<PAGE>
PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-41314
II-VI INCORPORATED
INFORMATION STATEMENT/PROSPECTUS
For the special meeting of stockholders of Laser Power Corporation
to be held October 11, 2000
and
for the issuance to stockholders of Laser Power Corporation
of II-VI Incorporated common stock
in the merger of
II-VI Acquisition Corp. into Laser Power Corporation
This information statement/prospectus constitutes all of the following:
. An information statement, by which the board of directors of Laser Power
Corporation is giving notice of the special meeting of stockholders to be
held at the offices of II-VI Incorporated, 375 Saxonburg Boulevard,
Saxonburg, Pennsylvania 16056, at 1:00 p.m. local time, on October 11,
2000;
. Notice to Laser Power stockholders of their appraisal rights in the
merger pursuant to Section 262 of the Delaware general Corporation Law;
and
. A prospectus for the issuance of shares of II-VI Incorporated ("II-VI")
common stock to Laser Power stockholders pursuant to the merger.
This information statement/prospectus is first being mailed to stockholders
of Laser Power on or about August 30, 2000.
II-VI declared a two-for-one stock split of its common stock on August 23,
2000. The stock split is payable to stockholders of record as of the close of
business on September 5, 2000 and will be distributed on or about September 20,
2000 in the form of a 100% share distribution. The II-VI share and per share
information presented in this information statement/prospectus is presented on
a historical basis and does NOT give effect to the stock split.
II-VI's common stock is listed on the Nasdaq National Market under the
symbol "IIVI" and Laser Power's common stock is listed on the Nasdaq National
Market under the symbol "LPWR."
You should carefully consider the risk factors beginning on page 15 of this
information statement/prospectus.
We are not asking you for a proxy and you are requested not to send us a
proxy.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the II-VI common stock to be issued in
the merger or determined if this information statement/prospectus is accurate
or adequate. Any representation to the contrary is a criminal offense.
----------------
The date of this information statement/prospectus is September 8, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS.................................. 1
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... 2
WHERE YOU CAN FIND MORE INFORMATION........................................ 4
SUMMARY.................................................................... 6
II-VI INCORPORATED SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA......... 9
LASER POWER CORPORATION SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA.... 10
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA....................... 11
RECENT DEVELOPMENTS........................................................ 12
COMPARATIVE PER SHARE DATA................................................. 13
RISK FACTORS............................................................... 15
CAPITALIZATION............................................................. 21
THE LASER POWER SPECIAL MEETING OF STOCKHOLDERS............................ 22
REASONS FOR THE MERGER..................................................... 22
BACKGROUND OF THE MERGER................................................... 24
THE MERGER AGREEMENT....................................................... 26
SOURCE AND AMOUNT OF FUNDS................................................. 33
LITIGATION................................................................. 33
APPRAISAL RIGHTS........................................................... 34
MATERIAL FEDERAL INCOME TAX CONSEQUENCES................................... 34
ACCOUNTING TREATMENT....................................................... 35
THE COMPANIES.............................................................. 36
II-VI INCORPORATED....................................................... 36
LASER POWER CORPORATION.................................................. 52
INTERESTS OF CERTAIN PERSONS............................................... 67
SUPPLEMENTARY FINANCIAL INFORMATION........................................ 68
COMPARATIVE STOCK PRICES AND DIVIDENDS..................................... 68
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................ 71
COMPARISON OF STOCKHOLDERS' RIGHTS......................................... 77
LEGAL MATTERS.............................................................. 84
EXPERTS.................................................................... 84
FORWARD-LOOKING INFORMATION................................................ 84
LASER POWER CORPORATION CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
ANNEX A: AGREEMENT AND PLAN OF MERGER...................................... A-1
ANNEX B: FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER................... B-1
ANNEX C: DELAWARE GENERAL CORPORATION LAW SECTION 262--APPRAISAL RIGHTS.... C-1
</TABLE>
i
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LASER POWER CORPORATION
36570 Briggs Road
Murrieta, California 82563
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 11, 2000
To the stockholders of Laser Power Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Laser Power
Corporation, a Delaware corporation, will be held at the offices of II-VI
Incorporated, 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056, at 1:00
p.m. local time, on October 11, 2000, for the following purposes:
1. To consider and vote on a proposal to approve and adopt an agreement
and plan of merger, dated as of June 28, 2000, by and among Laser Power
Corporation, a Delaware corporation, II-VI Incorporated, a Pennsylvania
corporation, and II-VI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of II-VI, as amended, which provides for, among
other things:
. the merger of II-VI Acquisition with and into Laser Power with Laser
Power continuing as the surviving corporation;
. the conversion of each outstanding share of Laser Power common stock
(other than shares held by II-VI, its subsidiaries and the
dissenting stockholders who perfect their appraisal rights) into the
right to receive shares of II-VI common stock and cash; and
. Laser Power becoming a wholly-owned subsidiary of II-VI.
2. To transact such other business as may properly come before the
meeting.
The close of business on August 28, 2000 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the special meeting or any adjournment or postponement of the meeting. Only
holders of record of Laser Power common stock on the record date may vote at
the Laser Power special meeting.
The merger is the second and final step in the acquisition of Laser Power by
II-VI. The first step was an offer by II-VI to exchange each outstanding share
of Laser Power common stock (including the associated right to purchase
preferred stock) for .052 shares of II-VI common stock and $3.08 in cash,
without interest. As a result of the exchange offer, II-VI now owns
approximately 88% of the outstanding shares of Laser Power. Upon consummation
of the merger, each outstanding share of Laser Power (other than shares held by
II-VI and its subsidiaries and the dissenting stockholders who perfect their
appraisal rights) will be converted into the right to receive the same
consideration paid in the exchange offer. (The number of shares received will
be adjusted to .104 shares after giving effect to the two-for-one stock split
declared by II-VI on August 23, 2000.) The merger is described in greater
detail in the accompanying information statement/prospectus, which you should
read carefully, whether or not you plan to attend the special meeting.
Approval of the merger requires the affirmative vote of the holders of a
majority of the shares of Laser Power common stock outstanding and entitled to
vote on this matter. II-VI owns a sufficient number of shares to assure
approval of the merger and will vote all of its shares in favor of the merger
at the special meeting. As a result, the affirmative vote of any other
stockholder will not be required to approve the merger. In light of the
foregoing, Laser Power has determined not to solicit proxies from its
stockholders.
Laser Power stockholders who wish to dissent and who comply with the
requirements of the Delaware General Corporation Law will have the right to
demand payment for, and appraisal of, the value of their shares. See
"Dissenters' Rights" in the accompanying information statement/prospectus.
By Order of the Board of Directors,
Bernard J. Brady,
Secretary
Murrietta, California
September 8, 2000
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QUESTIONS AND ANSWERS ABOUT THE MERGER
WHAT WILL HAPPEN IN THE MERGER?
Upon consummation of the merger, II-VI Acquisition Corp. (a wholly-owned
subsidiary of II-VI) will be merged with and into Laser Power and stockholders
who surrender their share certificates, other than II-VI and its subsidiaries
and dissenting stockholders who perfect their dissenters' rights, will receive
.052 shares of II-VI common stock (adjusted to .104 shares after giving effect
to the two-for-one stock split) and a cash payment of $3.08, without interest,
for each of their shares.
WHO WILL OWN THE COMPANY AFTER THE MERGER?
After the merger, II-VI will own all of the outstanding shares of Laser
Power.
WHY HAS THE MERGER BEEN PROPOSED?
The merger is the second step in a two-part transaction, the purpose of
which is the acquisition by II-VI of the entire equity interest in Laser Power.
The first step was an exchange offer for all of the outstanding shares
(including the associated rights to purchase preferred stock) of Laser Power,
which was consummated by II-VI on August 14, 2000. As a result of the offer,
II-VI owns approximately 88% of the outstanding shares of Laser Power.
WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
Approval of the merger requires the affirmative vote of holders of a
majority of the Laser Power shares outstanding and entitled to vote at the
special meeting. II-VI ALREADY OWNS A SUFFICIENT NUMBER OF SHARES TO ASSURE
APPROVAL OF THE MERGER AND WILL VOTE ALL OF ITS SHARES IN FAVOR OF THE MERGER.
AS A RESULT, NO OTHER STOCKHOLDER WILL NEED TO VOTE "FOR" THE PROPOSAL FOR THE
MERGER TO BE APPROVED. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
WHAT WILL I RECEIVE IN THE MERGER?
As a Laser Power stockholder, you will receive the same consideration as was
paid in the exchange offer: .052 shares of II-VI common stock (adjusted to .104
shares after giving effect to the two-for-one stock split) plus $3.08 in cash,
without interest, for each share that you validly surrender for payment. This
is the "Merger Consideration."
ARE DISSENTERS' RIGHTS AVAILABLE?
Yes. Under Delaware law, stockholders who file a written demand for
appraisal with the Company before the taking of the vote at the special meeting
and whose shares are not voted in favor of the merger will be entitled to
exercise dissenters' rights in connection with the merger. Stockholders
desiring to exercise such dissenters' rights will have the rights and duties
and must follow the procedures set forth in Section 262 of the Delaware General
Corporation Law. The full text of this section is attached to this information
statement/prospectus as Annex C. Stockholders who wish to exercise dissenters'
rights must carefully follow the procedures described therein and are urged to
read Annex C in its entirety.
IF THE MERGER IS CONSUMMATED, WHEN CAN I EXPECT TO RECEIVE THE MERGER
CONSIDERATION FOR MY SHARES OF LASER POWER COMMON STOCK?
As soon as reasonably practicable after the merger is consummated, you will
receive detailed instructions regarding the surrender of your share
certificates. You should not send your share certificates to Laser Power or
anyone else until you receive these instructions. II-VI will send payment of
the Merger Consideration to you as promptly as practicable following receipt of
your share certificates and other required documents.
2
<PAGE>
WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
We expect the merger to be consummated as soon as reasonably practicable
after the date of the special meeting.
WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
The receipt of II-VI common stock and cash in exchange for shares in the
merger by you will be a taxable transaction for U.S. Federal income tax
purposes. To review the tax consequences to you in greater detail, see
"Material U.S. Federal Income Tax Consequences." Your tax consequences will
depend on your personal situation. You should consult your tax advisor for a
full understanding of the tax consequences of the merger to you.
