any Restricted Subsidiary has an ownership interest, except to the
extent that any such income has been actually received by the Company or such
Restricted Subsidiary in the form of cash dividends or other cash distributions;
(iii) the undistributed earnings of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary is not at the time permitted by the terms of its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; (iv) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of income accrued during such period;
(v) any aggregate net gain (and any aggregate net loss) during such period
arising from the sale, conversion, exchange or other disposition,
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<PAGE>
including any tax effect, of Investments or capital assets (such term to
include, without limitation, (a) all non-current assets and, without
duplication, (b) the following, whether or not current: all fixed assets,
whether tangible or intangible, all inventory sold in conjunction with the
disposition of fixed assets, and all Securities); (vi) any gains resulting
from any write-up of any assets (and any loss resulting from any write-down
of any assets); (vii) any net gain from the collection of the proceeds of any
life insurance policies; (viii) any gain arising from the acquisition of any
Security of the Company or any Restricted Subsidiary; (ix) any net income or
gain (and any net loss) during such period resulting from (a) any change in
GAAP, (b) any extraordinary items, or (c) any discontinued operations or the
disposition thereof; (x) any deferred or other credit representing the excess
of equity in any Restricted Subsidiary at the date of acquisition over the
cost of the investment in such Restricted Subsidiary; (xi) in the case of a
successor to the Company by consolidation or merger or as a transferee of its
assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets; and (xii) any portion of such
net income that cannot be freely converted into United States Dollars.
"CONSOLIDATED NET WORTH" means, at any time, (a) the sum of (i) the par value
(or value stated on the books of the corporation) of the capital stock (but
excluding treasury stock and capital stock subscribed and unissued) of the
Company and its Restricted Subsidiaries, PLUS (ii) the amount of paid-in
capital and retained earnings of the Company and its Restricted Subsidiaries,
in each case as such amounts would be shown on the consolidated balance sheet
of the Company and its Restricted Subsidiaries as of such time prepared in
accordance with GAAP; MINUS (b) the amount by which Restricted Investments
exceeds 10% of the amount determined in clause (a); MINUS (c) to the extent
included in clause (a), all amounts properly attributable to minority
interests, if any, in the stock and surplus of Restricted Subsidiaries.
"CONSOLIDATED TOTAL ASSETS" means, at any date of determination, on a
consolidated basis for the Company and its Restricted Subsidiaries, total
assets, determined in accordance with GAAP.
"CONSOLIDATED TOTAL CAPITALIZATION" means, at any time, the sum of Consolidated
Net Worth and Consolidated Debt.
"DEFAULT" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
"DEFAULT RATE" means that rate of interest that is the greater of
(i) 2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 2% over the rate of interest publicly announced
by Bank of America in San Francisco, California as its "base" or "prime" rate.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FIXED CHARGES" means, with respect to any period, the sum of (i)
Interest Expense for such period and (ii) Lease Rentals for such period, for the
Company and its Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP.
"FIXED CHARGES COVERAGE RATIO" means, at any date of
determination, the ratio of (i) Consolidated Income Available for Fixed Charges
for the period of four consecutive fiscal quarters ending on such date to (ii)
Fixed Charges for such period.
"GAAP" means generally accepted accounting principles as in effect from time to
time in the United States of America.
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<PAGE>
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or
which asserts jurisdiction over any properties of the
Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any
such government.
"GUARANTY" means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income
statement condition of any other Person or otherwise to advance or
make available funds for the purchase or payment of such
indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of any other Person to
make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous wastes or
any other substances that might pose a hazard to health or safety, the removal
of which may be required or the generation, manufacture, refining, production,
processing, treatment, storage, handling, transportation, transfer, use,
disposal, release, discharge, spillage, seepage, or filtration of which is or
shall be restricted, prohibited or penalized by any applicable law (including,
without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name such Note is
registered in the register maintained by the Company pursuant to Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable and other
accrued liabilities arising in the ordinary course of business but
including all liabilities created or arising under any conditional
sale or other title retention agreement with respect to any such
property);
33
<PAGE>
(c) all liabilities appearing on its balance sheet in
accordance with GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities
valued, if not assumed, at the lesser of the face amount of such
Indebtedness or the fair market value of the property subject to
the Lien); and
(e) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (d) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (e) to the extent such Person remains
legally liable in respect thereof notwithstanding that any such obligation is
deemed to be extinguished under GAAP.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b) any
holder of a Note holding more than $2,000,000 of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"INTEREST EXPENSE" means interest expense, as determined in accordance with
GAAP.