WHAT DO I NEED TO DO NOW?
This information statement contains important information regarding the
merger, as well as information about II-VI and Laser Power. If you wish to
understand the merger fully, we urge you to read this information
statement/prospectus carefully, including its annexes. You may also want to
review the documents referenced under "Where You Can Find More Information."
3
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
II-VI and Laser Power file reports, proxy statements and other information
with the Securities and Exchange Commission under the Exchange Act. You may
read and copy this information at the following locations of the Securities and
Exchange Commission:
Public Reference Room New York Regional Office Chicago Regional
450 Fifth Street, N.W. 7 World Trade Center Office
Room 1024 Suite 13200 Citicorp Center
Washington, D.C. 20549 New York, New York 10048 500 West Madison
Street
Suite 1400
Chicago, Illinois
60661-2511
You may read and copy any materials we file with the Securities and Exchange
Commission at the Securities and Exchange Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Securities and Exchange Commission. The address of the Securities and
Exchange Commission's website is http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
II-VI and Laser Power at the offices of the Nasdaq National Market, 86 Trinity
Place, New York, New York 10006-1872.
We filed a registration statement on Form S-4 to register with the
Securities and Exchange Commission the II-VI common stock to be issued pursuant
to our offer. This information statement/prospectus is a part of that
registration statement. As allowed by SEC rules, this information
statement/prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement. You may
obtain copies of the Form S-4 (and any amendments to those document, if any) in
the manner described above.
The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this information statement/prospectus and information we file
later with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings made
by us with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 until the sale of all of the shares of common stock that
are part of this offering. The II-VI documents we are incorporating by
reference are as follows:
- our Annual Report on Form 10-K for the year ended June 30, 1999;
- our Quarterly Reports on Form 10-Q for the quarters ended September 30,
1999, December 31, 1999 and March 31, 2000; and
- the description of our common stock contained in our registration
statement on Form 8-A, and any amendment or reports filed for the
purpose of updating that description; and
- our Current Reports on Form 8-K for the events dated July 7, 1999,
October 19, 1999, August 9, 2000, August 14, 2000 and August 23, 2000.
Any statement contained in a document that is incorporated by reference will
be modified or superseded for all purposes to the extent that a statement
contained in this information statement/prospectus (or in any other document
that is subsequently filed with the SEC and incorporated by reference) modifies
or is contrary to that previous statement. Any statement so modified or
superseded will not be deemed a part of this information statement/prospectus
except as so modified or superceded.
4
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You may request a copy of these filings at no cost by writing or telephoning
our investor relations department at the following address and number:
II-VI Incorporated
375 Saxonburg Blvd.
Saxonburg, PA 16056
(724) 352-4455
We have not authorized anyone to give any information or make any
representation about the transactions discussed in this information
statement/prospectus or our companies that is different from, or in addition
to, that contained in this information statement/prospectus or in any of the
materials that we have incorporated into this document. Therefore, if anyone
gives you information of this sort, you should not rely on it. The information
contained in this document speaks only as of the date of this document unless
the information specifically indicates that another date applies. If you are a
person to whom it is unlawful to direct these types of activities, then the
offer presented in this document does not extend to you.
All information in this information statement/prospectus relating to II-VI
has been supplied by II-VI, and all information relating to Laser Power has
been supplied by Laser Power.
5
<PAGE>
SUMMARY
II-VI share and per share information contained in this information
statement/prospectus is presented on a historical basis and does not give
effect to the two-for-one common stock split payable in the form of a 100%
share distribution declared by II-VI on August 23, 2000. The distribution is
payable to shareholders of record as of the close of business on September 5,
2000 and is expected to be distributed on or about September 20, 2000. See
"Recent Developments" on page 12.
This brief summary highlights selected information from this document. It
does not contain all of the information that is important to you. You should
carefully read this entire document and the documents we have referred you to
in order to fully understand the merger. Generally, each of the headings in
this summary is followed by a reference to other pages of this document where
you can read more about that particular topic.
THE SPECIAL MEETING (page 22)
Date, Place and Time
The special meeting will be held at the offices of II-VI Incorporated, 375
Saxonburg Boulevard, Saxonburg, Pennsylvania 16056, at 1:00 p.m. local time, on
October 11, 2000.
Purpose of the Special Meeting
The purpose of the special meeting is to approve the merger contemplated by
the agreement and plan of merger dated as of June 28, 2000 by and among II-VI
Incorporated, II-VI Acquisition Corp., a wholly-owned subsidiary of II-VI, and
Laser Power Corporation. If the merger is completed, Laser Power will become a
wholly-owned subsidiary of II-VI and you will be entitled to receive, subject
to any applicable dissenters' rights, .052 shares of II-VI common stock
(adjusted to .104 shares after giving effect to the two-for-one stock split)
plus $3.08 in cash, without interest, for each share of Laser Power common
stock that you own.
Record Date
The close of business on August 28, 2000 is the record date for
determination of the Laser Power stockholders entitled to notice of the special
meeting and entitled to vote at the special meeting.
Vote Required to Approve the Merger
The holders of a majority of the outstanding shares of Laser Power common
stock must approve the merger. You are entitled to one vote for each share of
common stock that you owned on the record date. II-VI OWNS A SUFFICIENT NUMBER
OF SHARES TO ASSURE APPROVAL OF THE MERGER AT THE SPECIAL MEETING AND INTENDS
TO VOTE ALL OF ITS SHARES IN FAVOR OF THE MERGER. AS A RESULT, THE MERGER WILL
BE APPROVED EVEN IF NO STOCKHOLDERS OTHER THAN II-VI VOTE TO APPROVE IT. WE ARE
NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
THE COMPANIES (page 36)
II-VI INCORPORATED
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
724-352-4455
II-VI Incorporated (pronounced "Two-Six Incorporated"), a Pennsylvania
corporation, develops, manufacturers and markets high technology materials and
derivative products for precision use in industrial,
6
<PAGE>
medical, telecommunications and military/aerospace applications. Founded in
1971, we use advanced material growth technologies coupled with proprietary
high precision fabrication, micro-assembly, and thin-film coating production
processes. The resulting optical and optoelectronic devices are supplied to
manufacturers and users of a wide variety of laser, detection and
telecommunication components and systems. A key strategy is to develop and
manufacture complex materials from elements of chemistry's periodic table. We
focus on providing critical products to the heart of our customer's assembly
lines for products such as high power laser material processing systems, fiber-
optic telecommunication transmitters and receivers, and advanced medical x-ray
systems. We believe we are a market leader for high power carbon dioxide and
YAG laser optical elements, and x-ray and gamma ray detectors for the nuclear
radiation industry.
LASER POWER CORPORATION
36570 Briggs Road
Murrieta, California 92563
909-926-1866
Laser Power Corporation, a Delaware corporation, designs, manufactures and
markets high performance optics for military, industrial and medical
applications. Laser Power also provides thin-film design and coating services
to military and industrial customers. Laser Power's infrared optic products are
sold primarily to the U.S. Government and its prime contractors for use in
night vision and thermal imaging and guidance systems. Laser Power's laser
optics products are sold to laser systems OEMs and end users as original and
replacement components in high power CO and other lasers.
THE MERGER
Overview
Pursuant to the agreement and plan of merger, II-VI Acquisition will be
merged with and into Laser Power, with Laser Power continuing as the surviving
corporation.
As a result of the merger, Laser Power will become a wholly-owned subsidiary
of II-VI and each share of Laser Power common stock outstanding at the time of
the merger, other than shares held by II-VI and dissenting stockholders who
perfect their dissenters' rights, will, by virtue of the merger and without any
further action on the part of the holder of such share, automatically be
converted into the right to receive .052 shares of II-VI common stock (adjusted
to .104 shares after giving effect to the two-for-one stock split) plus $3.08
in cash, without interest.
After the consummation of the merger, you will have no continuing equity
interest in, and will not share in future earnings, dividends or growth, if
any, of Laser Power, other than as a shareholder of II-VI.
II-VI Ownership of Laser Power Common Stock
As a result of its exchange offer II-VI owns 8,501,520 shares of Laser Power
common stock (or approximately 88% of the outstanding shares of Laser Power
common stock). II-VI can approve the merger without the affirmative vote of any
other stockholder of Laser Power as a result of its ownership of Laser Power
common stock.
Effective Time
The merger will become effective as of the date and time that the
Certificate of Merger is filed with the Secretary of State of the State of
Delaware in accordance with the Delaware General Corporation Law, which is
expected to occur as soon as practicable after the special meeting.
7
<PAGE>
APPRAISAL RIGHTS (Page 34)
Laser Power stockholders at the time of the II-VI/Laser Power merger who do
not vote in favor of the II-VI/Laser Power merger will have the right under
Delaware law to dissent and demand appraisal of their Laser Power shares.
Dissenting stockholders who comply with the applicable statutory procedures
will be entitled to receive a judicial determination of the fair value of their
Laser Power shares (exclusive of any element of value arising from the
accomplishment or expectation of the II-VI/Laser Power merger) and to receive
payment of such fair value in cash, together with a fair rate of interest, if
any.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (page 34)
The receipt of II-VI shares and cash in exchange for your Laser Power shares
pursuant to the merger will be a taxable transaction. You will recognize gain
or loss equal to the difference between (a) the sum of (i) the fair market
value of the II-VI shares determined at the effective time of the merger and
(ii) the cash received and (b) the aggregate tax basis of your Laser Power
shares. That gain or loss will be capital gain or loss (assuming you hold your
Laser Power shares as a capital asset) and any such capital gain or loss will
be long term if, as of that time, you have held the Laser Power shares for more
than one year.
ACCOUNTING TREATMENT OF THE MERGER (page 35)
II-VI will account for the merger as a purchase for financial reporting
purposes.
FORWARD-LOOKING INFORMATION (page 84)
This information statement/prospectus, including information included or
incorporated by reference in this document, contains certain forward-looking
statements with respect to the financial condition, results of operations,
plans, objectives, future performance and business of each of II-VI and Laser
Power, as well as certain information relating to the merger. Also, statements
preceded by, followed by or that include words "will," "may," "should,"
"continue," "believes," "expects," "intends," "anticipates," or similar
expressions, are forward-looking statements. These forward-looking statements
involve certain risks and uncertainties. You should understand that the factors
discussed under "Risk Factors," in addition to those discussed elsewhere in
this information statement/prospectus and in the public documents to which we
refer, could affect the future results and performance of II-VI and the
performance of Laser Power after the consummation of the merger. Many of these
risks and uncertainties relate to factors that are beyond our ability to
control or estimate precisely, such as future market conditions, the actions of
governmental regulators and the behavior of other market participants. These
risks and uncertainties could cause those results to differ materially from
those expressed in our forward-looking statements.
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<PAGE>
II-VI INCORPORATED SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following selected financial data for each of the five years in the
period ended June 30, 1999 have been derived from II-VI's consolidated
financial statements, which have been audited by Deloitte & Touche LLP,
independent auditors, for the years ended June 30, 1999, 1998 and 1997 and
Alpern, Rosenthal & Company, independent public accountants, for the years
ended June 30, 1996 and 1995. The financial data as of March 31, 2000 and 1999,
and for each of the nine-month periods then ended, have been derived from II-
VI's unaudited condensed consolidated financial statements which include, in
management's opinion, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the results of operations and
financial position of II-VI for the periods and dates presented. This data
should be read in conjunction with the respective audited and unaudited
consolidated financial statements of II-VI, including the notes thereto,
incorporated herein by reference and the Unaudited Pro Forma Condensed Combined
Financial Statements appearing elsewhere in this information
statement/prospectus.
<TABLE>
<CAPTION>
For the Nine-Months
Ended March 31, For the Year Ended June 30,
----------------------- ------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ------- ------- ------- ------- -------
(Unaudited) (Unaudited)
(in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations
Data:
Net revenues............ $52,853 $44,541 $61,750 $61,340 $52,741 $37,940 $27,760
Costs of goods sold and
contract research and
development expenses... 30,245 27,524 37,631 35,739 29,530 21,810 16,688
Selling, general and
administrative,
internal research and
development and other
expenses............... 14,870 11,631 15,666 15,990 13,171 10,069 7,628
Interest expense........ 258 341 415 23 56 41 57
Net earnings before
income taxes........... 7,480 5,045 8,038 9,588 9,984 6,020 3,387
Net earnings............ 5,460 3,429 5,463 6,780 7,111 4,371 2,518
Diluted earnings per
common share........... $ 0.83 $ 0.53 $ 0.84 $ 1.02 $ 1.08 $ 0.70(a) $ 0.48(a)
Cash dividends per
common share........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Balance Sheet Data:
Working capital......... $20,302 $15,232 $17,590 $13,420 $21,089 $16,687 $ 8,872
Total assets............ 83,642 67,644 70,843 67,774 54,512 44,169 24,367
Total debt.............. 6,832 7,755 6,674 8,209 1,346 1,461 1,563
Retained earnings....... 42,845 35,351 37,385 31,922 25,142 18,031 13,660
Shareholders' equity.... 63,731 51,904 54,493 50,063 42,522 34,403 16,998
</TABLE>
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(a) Diluted earnings per common share was adjusted to reflect the two-for-one
stock split in fiscal 1996.
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LASER POWER CORPORATION SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following selected financial data for each of the two years in the
period ended September 30, 1999 and for each of the three years in the period
ended August 31, 1997 have been derived from Laser Power's consolidated
financial statements, which have been audited by Ernst & Young LLP, independent
auditors. The financial data as of July 2, 2000 and June 27, 1999, and for each
of the nine-month periods then ended, have been derived from Laser Power's
unaudited condensed consolidated financial statements which include, in
management's opinion, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the results of operations and
financial position of Laser Power for the periods and dates presented. This
data should be read in conjunction with the respective audited and unaudited
consolidated financial statements of Laser Power, including the notes thereto
and the Unaudited Pro Forma Condensed Combined Financial Statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the
Nine-Months Ended For the Year Ended
-------------------------- ---------------------------------------------
September 30, August 31,
July 2, June 27, ---------------- -------------------------
2000 1999 1999 1998(a) 1997 1996 1995
----------- ----------- ------- ------- ------- ------- -------
(Unaudited) (Unaudited)
(in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations
Data:
Net revenues............ $ 24,420 $24,953 $34,010 $30,116 $29,740 $25,943 $19,596
Costs of goods sold and
contract research and
development expenses... 18,087 18,223 24,879 22,416 19,791 17,473 13,736
Selling, general and
administrative,
internal research and
development and other
expenses............... 4,467 5,384 7,139 11,127(b) 6,730 5,889 4,829
Interest expense........ 330 241 342 187 254 453 439
Net earnings (loss)
before income tax and
extraordinary item..... (685)(c) 1,105 1,650 (3,614) 2,965 2,128 592
Net earnings (loss) from
continuing operations.. (424) 1,096 1,639 (3,862) 2,780 1,761 94
Diluted earnings (loss)
per common share from
continuing operations.. $ (0.04) $ 0.13 $ 0.19 $ (0.47) $ 0.50 $ 0.32 $ 0.10
Cash dividends per
common share........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Balance Sheet Data:
Working capital......... $ 5,468 $ 5,745 $ 5,928 $ 5,304 $15,202 $ 6,647 $ 4,819
Total assets............ 19,134 23,840 21,908 24,618 28,119 17,159 14,224
Total debt.............. 1,793 5,247 5,827 6,375 5,336 4,793 4,872
Accumulated deficit..... (10,063) (8,954) (9,639) (8,152) (1,213) (3,254) (3,194)
Shareholders' equity.... 12,517 10,500 9,925 11,233 17,682 7,922 5,809
</TABLE>
--------
(a) Laser Power changed its fiscal year end from August 31 to September 30
effective for the fiscal year ended September 30, 1998. The results for
fiscal year 1998 include the twelve months then ended.
(b) Includes merger and integration costs of $3,778 related to Laser Power's
merger with Exotic Materials, Inc. and the move of its laser optics
operation from San Diego, California to Temecula, California.
(c) Includes termination fee and related transaction costs of $2,221 related
to Laser Power's merger activity with II-VI and a termination fee paid to
Union Miniere.
10
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following presents selected unaudited pro forma combined financial data
of II-VI and Laser Power which gives effect to the merger. The unaudited pro
forma condensed combined statement of earnings data for the nine-month period
ended March 31, 2000 and the year ended June 30, 1999 was prepared based upon
II-VI's and Laser Power's consolidated financial statements for the periods
indicated below as if the merger had occurred on July 1, 1998.
Since the fiscal years of II-VI and Laser Power differ, the periods combined
for purposes of the unaudited pro forma combined financial data are as follows:
<TABLE>
<CAPTION>
II-VI Laser Power
----- -----------
<S> <C>
Fiscal year ended June 30, 1999 Fiscal year ended September 30, 1999
Nine-months ended March 31,
2000 Nine-months ended July 2, 2000
</TABLE>
The unaudited pro forma combined financial data for the nine months to March
31, 2000 includes the financial data for Laser Power for the nine months ended
July 2, 2000. This is a change from the prospectus dated August 7, 2000 which
included the financial data of Laser Power for the nine months ended March 26,
2000 and reflects the filing of more recent data reported by Laser Power on
Form 10-Q filed with the SEC on August 15, 2000. The effect of this change is
to reduce the unaudited pro forma combined net earnings for the nine months to
March 31, 2000 from $3,929,000 to $2,041,000, a reduction of $1,888,000.
The unaudited pro forma combined financial data were based upon the terms of
the merger, pursuant to which II-VI will exchange $3.08 in cash and .052 shares
of II-VI common stock for each outstanding share of Laser Power common stock.
For purposes of the pro forma presentation, it has been assumed that the II-VI
common stock share price will be equal to $39.80, which was the 12 day volume
weighted average trading price as of August 8, 2000.
The unaudited pro forma data may not be indicative of the results that
actually would have been achieved if the merger had been in effect as of the
date and for the periods indicated or which may be obtained in the future. II-
VI expects to achieve certain reductions in costs subsequent to the merger as a
result of the combination and consolidation of II-VI and Laser Power. However,
the reduction and elimination of certain raw material costs and professional
services costs that are expected to occur after the merger have not been
included in the accompanying Selected Unaudited Pro Forma Combined Financial
Data in accordance with the SEC's pro forma reporting rules. The unaudited pro
forma combined financial data should be read in conjunction with the respective
audited and unaudited consolidated financial statements of II-VI and Laser
Power, including the notes thereto. See "Where You Can Find More Information"
and "Laser Power Corporation Consolidated Financial Statements." Pro forma
adjustments made to arrive at the pro forma combined amounts are based on the
purchase method of accounting and a preliminary allocation of the purchase
price. However, changes to the adjustments included in the unaudited pro forma
combined financial data set forth below are expected as evaluations of assets
and liabilities are completed and additional information becomes available.
11
<PAGE>
<TABLE>
<CAPTION>
Nine-Months Ended Year Ended
March 31, 2000 June 30, 1999
------------------------ ------------------------
Combined Combined
II-VI and II-VI and
II-VI Laser Power II-VI Laser Power
(Historical) Pro Forma (Historical) Pro Forma
------------ ----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited)
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Results of Operations:
Net revenues................ $52,853 $ 77,273 $61,750 $95,760
Costs of goods sold and
contract research and
development expenses....... 30,245 48,332 37,631 62,510
Selling, general and
administrative, internal
research and development
and other expenses......... 14,870 23,371 15,666 25,223
Interest expense............ 258 2,406 415 3,181
Net earnings before income
taxes...................... 7,480 3,164 8,038 4,846
Net earnings................ 5,460 2,041 5,463 3,109
Diluted earnings per common
share...................... $ 0.83 $ 0.29 $ 0.84 $ 0.45
Cash dividends per common
share...................... $ 0.00 $ 0.00 $ 0.00 $ 0.00
Balance Sheet Data:
Working capital............. $20,302 $ 30,514
Total assets................ 83,642 131,843
Total debt.................. 6,832 37,145
Retained earnings........... 42,845 42,845
Shareholders' equity........ 63,731 78,338
</TABLE>
RECENT DEVELOPMENTS
On August 8, 2000, II-VI reported earnings for the fiscal year ended June
30, 2000. Net earnings for the fiscal year were $7,440,000 ($1.13 per share-
diluted) on revenues of $73,810,000. These results compare with net earnings of
$5,463,000 ($0.84 per share-diluted) on revenues of $61,750,000 from the
previous fiscal year. For the three months ended June 30, 2000, net earnings
were $1,980,000 ($0.30 per share-diluted) on revenues of $20,957,000. This
compares with net earnings of $2,034,000 ($0.31 per share-diluted) on revenues
of $17,209,000 for the same period during the previous fiscal year.