"INVESTMENT" means any investment, made in cash or by delivery of property, by
the Company or any of its Restricted Subsidiaries (i) in any Person, whether by
acquisition of stock, Indebtedness or other obligation or Security, or by loan,
Guaranty, advance, capital contribution or otherwise, or (ii) in any property.
"LEASE RENTALS" means, with respect to any period, the sum of the minimum amount
of rental and other obligations required to be paid during such period by the
Company or any Restricted Subsidiary as lessee under all leases of real or
personal property (other than Capital Leases), EXCLUDING any amounts required to
be paid by the lessee (whether or not therein designated as rental or additional
rental) (a) which are on account of maintenance and repairs, insurance, taxes,
assessments, water rates and similar charges, (b) which are based on profits,
revenues or sales realized by the lessee from the leased property or otherwise
based on the performance of the lessee, or (c) which are contingent.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge,
security interest or other encumbrance, or any interest or title of any vendor,
lessor, lender or other secured party to or of such Person under any conditional
sale or other title retention agreement or Capital Lease, upon or with respect
to any property or asset of such Person (including in the case of stock,
stockholder agreements, voting trust agreements and all similar arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business, operations, affairs,
financial condition, assets or properties of the Company and its Restricted
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business,
operations, affairs, financial condition, assets or properties of the Company
and its Restricted Subsidiaries taken as a whole, or (b) the ability of the
Company to perform its obligations under this Agreement and the Notes, or (c)
the validity or enforceability of this Agreement or the Notes.
"MATERIALLY" means materially in relation to the business, operations, affairs,
financial condition, assets or properties of the Company and its Restricted
Subsidiaries taken as a whole.
"MEMORANDUM" is defined in Section 5.3.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term
is defined in section 4001(a)(3) of ERISA).
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of
any other officer of the Company whose responsibilities extend to the subject
matter of such certificate.
"OTHER AGREEMENTS" is defined in Section 2.
34
<PAGE>
"OTHER PURCHASERS" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in
ERISA or any successor thereto.
"PERMITTED LIEN" is defined in Section 10.3.
"PERSON" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA)
that is or, within the preceding five years, has been established or maintained,
or to which contributions are or, within the preceding five years, have been
made or required to be made, by the Company or any ERISA Affiliate or with
respect to which the Company or any ERISA Affiliate may have any liability.
"PREFERRED STOCK" means any class of capital stock of a corporation that is
preferred over any other class of capital stock of such corporation as to the
payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"PRIORITY DEBT" means (without duplication) the sum of (a) unsecured
Indebtedness of Restricted Subsidiaries other than (x) Indebtedness owing to the
Company or a Wholly-Owned Restricted Subsidiary and (y) Indebtedness outstanding
when such Person became a Restricted Subsidiary, and (b) Indebtedness of the
Company and its Restricted Subsidiaries secured by a Lien permitted by Section
10.3(n).
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited, real or
personal property of any kind, tangible or intangible, choate or inchoate.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by
the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of more than 50% in principal
amount of the Notes at the time outstanding (exclusive of Notes then owned by
the Company or any of its Subsidiaries or Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other officer
of the Company with responsibility for the administration of the relevant
portion of this agreement.
"RESTRICTED INVESTMENT" means all Investments except (i) property to be used in
the ordinary course of business; (ii) current assets arising from the sale of
goods and services in the ordinary course of business; (iii) Investments in one
or more Restricted Subsidiaries or any Person that concurrently becomes a
Restricted Subsidiary; (iv) Investments existing at the date of Closing; (v)
Investments in obligations, maturing within two years from the date of
acquisition, issued by or guaranteed by the United States of America or an
agency thereof; (vi) Investments in municipal securities, maturing within one
year, which are rated in one of the top two ratings classifications by at least
one national rating agency; (vii) Investments in certificates of deposit or
banker's acceptances issued by Bank of America or other commercial banks,
maturing within two years, which are rated in one of the top two rating
classifications by at least one national rating agency; (viii) Investments in
commercial paper, maturing within 270 days, rating in one of the top two rating
classifications by at least one national rating agency; (ix) Investments in
repurchase agreements maturing within 30 days; and (x) Investments in mutual
funds that have at least 95% of their assets in cash or invested exclusively in
the types of investments referred to in clauses (v) through (viii) above and
that are classified as current assets in accordance with GAAP.