Bookings for the year ended June 30, 2000 increased 38% to $83,023,000 from
$60,001,000 for the previous fiscal year. Bookings for the year for laser
optics and component products increased approximately 35% and bookings for the
eV PRODUCTS division increased approximately 60%. For the quarter ended June
30, 2000 bookings increased 41% to $22,694,000 from $16,042,000 for the same
period during the previous fiscal year. Bookings for the quarter for laser
optics and component products increased approximately 40% and bookings for the
eV PRODUCTS division increased approximately 45%.
Revenues for the year ended June 30, 2000 increased 20% to $73,810,000 from
$61,750,000 for the previous fiscal year. Revenues for the year from laser
optics and component products increased approximately 20% while revenues from
the eV PRODUCTS division were consistent with the previous year. Revenues for
the quarter ended June 30, 2000 increased 22% to $20,957,000 from $17,209,000
for the same period last fiscal
12
<PAGE>
year. Revenues for the quarter from laser optics and component products
increased by approximately 25% while revenues from the eV PRODUCTS division
decreased by approximately 5%.
On August 23, 2000, II-VI announced that its board of directors declared a
two-for-one stock split of its common stock payable in the form of a 100% share
distribution. The common stock dividend will be issued to shareholders of
record as of the close of business on September 5, 2000, and will be
distributed on or about September 20, 2000.
COMPARATIVE PER SHARE DATA
The table below sets forth historical net earnings and book value per common
share data for II-VI and Laser Power on an individual company basis. The table
also sets forth unaudited pro forma per common share data for II-VI and Laser
Power. The unaudited pro forma data gives effect to the merger as if such event
occurred for balance sheet purposes at the balance sheet date and for statement
of earnings purposes at July 1, 1998.
The unaudited pro forma combined financial data were based upon the terms of
the merger pursuant to which II-VI will exchange $3.08 in cash and .052 shares
of II-VI common stock for each outstanding shares of Laser Power common stock.
Since the fiscal years of II-VI and Laser Power differ, the periods combined
for purposes of the unaudited pro forma combined financial data are as follows:
<TABLE>
<CAPTION>
II-VI Laser Power
----- -----------
<S> <C>
Fiscal year ended June 30, 1999 Fiscal year ended September 30, 1999
Nine-months ended March 31,
2000 Nine-months ended July 2, 2000
</TABLE>
Neither II-VI nor Laser Power paid any dividends for the nine-months ended
March 31, 2000 and for the year ended June 30, 1999.
The information in the table below should be read in conjunction with the
respective audited and unaudited consolidated financial statements of II-VI and
Laser Power, including the notes thereto, and the Unaudited Pro Forma Combined
Financial Data appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Nine-Months Ended Year Ended
March 31, 2000 June 30, 1999
----------------- -------------
(Unaudited)
<S> <C> <C>
II-VI--Historical
Net earnings per common share
Basic........................................ $ 0.86 $0.86
Diluted...................................... $ 0.83 $0.84
Book value per common share................... $ 9.94
Laser Power--Historical
Net earnings per common share from continuing
operations
Basic........................................ $(0.05) $0.19
Diluted...................................... $(0.04) $0.19
Book value per common share................... $ 1.29
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Nine-Months Ended Year Ended
March 31, 2000 June 30, 1999
----------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
II-VI--Pro Forma Combined Company
Net earnings per common share
Basic........................................ $0.30 $0.46
Diluted...................................... $0.30 $0.45
Book value per common share................... $11.44
Laser Power--Pro Forma Equivalent Per Share
Information(a)
Net earnings per common share from continuing
operations
Basic........................................ $0.04 $0.06
Diluted...................................... $0.04 $0.06
Book value per common share................... $1.48
</TABLE>
--------
(a) Amounts are calculated by multiplying the II-VI pro forma combined amounts
by the ratio determined by dividing the combined cash and stock
consideration ($5.15) by the II-VI share price. For purposes of these
calculations, it has been assumed that the II-VI share price will be equal
to $39.80, which is the 12 day volume weighted average trading price as of
August 8, 2000.
14
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this information statement/prospectus in connection with the merger.
RISKS RELATING TO II-VI
We Depend on Highly Complex Manufacturing Processes Which Require Products from
Limited Sources of Supply
We utilize high quality, optical grade Zinc Selenide in the production of a
majority of our products. We are a leading producer of Zinc Selenide for our
internal use and for external sale. The production of Zinc Selenide is a
complex process requiring production in a highly controlled environment. A
number of factors, including defective or contaminated materials, could
adversely affect our ability to achieve acceptable manufacturing yields of high
quality Zinc Selenide. Zinc Selenide is available from only one outside source
where quantity and qualities may be limited. The unavailability of necessary
amounts of high quality Zinc Selenide would have a material adverse effect upon
us. In addition, in fiscal 1992 and 1993, we experienced fluctuations in our
manufacturing yields which affected our results of operations. There can be no
assurance that we will not experience manufacturing yield inefficiencies which
could have a material adverse effect on our business, results of operations or
financial condition.
We produce Hydrogen Selenide gas which is used in our production of Zinc
Selenide. There are risks inherent in the production and handling of such
material. Our inability to effectively handle Hydrogen Selenide could require
us to curtail our production of Hydrogen Selenide. Hydrogen Selenide can be
obtained from one outside source. The cost of purchasing such material is
significantly greater than the cost of internal production. As a result,
purchasing a substantial portion of such material from the outside source would
significantly increase our production costs of Zinc Selenide. Therefore, our
inability to internally produce Hydrogen Selenide could have a material adverse
effect on our business, results of operations or financial condition.
In addition, we utilize other high purity, relatively uncommon materials and
compounds to manufacture our products. Failure of our suppliers to deliver
sufficient quantities of these necessary materials on a timely basis could have
a material adverse effect on our business, results of operations or financial
condition.
Our Business is Dependent on Other Cyclical Industries
Our business is significantly dependent on the demand for products produced
by end users of industrial lasers. Many of these end users are in industries
that historically have experienced highly cyclical demand for their products.
Therefore, as a result, demand for our products and our results of operations
are subject to cyclical fluctuations.
Our Revenues are Subject to Potential Seasonal Fluctuations
Due to our customers' buying patterns, particularly in Europe, revenues for
our first fiscal quarter ending in September could be below those in the
preceding quarter. Our first fiscal quarter results often are dependent upon
the sales made in the last month of the quarter.
We May Encounter Substantial Competition
We may encounter substantial competition from other companies in the same
market, including established companies with substantial resources. Some of our
competitors may have financial, technical, marketing or other capabilities more
extensive than ours and may be able to respond more quickly than we can to new
or emerging technologies and other competitive pressures. We may not be able to
compete successfully against our present or future competitors, and competition
may adversely affect our business, financial condition or operating results.
15
<PAGE>
International Sales Account for a Significant Portion of Our Revenues
Sales to customers in countries other than the United States accounted for
approximately 43%, 45%, 47% and 49% of revenues during the years ended June 30,
1997, 1998, 1999, and the nine-months ended March 31, 2000, respectively. We
anticipate that international sales will continue to account for a significant
portion of our revenues for the foreseeable future. In addition, we manufacture
products in Singapore and China and maintain direct sales offices in Japan and
the UK. Sales and operations outside of the United States are subject to
certain inherent risks, including fluctuations in the value of the U.S. dollar
relative to foreign currencies, tariffs, quotas, taxes and other market
barriers, political and economic instability, restrictions on the export or
import of technology, potentially limited intellectual property protection,
difficulties in staffing and managing international operations and potentially
adverse tax consequences. There can be no assurance that any of these factors
will not have a material adverse effect on our business, financial condition or
results of operations. In particular, although our international sales, other
than in Japan and the UK, are denominated in U.S. dollars, currency exchange
fluctuations in countries where we do business could have a material adverse
affect on our business, financial condition or results of operations, by
rendering us less price-competitive than foreign manufacturers. Our sales in
Japan are denominated in yen and, accordingly, are affected by fluctuations in
the dollar/yen currency exchange rates. We generally reduce our exposure to
such fluctuations through forward exchange agreements. We do not engage in the
speculative trading of financial derivatives. There can be no assurance,
however, that our practices will reduce or eliminate the risk of fluctuation in
the dollar/yen currency exchange rate.
Our Revenues May Suffer if General Economic Conditions Worsen
Our revenues and earnings may be affected by general economic factors, such
as excessive inflation, currency fluctuations and employment levels, resulting
in a temporary or longer-term overall decline in demand for our products.
Therefore, any significant downturn or recession in the United States or other
countries could have a material adverse effect on our business, financial
condition and results of operations.
We May Expand Product Lines and Markets by Acquiring Other Businesses
Our business strategy includes expanding our product lines and markets
through internal product development and acquisitions. Any acquisition may
result in potentially dilutive issuances of equity securities, the incurrence
of debt and contingent liabilities, and amortization expense related to
intangible assets acquired, any of which could have a material adverse affect
on our business, financial condition or results of operations. In addition,
acquired businesses may be experiencing operating losses. Any acquisition will
involve numerous risks, including difficulties in the assimilation of the
acquired company's operations and products, uncertainties associated with
operating in new markets and working with new customers, and the potential loss
of the acquired company's key employees. In December 1994 we acquired the Virgo
Optics Division of Sandoz Chemicals Corporation. In February 1996 we acquired
Lightening Optical Corporation. Subsequently, these acquisitions were combined
to form our VLOC subsidiary. To date, we have had little experience in
integrating businesses other than these acquisitions.
Our Success Depends on New Products and Processes
In order to meet our strategic objectives, we must continue to develop,
manufacture and market new products, develop new processes and improve existing
processes. As a result, we expect to continue to make significant investments
in research and development and to continue to consider from time to time the
strategic acquisition of businesses, products, or technologies complementary to
our business. Our success in developing, introducing and selling new and
enhanced products depends upon a variety of factors including product
selection, timely and efficient completion of product design and development,
timely and efficient implementation of manufacturing and assembly processes,
effective sales and marketing, and product performance in the field. There can
be no assurance that we will be able to develop and introduce new products or
enhancements to its existing products and processes in a manner which satisfies
customer needs or achieves
16
<PAGE>
market acceptance. The failure to do so could have a material adverse affect on
our ability to grow our business.
Failure to Keep Pace with Industry Developments May Adversely Affect Our
Operations
We are engaged in industries which will be affected by future developments.
The introduction of products or processes utilizing new developments could
render existing products or processes obsolete or unmarketable. Our continued
success will depend upon our ability to develop and introduce on a timely and
cost-effective basis new products, processes and applications that keep pace
with developments and address increasingly sophisticated customer requirements.
There can be no assurance that we will be successful in identifying, developing
and marketing new products, applications and processes and product or process
enhancements, that we will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of product or
process enhancements or new products, applications or processes, or that our
products, applications or processes will adequately meet the requirements of
the marketplace and achieve market acceptance. Our business, results of
operations and financial condition could be materially and adversely affected
if we were to incur delays in developing new products, applications or
processes or product or process enhancements or if we did not gain market
acceptance.
Our Success Depends on the Ability to Retain Key Personnel
We are highly dependent upon the experience and continuing services of
certain scientists, engineers, production and management personnel. Competition
for the services of these personnel is intense, and there can be no assurance
that we will be able to retain or attract the personnel necessary for our
success. The loss of the services of our key personnel could have a material
adverse effect on our business, results of operations or financial condition.
There Are Limitations on the Protection of Our Intellectual Property
We do not currently hold any material patents applicable to our processes
and rely on a combination of trade secret, copyright and trademark laws and
employee non-competition and nondisclosure agreements to protect our
intellectual property rights. There can be no assurance that the steps taken by
us will be adequate to prevent misappropriation of our technology. Furthermore,
there can be no assurance that, in the future, third parties will not assert
infringement claims against us. Asserting our rights or defending against
third-party claims could involve substantial expense, thus materially and
adversely affecting our business, results of operations or financial condition.
In the event a third party were successful in a claim that one of our processes
infringed its proprietary rights, we may have to pay substantial damages or
royalties, or expend substantial amounts in order to obtain a license or modify
the process so that it no longer infringes such proprietary rights, any of
which could have an adverse effect on our business, results of operations or
financial condition.
Our European Sales Rely On A Single Distributor
A significant portion of our European sales not made by our subsidiary in
the UK have been made through a European distributor. This distributor also
provides service and support to the end users of our products. Thus, a
reduction in the sales efforts of this distributor could adversely affect our
European sales and our ability to support the end users of our products. There
can be no assurance that this distributor will continue to distribute, or to
distribute successfully, our products and, in such an event, our business,
results of operations and financial earnings could be materially and adversely
affected.
Our Stock Price May Fluctuate
Future announcements concerning us, our competitors or customers, quarterly
variations in operating results, announcements of technological innovations,
the introduction of new products or changes in product
17
<PAGE>
pricing policies by us or our competitors, seasonal or other variations in
anticipated or actual results of operations, changes in earnings estimates by
analysts or reports regarding our industries in the financial press or
investment advisory publications, among other factors, could cause the market
price of our stock to fluctuate substantially. In addition, stock prices may
fluctuate widely for reasons which may be unrelated to operating results. These
fluctuations, as well as general economic, political and market conditions such
as recessions, military conflicts or market or market-sector declines, may
materially and adversely affect the market price of our common stock. In
addition, any information concerning us, including projections of future
operating results, appearing in investment advisory publications or on-line
bulletin boards or otherwise emanating from a source other than us could in the
future contribute to volatility in the market price of our common stock.
The Trading Price of Our Common Stock May be Affected by Factors Different from
Those Affecting the Price of Laser Power Common Stock
Upon completion of the offer, holders of Laser Power common stock will
become holders of II-VI common stock. Our results of operations, as well as the
trading price of our common stock, may be affected by factors different from
those affecting Laser Power's results of operations and the price of Laser
Power common stock.
We Have Adopted Antitakeover Devices Which May Limit the Price that Certain
Investors May be Willing to Pay in the Future for Shares of Our Common Stock
Our articles of incorporation and by-laws contain provisions which could
make us a less attractive target for a hostile takeover or make it more
difficult or discourage a merger proposal, a tender offer or a proxy contest.
This could limit the price that certain investors might be willing to pay in
the future for shares of our common stock. The provisions include:
. classification of the board of directors into three classes;
. a procedure which requires shareholders or the board of directors to
nominate directors in advance of a meeting to elect such directors;
. the ability of the board of directors to issue additional shares of
common stock or preferred stock without shareholder approval; and
. certain provisions requiring supermajority approval (at least two-thirds
of the votes cast by all shareholders entitled to vote thereon, voting
together as a single class).
In addition, the Pennsylvania Business Corporation Law contains provisions
which may have the effect of delaying or preventing a change in our control.
We Are Subject to Stringent Environmental Regulation
We use or generate certain hazardous substances in our research and
manufacturing facilities. We believe that our handling of such substances is in
material compliance with applicable local, state and federal environmental,
safety and health regulations at each operating location. We invest
substantially in proper protective equipment, process controls and specialized
training to minimize risks to employees, surrounding communities and the
environment due to the presence and handling of such hazardous substances. We
annually conduct employee physical examinations and workplace air monitoring
regarding such substances. When exposure problems or potential exposure
problems have been indicated, corrective actions have been implemented and re-
occurrence has been minimal or non-existent. We do not carry environmental
impairment insurance.
Relative to its generation and use of the extremely hazardous substance
Hydrogen Selenide, we have in place an emergency response plan. Special
attention has been given to all procedures pertaining to this gaseous material
to minimize the chances of its accidental release to the atmosphere.
18
<PAGE>
With respect to the production, use, storage and disposal of the low-level
radioactive material Thorium Fluoride, our facilities and procedures have been
inspected and licensed by the Nuclear Regulatory Commission. This material is
utilized in our thin-film coatings. Thorium bearing by-products are collected
and shipped as solid waste to a government-approved low-level radioactive waste
disposal site in Barnwell, South Carolina or Clive, Utah.
The generation, use, collection, storage and disposal of all other hazardous
by-products, such as suspended solids containing heavy metals or airborne
particulates, are believed by us to be in material compliance with regulations.
We believe that all of the permits and licenses required for operation of our
business are in place. Although we do not know of any material environmental,
safety or health problems in its properties or processes, there can be no
assurance that problems will not develop in the future which would have a
materially adverse effect on us.
Some Laser Systems Are Complex in Design and May Contain Defects that Are Not
Detected Until Deployed Which Could Increase Our Costs and/or Reduce Our
Revenues
Laser systems are inherently complex in design and require ongoing regular
maintenance. The manufacture of lasers, laser products and systems involves a
highly complex and precise process. As a result of the technical complexity of
our products, changes in our or our suppliers' manufacturing processes or in
the use of defective or contaminated materials by us or our suppliers could
result in a material adverse effect on our ability to achieve acceptable
manufacturing yields and product reliability. To the extent that we do not
achieve such yields or product reliability, our business, operating results,
financial condition and customer relationships could be adversely affected. Our
customers may discover defects in our products after the products have been
fully deployed and operated under peak stress conditions. In addition, some of
our products are combined with products from other vendors, which may contain
defects. Should problems occur, it may be difficult to identify the source of
the problem. If we are unable to fix defects or other problems, we could
experience, among other things:
. loss of customers;
. increased costs of product returns and warranty expenses;
. damage to our brand reputation;
. failure to attract new customers or achieve market acceptance;
. diversion of development and engineering resources; and
. legal action by our customers.
The occurrence of any one or more of the foregoing factors could seriously
harm our business or financial condition.
RISKS RELATING TO THE TRANSACTION
The Integration of the Two Companies May Be Difficult and Delays in
Consummating the Merger and/or Integrating the Two Companies Could Impact
Adversely on the Company's Long-Term Prospects
Integrating the operations and personnel of the two companies will involve
complex technological, operational and personnel-related challenges. This
process will be time-consuming and expensive, and may disrupt the business of
both companies after the merger. There can be no assurance that the integration
of the two companies will occur rapidly or that it will result in the benefits
expected by the companies. The difficulties, costs and delays that may be
encountered may include:
. integrating the information and communications systems may be more
difficult than expected;
. integration may negatively effect employee morale;
19
<PAGE>
. the attention of the management of the companies may be diverted from
the ongoing business concerns;
. the business cultures of the two companies may be more difficult to
integrate than anticipated; and
. obtaining necessary consents and maintaining current customer
relationships may be more difficult than expected.
Delays in completing the merger will cause delays in the integration process
and could adversely impact II-VI's prospects for long term success.
II-VI's Post-Merger Increased Debt Obligations May Adversely Affect Its Ability
To Do Business
II-VI's indebtedness at March 31, 2000 is approximately $6.8 million. II-
VI's pro forma indebtedness at March 31, 2000 giving effect to the offer and
the merger, is approximately $37.1 million. As a result of the increase in
debt, demands on II-VI's cash resources will continue after the merger, which
could have important effects on your investment in II-VI common stock. For
example, II-VI's increased levels of indebtedness may:
. require that II-VI spend increased portions of the cash it generates to
repay the principal and interest on such indebtedness rather than to
make capital investments; and/or
. put II-VI at a competitive disadvantage to competitors who have lower
debt levels.
If II-VI is unable to service its indebtedness and fund its business, II-VI
will be forced to adopt an alternative strategy that may include any of the
following:
. reducing or delaying necessary capital expenditures;
. seeking additional debt financing or equity capital;
. selling assets; or
. restructuring indebtedness.