"RESTRICTED SUBSIDIARY" means any Subsidiary which (a) at least a majority of
the voting securities of which are owned by the Company and/or one or more
Wholly-Owned Restricted Subsidiaries, and (b) is not designated as an
Unrestricted Subsidiary. The Company may designate in writing to each of the
holders of the Notes any Unrestricted Subsidiary as a Restricted Subsidiary and
may designate in writing to each of the holders of the Notes any Restricted
Subsidiary as an Unrestricted Subsidiary; PROVIDED that (i) no such designation
of an Unrestricted Subsidiary as a Restricted Subsidiary shall be effective
unless immediately after giving effect thereto such Subsidiary could incur an
additional $1.00 of Consolidated Debt under Section 10.5; (ii) no such
designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be
effective unless such Subsidiary does not own any stock, other equity interest
or Indebtedness of the Company or a Restricted Subsidiary; and (iii) no such
designation of a Restricted Subsidiary as an Unrestricted Subsidiary or of an
Unrestricted Subsidiary as a Restricted Subsidiary shall be effective unless,
immediately after giving effect thereto the Company could incur at least $1.00
of additional Consolidated Debt under Section 10.5, and no Default or Event of
Default would exist; PROVIDED, FURTHER, that any Subsidiary that has been
redesignated as a Restricted Subsidiary or Unrestricted Subsidiary as provided
in the foregoing sentence of this definition may not thereafter be designated or
redesignated as a Restricted Subsidiary or an Unrestricted Subsidiary, as the
case may be.
35
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SECURITY" has the meaning set forth in section 2(l) of the
Securities Act.
"SENIOR FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"SUBORDINATED DEBT" means any Indebtedness that is in any manner subordinated in
right of payment or security in any respect to Indebtedness evidenced by the
Notes.
"SUBSIDIARY" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to
a "Subsidiary" is a reference to a Subsidiary of the Company.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary which is designated as an
Unrestricted Subsidiary on Schedule 5.4 attached hereto or is designated as such
in writing by the Company to each of the holders of the Notes pursuant to the
definition of "Restricted Subsidiary".
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means, at any time, any Restricted
Subsidiary one hundred percent (100%) of all of the equity interests (except
directors' qualifying shares) and voting interests of which are owned by any one
or more of the Company and the Company's other Wholly-Owned Restricted
Subsidiaries at such time.
36
<PAGE>
EXHIBIT 1-A
[FORM OF SERIES A NOTE]
COHERENT, INC.
6.70% SERIES A SENIOR NOTE DUE MAY 18, 2006
No. [A-__] [Date]
$[_______] PPN 192479 A* 4
FOR VALUE RECEIVED, the undersigned, COHERENT, INC. (herein called the
"Company"), a corporation organized and existing under the laws of the State
of Delaware, hereby promises to pay to [_______________________], or
registered assigns, the principal sum of [_________________________________]
DOLLARS on May 18, 2006, with interest (computed on the basis of a 360-day
year of twelve 30-day months) (a) on the unpaid balance thereof at the rate
of 6.70% per annum from the date hereof, payable semiannually, on the 18th
day of November and May in each year, commencing with the November or May
next succeeding the date hereof, until the principal hereof shall have become
due and payable, and (b) to the extent permitted by law on any overdue
payment (including any overdue prepayment) of principal, any overdue payment
of interest and any overdue payment of any Make-Whole Amount (as defined in
the Note Purchase Agreements referred to below), payable semiannually as
aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the greater of (i) 8.70% or (ii)
2% over the rate of interest publicly announced by Bank of America from time
to time in San Francisco, California as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with respect to
this Note are to be made in lawful money of the United States of America at the
principal place of business of the Company in the State of California or at such
other place as the Company shall have designated by written notice to the holder
of this Note as provided in the Note Purchase Agreements referred to below.
This Note is one of a series of Series A Senior Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of May
18, 1999 (as from time to time amended, the "Note Purchase Agreements"), between
the Company and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreements and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreements.
This Note is a registered Note and, as provided in the Note Purchase Agreements,
upon surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.