II-VI cannot assure you that any of these alternative strategies could be
implemented on satisfactory terms if at all.
The Sale of II-VI Common Stock that Laser Power Stockholders Receive in the
Merger May Adversely Impact the Price of II-VI's Common Stock
Assuming that none of the Laser Power stockholders exercise their appraisal
rights, the number of shares of II-VI common stock that will be issued to Laser
Power stockholders as a result of the merger, excluding the Laser Power common
stock already owned by II-VI, will be approximately 439,000 shares. The Laser
Power stockholders will be able to sell those shares without any timing or
volume restrictions. The sale of substantial amounts of those shares in the
public market or even the availability of those shares for future sale could
adversely affect the market price of II-VI common stock.
20
<PAGE>
CAPITALIZATION
Set forth below are the unaudited: (i) consolidated capitalization of II-VI
as of March 31, 2000; (ii) consolidated capitalization of Laser Power as of
July 2, 2000; and (iii) pro forma combined capitalization of II-VI and Laser
Power as of March 31, 2000 after giving effect to the merger. For purposes of
the pro forma presentation, it has been assumed that the II-VI share price will
be equal to $39.80, the 12 day volume weighted average trading price as of
August 8, 2000, and that the stock consideration for each of Laser Power's
common shares will be equal to .052 shares of II-VI common stock, or an
aggregate of approximately 439,000 shares of II-VI common stock.
The information in the table below should be read in conjunction with the
respective audited and unaudited consolidated financial statements of II-VI and
Laser Power, including the notes thereto, and the Unaudited Pro Forma Combined
Financial Data appearing elsewhere in this prospectus or incorporated by
reference.
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------------------
Combined
II-VI and
II-VI Laser Power Laser Power
(Historical) (Historical) Pro Forma
------------ ------------ -----------
(Unaudited) (Unaudited) (Unaudited)
(In Thousands, Except Per Share Data)
<S> <C> <C> <C>
Indebtedness:
Short-term debt........................ $ 4,000 $ -- $ -- (a)
Current maturities of long-term debt... 44 743 44(b)
------- -------- --------
Total short-term debt................. 4,044 743 44
Long-term debt, excluding current
maturities............................ 2,788 1,050 37,101(c)
------- -------- --------
Total Indebtedness..................... 6,832 1,793 37,145
Shareholder's Equity:
Common stock........................... 19,723 10 37,195(d)
Paid-in capital........................ -- 22,641 -- (e)
Retained earnings (accumulated
deficit).............................. 42,845 (10,063) 42,845(e)
Accumulated other comprehensive income
(loss)................................ 3,073 (71) 208(f)
Less: Common stock held in treasury, at
cost.................................. (1,910) -- (1,910)
------- -------- --------
Total Shareholders' Equity............. 63,731 12,517 78,338
------- -------- --------
Total Capitalization.................... $70,563 $ 14,310 $115,483
======= ======== ========
</TABLE>
--------
(a) Represents the effects of reclassification of $4,000 as long-term debt in
connection with the restructuring of II-VI's credit facility to finance a
portion of the merger.
(b) Represents the effects of the payoff of existing Laser Power long-term
debt of $743.
(c) Represents the effects of the issuance of approximately $29,263 of long-
term debt to finance the remainder of the cash consideration of the merger
and the settlement of existing Laser Power debt and the reclassification
of $4,000 as long-term debt as described in (a) above.
(d) Represents the effects of the issuance of approximately 439,000 shares of
II-VI common stock at $39.80 per share and the elimination of Laser Power
historical common stock of $10.
(e) Represents the effects of the elimination of Laser Power's historical
paid-in capital and accumulated deficit.
(f) Represents the effects of the elimination of $2,865 of accumulated other
comprehensive income of II-VI as of March 31, 2000 which was attributable
to the difference between market value and cost basis of the Laser Power
shares owned by II-VI, net of tax and the elimination of Laser Power
historical accumulated other comprehensive loss of $71.
21
<PAGE>
THE LASER POWER SPECIAL MEETING OF STOCKHOLDERS
Date, Time and Place of the Meeting
Laser Power will hold a special meeting of its shareholders at the offices
of II-VI Incorporated, 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056,
at 1:00 p.m., on October 11, 2000.
Matters to be Considered at the Meeting:
The special meeting is being held so that stockholders of the company may:
1. Consider and vote upon the proposal to approve the agreement and plan
of merger, dated as of June 28, 2000, by and among Laser Power
Corporation, a Delaware corporation, II-VI Incorporated, a Pennsylvania
corporation, and II-VI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of II-VI, as amended, which provides for, among
other things:
. the merger of II-VI Acquisition with and into Laser Power with Laser
Power continuing as the surviving corporation;
. each outstanding share of Laser Power being converted into the right
to receive .052 shares of II-VI common stock (adjusted to .104
shares after giving effect to the two-for-one stock split) and $3.08
in cash, without interest; and
. Laser Power becoming a wholly-owned subsidiary of II-VI.
2. Consider such other business as may properly come before the meeting.
Record Date
The close of business on August 28, 2000, is the record date for the
determination of stockholders of Laser Power entitled to notice of the special
meeting and entitled to vote at the special meeting.
Vote Required to Approve the Merger
The holders of a majority of the outstanding shares of Laser Power must
approve the merger. You are entitled to one vote for each share of Laser Power
that you owned on the record date. II-VI owns a sufficient number of shares of
Laser Power to assure approval of the merger at the special meeting and will
vote all of its shares in favor of the merger. As a result, the merger will be
approved without the affirmative vote of any other stockholder. We are not
asking you for a proxy and you are not requested to send us a proxy.
REASONS FOR THE MERGER
Reasons for the II-VI Offer; Factors Considered
In approving the merger agreement, the offer, the merger and the other
transactions contemplated by the merger agreement, the II-VI board of directors
considered a number of factors, including:
. The II-VI board of directors' review of the business, operations,
financial condition, earnings and prospects of both II-VI and Laser
Power, which the II-VI board of directors analyzed in its consideration
of II-VI's strategic alternatives.
. The II-VI board of directors' consensus that the merger currently was
preferable to other strategic alternatives to enhance shareholder value.
. The potential raw material, product, sales, and technical synergies that
may be achieved as well as organizational synergies.
. The strategic fit between II-VI and Laser Power, and the belief that the
combined company has the potential to enhance shareholder value through
additional opportunities and operating efficiencies.
22
<PAGE>
. The opportunity for II-VI and Laser Power stockholders to participate in
long term growth prospects.
. The II-VI board of directors' belief that the terms of the merger
agreement are reasonable.
The foregoing discussion of the information and factors considered by the
II- VI board of directors is not intended to be exhaustive, but includes the
material factors considered by the board of directors. In view of the variety
of factors considered in connection with its evaluation of the offer and the
merger, the II-VI board of directors did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual directors may
have given differing weights to different factors.
Reasons for the Laser Power Board of Directors' Recommendation; Factors
Considered
In approving the merger agreement, the offer, the merger and the other
transactions contemplated by the merger agreement, the Laser Power board of
directors considered a number of factors, including:
. The Laser Power board of directors' belief that the consideration
offered by II-VI pursuant to the merger agreement was superior to the
consideration offered by Union Miniere USA, Inc. pursuant to its merger
agreement on June 1, 2000, as amended on June 16, 2000. The Laser Power
board of directors also considered that Union Miniere USA, Inc. had
informed Laser Power on June 22, 2000 that it would not increase its
offer price.
. The opinion of Roth Capital Partners, Inc. to the effect that, as of
June 28, 2000, the consideration to be paid in the offer and the merger
pursuant to the merger agreement was fair from a financial point of view
to the Laser Power stockholders (other than II-VI). The full text of the
written opinion of Roth Capital Partners, Inc. which sets forth the
assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as an exhibit to
Laser Power's Solicitation/Recommendation Statement on Schedule 14D-9.
. The fact that the value of the consideration offered in the offer and
the merger is protected to the extent that the average II-VI trading
price during the pricing period prior to the expiration of the offer
falls below $43.46 per share.
. The fact that since the public announcement of the execution of the
Union Miniere USA, Inc./Laser Power merger agreement on June 1, 2000, no
third party other than II-VI had expressed to Laser Power any interest
in pursuing a possible business combination.
. The commitment by II-VI in the merger agreement to take all actions
necessary to obtain the required regulatory approvals of the offer and
the merger, except to the extent that such actions would have a material
adverse effect on II-VI.
. The fact that the offer and the merger provide for a prompt exchange
offer for all Laser Power shares to be followed by a second-step merger
at the same consideration, thereby enabling Laser Power stockholders to
obtain the benefits of the transaction at the earliest possible time.
. The financial ability of II-VI to consummate the offer and the merger.
In this regard, the Laser Power board of directors noted that II-VI had
received an executed commitment letter from a financial institution
providing for all financing necessary to purchase Laser Power shares and
to pay all transaction fees in connection with the offer and the merger.
. The fact that the merger agreement permits Laser Power to make any
disclosure required under applicable law and to conduct such "due
diligence" inquiries (which must be in writing to the extent possible)
in response to any third-party acquisition proposal as the board of
directors of the Laser Power, by a majority disinterested vote,
determines in its good faith judgment, after consultation with and
based, among other things, upon the advice of legal counsel, may be
required in order to comply with its fiduciary duties.
23
<PAGE>
. The fact that if the Laser Power board of directors is permitted to
withdraw its recommendation and terminate the II-VI/Laser Power merger
agreement if the Laser Power board of directors by a majority
disinterested vote determines in its good faith judgment after
consultation with and based, among other things, upon the advice of
legal counsel, that it is required to do so in order to comply with its
fiduciary duties.
The foregoing discussion of the information and factors considered by the
Laser Power board of directors is not intended to be exhaustive, but includes
the material factors considered by the board of directors. In view of the
variety of factors considered in connection with its evaluation of the offer
and the merger, the Laser Power board of directors did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination and recommendation. In
addition, individual directors may have given differing weights to different
factors.
BACKGROUND OF THE MERGER
II-VI management reviews and considers a variety of strategic options and
transactions on a continuing basis. The purpose of these strategic reviews is
to identify alternatives for expanding II-VI's business and enhancing
shareholder value. From time to time, II-VI management discusses opportunities
to strategically acquire businesses and technologies with the II-VI board of
directors.
On several occasions over the past several years, representatives of II-VI
and Laser Power have had discussions about II-VI acquiring Laser Power. On
these occasions, Laser Power informed II-VI that the Laser Power board was not
at that time interested in such a transaction. II-VI consulted with PNC Capital
Markets, its financial advisor, and Buchanan Ingersoll Professional
Corporation, its legal advisor, throughout this period.
On August 18, 1999, with the prior approval of the II-VI board of directors,
members of the executive management of II-VI met in Pittsburgh with selected
members of the Laser Power board of directors who were acting as
representatives of Laser Power. On that date, II-VI indicated that it would be
willing to acquire Laser Power for $3.00 per common share in a combination of
cash and II-VI common stock. Laser Power subsequently informed II-VI that the
Laser Power Board was not at that time interested in such a transaction.
On September 21, 1999, with the prior approval of the II-VI board of
directors, II-VI purchased 1,250,000 shares of Laser Power common stock for a
total purchase price of approximately $2.8 million from Proxima Corporation. At
the time of the purchase, these shares represented approximately 14.7% of the
outstanding common stock of Laser Power.
On September 22, 1999, with the prior approval of the II-VI board of
directors, II-VI proposed to acquire Laser Power in a negotiated merger for
$3.00 per common share in cash. II-VI made this proposal public. By letter
dated September 22, 1999, Laser Power informed II-VI that the Laser Power board
of directors was not at that time interested in such a transaction.
On November 11, 1999, with the prior approval of the II-VI board of
directors, members of the executive management of II-VI and its investment
advisor, PNC Capital Markets, met with Roth Capital Partners, acting on behalf
of Laser Power, in Pittsburgh. On that date, II-VI proposed to acquire Laser
Power in a negotiated transaction for $3.00 per common share in cash
conditioned on Laser Power's sale of the microlaser business and the research
division. After considering II-VI's proposal, Laser Power informed II-VI that
the Laser Power board was not at that time interested in such a transaction.
On January 18, 2000, with the prior approval of the II-VI board of
directors, II-VI proposed to acquire Laser Power in a negotiated transaction
for $3.00 per common share in cash and $10 million in II-VI common stock. While
this proposal was being considered by Laser Power, members of the executive
management of II-VI performed limited due diligence on Laser Power in San Diego
on January 28 and 29, 2000. After considering II-VI's proposal, Laser Power
informed II-VI that in light of current market valuations the Laser Power board
was not at that time interested in such a transaction.
24
<PAGE>
On March 28, 2000, Roth Capital Partners, acting on behalf of Laser Power,
informed PNC Capital Markets that Laser Power was soliciting proposals for the
acquisition of Laser Power from all interested bidders. II-VI engaged in
discussions with Roth Capital Partners during early to mid-May and on May 23,
2000, with the prior approval of the II-VI board of directors, II-VI proposed
to acquire Laser Power for 1,000,000 shares of II-VI common stock. Roth Capital
Partners informed II-VI that this proposal was inadequate. On May 25, 2000,
with the prior approval of the II-VI board of directors, II-VI proposed to
acquire Laser Power for 1,100,000 shares of II-VI common stock.
On June 1, 2000, Laser Power announced that it had executed a definitive
merger agreement with Union Miniere, whereby Union Miniere USA, Inc., a wholly
owned subsidiary of Union Miniere, would acquire Laser Power for $4.00 per
common share in cash. On June 5, 2000, with the prior approval of the II-VI
board of directors, II-VI offered to acquire Laser Power for $2.32 in cash and
.052 shares of II-VI common stock for each outstanding share of Laser Power
common stock. This offer had a "floor price" of $4.05 per share and a "ceiling
price" of $5.00 per share. Laser Power's board of directors and Roth Capital
Partners reviewed II-VI's offer in accordance with its merger agreement with
Union Miniere USA, Inc. On behalf of Laser Power, Roth Capital Partners made
several due diligence inquiries and based on discussions with Roth, II-VI
agreed to increase its offer to a "floor price" of $4.10 and a "ceiling price"
of $5.05. In addition, II-VI indicated to Laser Power, among other things, that
II-VI would reimburse Laser Power for the $2 million termination fee to be paid
to Union Miniere USA, Inc. upon termination of the amended Union Miniere USA,
Inc./Laser Power merger agreement and to pay Laser Power an additional $500,000
if the II-VI/Laser Power acquisition does occur under certain circumstances. On
June 14, 2000, Laser Power's board deemed II-VI's offer to be a Superior
Proposal, as defined in the Union Miniere USA, Inc./Laser Power merger
agreement, to the Union Miniere transaction.
On June 16, 2000 Union Miniere amended its offer and agreed to purchase all
of the outstanding shares of Laser Power common stock for $4.40 in cash. Laser
Power's board of directors and Roth Capital Partners reviewed the revised Union
Miniere proposal and deemed it to be superior to the II-VI offer on June 19,
2000. On June 19, 2000, Laser Power signed an amended merger agreement with
Union Miniere USA, Inc. reflecting Union Miniere USA, Inc.'s revised offer.
On June 20, 2000, with the prior approval of the II-VI board of directors,
II-VI offered to acquire Laser Power for $2.89 in cash and .052 shares of II-VI
common stock per share of Laser Power stock. II-VI guaranteed a "floor price"
of $5.15 per share, payable in cash and/or II-VI common stock at II-VI's
election, and the offer had a "ceiling price" of $5.65 per share.
After review and discussion with Roth Capital Partners, this revised offer
was deemed superior to the Union Miniere offer contained in the merger
agreement dated June 19, 2000 by the board or directors of Laser Power. After
receiving formal notification from Union Miniere USA, Inc. that it would not
make a counter-offer, Laser Power determined after review and discussion with
Roth Capital Partners that termination of the Union Miniere USA, Inc. merger
agreement was necessary for the Laser Power board of directors to comply with
its fiduciary duties and that II-VI's June 20, 2000 offer by II-VI was fair and
in the best interests of Laser Power's stockholders.
From June 26, 2000 to June 28, 2000, members of the executive management of
II-VI met with Laser Power's new facility in Murrieta, California to finalize
the definitive merger agreement to reflect the terms of II-VI's June 20, 2000
offer.
On June 28, 2000, Laser Power terminated the Union Miniere USA, Inc. merger
agreement and paid Union Miniere USA, Inc. the $2 million termination fee
required by that agreement. Later on June 28, 2000, II-VI and Laser Power
signed a definitive merger agreement whereby II-VI would acquire Laser Power.
Under the terms of the merger agreement, II-VI agreed to exchange $2.89 in cash
and .052 shares of II-VI common stock for each outstanding share of Laser Power
common stock. II-VI guaranteed a "floor price" of $5.15 per share payable in
cash and/or common stock at II-VI's election. The merger agreement also
provides for a "ceiling price" of $5.65 per share.
25
<PAGE>
II-VI and Laser Power jointly announced the execution of the definitive
merger agreement on June 28, 2000.
On July 13, 2000, in accordance with the merger agreement, II-VI commenced
its exchange offer.
At 12:00 midnight, Eastern time on Friday, August 11, 2000, the offer
expired. On Monday, August 14, 2000, II-VI accepted for payment all shares of
Laser Power common stock (along with the associated rights to purchase
preferred stock) that were validly tendered and not withdrawn pursuant to the
offer.
On August 14, 2000, the board of directors of Laser Power accepted the
resignations of the following directors: Robert G. Klimasewski and Michael
Hogg; and the following designees of II-VI were elected as directors of Laser
Power: Carl J. Johnson, Francis J. Kramer and James Martinelli.
THE MERGER AGREEMENT
The following description of the merger agreement, as amended, describes
the material terms of the agreement but does not purport to describe all the
terms of the agreement. The complete text of the merger agreement is attached
as Annex A and the amendment is attached as Annex B to this information
statement/prospectus and both are incorporated by reference herein. All
stockholders are urged to read the merger agreement in its entirety because it
is the legal document that governs the offer and the merger.
THE OFFER
The merger agreement provides that II-VI and II-VI Acquisition, a wholly
owned subsidiary of II-VI formed for the purpose of facilitating the
acquisition of Laser Power, will commence the offer at the offer price as
promptly as reasonably practicable and no later than ten (10) business days
after the date of the merger agreement. II-VI Acquisition's obligation to
accept for payment and to pay for any shares tendered pursuant to the offer
will be subject only to the tender offer conditions.
Subject to the terms of the merger agreement, II-VI and II-VI Acquisition
have expressly reserved the right to modify the terms of the offer, including
the right to extend the offer beyond the scheduled expiration date or to waive
any tender offer condition.
The merger agreement prohibits II-VI and II-VI Acquisition, without written
consent of Laser Power, from: (i) reducing the number of shares of Laser Power
common stock to be purchased pursuant to the offer; (ii) reducing the offer
price; (iii) imposing any additional conditions to the offer; (iv) changing
the form of consideration payable in the offer; (v) making any change to the
terms of the offer; (vi) extending the expiration date of the offer beyond the
twentieth (20th) business day after commencement of the offer except (A) as
required by applicable law and (B) that if any condition to the offer has not
been satisfied, II-VI Acquisition may extend the expiration date for one or
more periods, each not to exceed twenty (20) business days and in no event
later than the termination date; (vii) waiving the minimum condition as
described in Annex A of the merger agreement; or (viii) waiving the tender
offer condition relating to the expiration of the waiting period under the
Hart Scott Rodino Act or any other tender offer condition.
Extension of the Offer
The merger agreement provides that, at the request of Laser Power, II-VI
may extend the expiration date of the offer for one or more periods, each
period not longer than twenty (20) days, and in no event later than the
termination date, if the conditions to the offer are not met before the
expiration date of the offer. Additionally, the merger agreement provides that
if Laser Power announces to its stockholders a neutral position with respect
to any third-party acquisition proposal, II-VI will, at the request of Laser
Power, extend the expiration date of the offer to ten (10) business days after
the date of Laser Power's announcement of the neutral position.