The Company will make required prepayments of principal on the dates and in the
amounts specified in the Note Purchase Agreements. This Note is also subject to
optional prepayment, in whole or from time to time in part, at the times and on
the terms specified in the Note Purchase Agreements, but not otherwise.
If an Event of Default, as defined in the Note Purchase Agreements, occurs and
is continuing, the principal of this Note may be declared or otherwise become
due and payable in the manner, at the price (including any applicable Make-Whole
Amount) and with the effect provided in the Note Purchase Agreements.
37
<PAGE>
This Note shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the law of the State of New York excluding
choice-of-law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.
COHERENT, INC.
By
----------------------------------
Name:
Title:
38
<PAGE>
EXHIBIT 1-B
[FORM OF SERIES B NOTE]
COHERENT, INC.
6.91% SERIES B SENIOR NOTE DUE MAY 18, 2006
No. [B-__] [Date]
$[_______] PPN 192479 A@ 2
FOR VALUE RECEIVED, the undersigned, COHERENT, INC. (herein called the
"Company"), a corporation organized and existing under the laws of the State
of Delaware, hereby promises to pay to [____________________], or registered
assigns, the principal sum of [________________________________] DOLLARS on
May 18, 2006, with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.91%
per annum from the date hereof, payable semiannually, on the 18th day of
November and May in each year, commencing with the November or May next
succeeding the date hereof, until the principal hereof shall have become due
and payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of
interest and any overdue payment of any Make-Whole Amount (as defined in the
Note Purchase Agreements referred to below), payable semiannually as
aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the greater of (i) 8.91% or (ii)
2% over the rate of interest publicly announced by Bank of America from time
to time in San Francisco, California as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with respect
to this Note are to be made in lawful money of the United States of America
at the principal place of business of the Company in the State of California
or at such other place as the Company shall have designated by written notice
to the holder of this Note as provided in the Note Purchase Agreements
referred to below.
This Note is one of a series of Series B Senior Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
May 18, 1999 (as from time to time amended, the "Note Purchase Agreements"),
between the Company and the respective Purchasers named therein and is
entitled to the benefits thereof. Each holder of this Note will be deemed,
by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements and (ii)
to have made the representation set forth in Section 6.2 of the Note Purchase
Agreements.
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment
and for all other purposes, and the Company will not be affected by any
notice to the contrary.
The Company will make required prepayments of principal on the dates and in the
amounts specified in the Note Purchase Agreements. This Note is also subject to
optional prepayment, in whole or from time to time in part, at the times and on
the terms specified in the Note Purchase Agreements, but not otherwise. If an
Event of Default, as defined in the Note Purchase Agreements, occurs and is
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner, at the price (including any applicable Make-Whole
Amount) and with the effect provided in the Note Purchase Agreements.
39
<PAGE>
This Note shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the law of the State of New York excluding
choice-of-law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.
COHERENT, INC.
By
----------------------------------
Name:
Title:
40
<PAGE>
EXHIBIT 4.4(a)
MATTERS TO BE COVERED IN OPINION OF COUNSEL
TO THE COMPANY
1. The Company has been duly incorporated and is validly existing in good
standing under the laws of the State of Delaware and is duly licensed or
qualified and is in good standing as a foreign corporation in each jurisdiction
in which the character of the properties owned or leased by it or the nature of
the business transacted by it makes such licensing or qualification necessary.
2. Each Restricted Subsidiary has been duly incorporated and is validly
existing in good standing under the laws of its jurisdiction of incorporation
and is duly licensed or qualified and is in good standing in each jurisdiction
in which the character of the properties owned or leased by it or the nature of
the business transacted by it makes such licensing or qualification necessary.
All of the outstanding shares of capital stock of each such Restricted
Subsidiary have been duly issued, are fully paid and non-assessable and are
owned of record by the Company, by one or more Restricted Subsidiary, or by the
Company and one or more Restricted Subsidiaries.
3. The Company has the corporate power to execute and deliver the Agreement
and the Other Agreements (the "AGREEMENTS"), to perform its obligations set
forth in each of the Agreements and to issue and sell the Notes and to perform
its obligations set forth therein.
4. The execution, delivery and performance of each of the Agreements and the
Notes have been duly authorized by all necessary corporate action on the part of
the Company, and each of the Agreements and the Notes have been duly executed
and delivered by the Company.
5. The Agreements and the Notes constitute the legally valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally (including, without limitation, fraudulent conveyance laws) and
by general principles of equity including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless of
whether considered in a proceeding in equity or at law.
6. The Company's execution and delivery of, and performance of its
obligations under the Agreements and the Notes do not and will not (i) violate
the Company's Articles or Certificate of Incorporation or Bylaws, (ii) violate,
breach or result in a default under, or result in the imposition of any Lien
upon any property of the Company pursuant to, any existing obligation of or
restriction on the Company under any other Material agreement, instrument or
indenture listed on Schedule I hereto, (iii) breach or otherwise violate any
existing obligation of or restriction on the Company under any order, judgment
or decree of any California or Federal court or governmental authority binding
on the Company listed on Schedule II hereto, or (iv) violate any California or
Federal law or regulation.
7. No order, consent, permit or approval of any California or Federal
governmental authority is required on the part of the Company to issue and sell
the Notes or for the execution and delivery of, and performance of the Company's
obligations under, the Agreements and the Notes.
8. To our knowledge, there is no action, suit or proceeding pending against
or threatened against or affecting the Company or any Restricted Subsidiary
before any court, governmental or regulatory authority or arbitrator, which
seeks to affect the enforceability of the Agreements or the Notes or which could
reasonably be expected to have a Material Adverse Effect.
41
<PAGE>
9. Assuming the accuracy of (i) the Company's representations in the first
sentence of Section 5.13 of the Agreements and (ii) your representations in
Section 6.1 of the Agreements, it is not necessary in connection with the
execution and delivery of the Notes under the circumstances contemplated by the
Note Purchase Agreements to register the Notes under the Securities Act of 1933,
as amended, or to qualify an indenture in respect thereof under the Trust
Indenture Act of 1939, as amended.
10. Neither the extension of credit nor the use of proceeds provided in the
Agreements if made in accordance with the terms thereof will violate Regulations
T, U or X of the Board of Governors of the Federal Reserve System.
11. The Company is not an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
[Customary exceptions, assumptions and exclusions]
42
<PAGE>
EXHIBIT 4.4(b)
FORM OF OPINION OF GENERAL COUNSEL
OF THE COMPANY
[TO COME]
43
<PAGE>
EXHIBIT 4.4(c)
FORM OF OPINION OF SPECIAL COUNSEL
FOR THE PURCHASERS
[TO COME]
44
<PAGE>
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.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ----------------------------------------------------------------------------
<S> <C>
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
Coherent S.A. France
Coherent Optics Europe, Ltd. United Kingdom
Coherent Lubeck GmbH Germany
Coherent Export Co., Inc. United States
Coherent Holding Co., GmbH Germany
Coherent-Ealing Europe, Ltd. United Kingdom
Coherent (U.K.) Holdings, Ltd. United Kingdom
Coherent Benelux The Netherlands
Coherent Tutcore, Ltd. (1) Finland
Coherent HK Limited Hong Kong
Star Medical Technologies, Inc. United States
</TABLE>
(1) Coherent owns 80% of the outstanding voting securities of these
subsidiaries.
(2) Coherent owns 76% of the outstanding voting securities of this
subsidiary.
111
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 333-03035, 33-66536, 33-35609, 33-31442, 33-21878, 333-80265 and 2-96838 of
Coherent, Inc. on Forms S-8 of our report dated November 1, 1999 appearing in
this Annual Report on Form 10-K of Coherent, Inc. for the year ended October 2,
1999.
DELOITTE & TOUCHE LLP
San Jose, California
December 10, 1999
112
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> OCT-02-1999
<CASH> 38,279
<SECURITIES> 30,637
<RECEIVABLES> 99,595
<ALLOWANCES> 4,592
<INVENTORY> 97,902
<CURRENT-ASSETS> 317,573
<PP&E> 165,630
<DEPRECIATION> 75,676
<TOTAL-ASSETS> 495,468
<CURRENT-LIABILITIES> 122,654
<BONDS> 74,745
0
0
<COMMON> 240
<OTHER-SE> 277,065
<TOTAL-LIABILITY-AND-EQUITY> 495,468
<SALES> 468,869
<TOTAL-REVENUES> 468,869
<CGS> 248,203
<TOTAL-COSTS> 248,203
<OTHER-EXPENSES> 202,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,755
<INCOME-PRETAX> 16,230
<INCOME-TAX> 4,389
<INCOME-CONTINUING> 11,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,841
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.48
</TABLE>