26
<PAGE>
THE MERGER
The Merger
The merger agreement provides that II-VI Acquisition will be merged with and
into Laser Power as soon as practicable following the satisfaction or waiver of
the conditions set forth in the merger agreement, in accordance with Delaware
General Corporation Law.
Conversion of Shares
Under the terms of the merger agreement, at the closing of the merger, each
share of Laser Power's common stock will be converted into the right to receive
the same amount of cash, without interest, and the same fraction of a share of
II-VI common stock paid that was paid in the offer. At the time the merger
becomes effective, all shares of Laser Power's common stock that are owned by
Laser Power as treasury stock will be canceled and will cease to exist and no
merger consideration will be delivered in exchange for the treasury stock. Each
share of common stock of II-VI Acquisition issued and outstanding on the
effective date of the merger will be converted into and exchanged for one share
of Laser Power's common stock.
Payment of Merger Consideration for Company Common Stock
The merger agreement provides that, at the time the merger becomes
effective, the surviving corporation will irrevocably deposit or cause to be
deposited with the disbursing agent, a bank or trust company, designated by the
surviving corporation as agent for the holders of Laser Power's common stock,
II-VI common stock and cash in the aggregate amount required to pay the merger
consideration. The II-VI common stock and cash will be held in trust for the
benefit of the holders of Laser Power's common stock, pending distribution of
the II-VI common stock and cash deposited with the disbursing agent. The
agreement provides that the surviving company may direct the disbursing agent
to invest the cash, providing certain requirements are met.
Dissenting Shares
The merger agreement provides that dissenting shares will not be converted
into a right to receive the merger consideration and shall be entitled only to
such rights as are granted by Section 262 of the Delaware General Corporation
Law. Each holder of dissenting shares who becomes entitled to payment for such
shares will receive payment from the surviving corporation, in accordance with
the Delaware General Corporation Law.
Stock Options
The merger agreement provides that each option that either has an exercise
price greater than the merger consideration or is not vested and exercisable as
of the time the merger becomes effective will be canceled. The merger agreement
provides that immediately prior to the time the merger becomes effective, all
other outstanding options that are vested and exercisable will be canceled and
the holders will receive a cash payment from Laser Power. The cash payment will
be equal to the product of: (i) the total number of shares previously subject
to such option; and (ii) the excess of (A) the merger consideration that would
be paid with respect to each share of company common stock subject to such
option over (B) the exercise price per share of company common stock subject to
such option.
Fractional Shares
The merger agreement provides that no certificates representing fractional
shares of II-VI common stock will be issued in exchange for shares of Laser
Power common stock in connection with the merger. Any holder of Laser Power
shares converted into shares of II-VI common stock in the merger who would
otherwise be entitled to receive a fraction of a share of II-VI common stock
shall receive cash, in lieu thereof, without interest.
27
<PAGE>
THE SURVIVING CORPORATION
Certificate of Incorporation and Bylaws
The certificate of incorporation and bylaws of II-VI Acquisition will be the
certificate of incorporation and bylaws of the surviving corporation until
amended.
Directors and Officers
Until successors are elected, the directors of the surviving corporation
will be: (i) three II-VI designees, including one outside director; (ii) two
officers of II-VI Acquisition; and (iii) one additional outside director
appointed by II-VI and II-VI Acquisition.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to each of the parties and their ability to consummate the offer and
the merger. All representations and warranties of each party expire at closing.
The following representations and warranties made by Laser Power are of note:
Delaware Section 203. The Laser Power Board of Directors has resolved,
pursuant to 203(a)(1) of the Delaware General Corporation Law, that Section 203
of the Delaware General Corporation Law will be inapplicable to the merger and
the transactions under the merger agreement, as it may be amended from time to
time. A complete and correct copy of such resolutions has been delivered to II-
VI and II-VI Acquisition.
Rights Agreement. Laser Power has taken all necessary action to amend its
rights agreement to the effect that:
. the rights agreement is inapplicable to the acquisition by II-VI
Acquisition of Laser Power shares of common stock;
. neither II-VI nor II-VI Acquisition is considered an acquiring person
pursuant to the merger agreement or consummation of the offer, merger,
or other transaction under the merger agreement; and
. provisions of the rights agreement will not be triggered upon
consummation of the offer, merger, or other transaction under the merger
agreement.
COVENANTS OF II-VI AND II-VI ACQUISITION AND LASER POWER
Reasonable Best Efforts
The merger agreement provides that each of II-VI, II-VI Acquisition and
Laser Power will use reasonable best efforts to take all actions necessary,
proper, or advisable to complete the transactions outlined in the merger
agreement, as well as to refrain from taking any action that would impair such
party's ability to complete the transactions outlined in the merger agreement.
Conduct of Laser Power Pending Merger
The merger agreement obligates Laser Power, until the closing of the merger,
to conduct its operations in the ordinary and usual course of business and
consistent with past practice. Laser Power is obligated to use reasonable best
commercial efforts to: (i) preserve its present business organization; (ii)
maintain all required material federal, state, and local permits; (iii) keep
available services of key officers and employees; and (iv) maintain
satisfactory relationships with individuals with whom it has material business
relationships. The merger agreement expressly restricts Laser Power from
engaging in certain material transactions, without prior written consent of II-
VI and II-VI Acquisition. These transactions include but are not limited to:
changes in its
28
<PAGE>
amended and restated organizational documents; purchases and sales of assets;
sale or redemption of outstanding securities; adoption or amendment of
agreements, trusts, plans, or other arrangements for the benefit and welfare of
directors, officers, and any classes of employees; revaluation in any material
respect of any of its assets; payment, discharge, or satisfaction of any
material claims, liabilities, or obligations other than in the ordinary course
of business and consistent with past practice; changes in accounting methods;
adoption of plans of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization, or other reorganization; or
alteration in the corporate structure of ownership of any subsidiary.
Other Potential Acquirers
The merger agreement provides that, except in the circumstances described
below, Laser Power will not directly or indirectly encourage, solicit, or
engage in or provide non-public information with regard to any subsequent
third-party acquisition. Nothing will prevent the Board of Directors of Laser
Power from: (i) making any disclosure required under applicable law; and (ii)
conducting due diligence inquiries the board of directors in its good faith
judgment and upon the advice of legal counsel undertakes in order to comply
with its fiduciary duties. Laser Power will immediately notify II-VI and II-VI
Acquisition upon receipt of any proposal or inquiry concerning a third-party
acquisition and any material developments concerning same.
TERMINATION OF THE MERGER AGREEMENT
Termination By Mutual Agreement
The merger agreement, the offer, and the merger may be terminated at any
time prior to closing of the merger by mutual written consent of Laser Power
and of II-VI and II-VI Acquisition.
Termination By Either Laser Power or II-VI Acquisition
The merger agreement may be terminated by either Laser Power or II-VI
Acquisition if the offer has not been consummated within 120 days of the date
of the merger agreement, provided that:
(1) the party exercising the right of termination is not in material
breach of its obligations under the merger agreement; and
(2) the sole condition to the merger that remains unsatisfied is not the
consent, authorization, or approval of a governmental authority, in
which case the termination date may be extended for an additional
thirty (30) days.
Termination By Either Laser Power or II-VI and II-VI Acquisition
The merger agreement may be terminated by either Laser Power or II-VI and
II-VI Acquisition at any time prior to consummation of the offer, if:
(1) II-VI or II-VI Acquisition (in the case of termination by Laser Power)
or Laser Power (in the case of termination by II-VI and II-VI
Acquisition) has materially breached covenants or obligations under
the merger agreement, subject to the opportunity where possible, to
cure the breach within 15 days;
(2) II-VI or II-VI Acquisition (in the case of termination by Laser Power)
or Laser Power (in the case of termination by II-VI and II-VI
Acquisition) has made materially incorrect representations or
warranties at any time prior to closing, subject to an opportunity
where possible to cure the breach within 15 days; or
(3) any governmental authority has issued a final order, decree, or ruling
or has taken any other final action restraining, ordering, or
otherwise prohibiting the closing of the offer or the merger, and such
final order, decree, or ruling or other action shall have become
nonappealable.
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<PAGE>
Termination By II-VI and II-VI Acquisition
The merger agreement may be terminated by II-VI and II-VI Acquisition if:
(1) at any time prior to the closing of the offer, the Laser Power board
of directors withdraws, modifies, or changes its approval or
recommendation of the agreement or merger in a manner adverse to II-VI
and II-VI Acquisition, or approves a third-party acquisition;
(2) a third-party acquisition takes place;
(3) Laser Power or any of its officers, directors, employees,
representatives, or agents encourages, solicits, or engages in
discussions or negotiations or provides non-public information
regarding a subsequent third party acquisition; or
(4) at any time prior to the closing of the offer, the offer terminates or
expires without II-VI Acquisition having purchased any shares and II-
VI Acquisition is neither required to accept and pay for the shares
nor to extend the expiration date of the offer, provided that neither
II-VI nor II-VI Acquisition is in material breach of the merger
agreement.
Termination By Laser Power
The merger agreement may be terminated by Laser Power if:
(1) at any time prior to the closing of the offer, Laser Power approves a
superior proposal that the Laser Power board of directors in its good
faith judgment and upon the advice of outside legal counsel approves
or recommends, or in consideration of same, withdraws its
recommendation of the contemplated transaction, in order to comply
with its fiduciary duties; provided that Laser Power may not exercise
this right of termination unless and until: (i) II-VI and II-VI
Acquisition have written notice of Laser Power's receipt of a superior
proposal, the material terms of same, and the identity of the person
making such superior proposal; (ii) II-VI and II-VI Acquisition fail
within two (2) days of receipt of the notice of superior proposal to
make an offer the Board of Directors in its good faith judgment and
upon written advice of a nationally recognized financial advisor
determines to be as favorable to Laser Power as the superior proposal;
and (iii) Laser Power makes simultaneous payment of termination fees;
or
(2) the offer has not commenced as of the twentieth day following the date
of the merger agreement; provided that such failure is not a result of
(i) Laser Power's breach of any of its representations, warranties,
covenants, or agreements, as they appear in the merger agreement or
(ii) II-VI Acquisition's termination of the offer.
Notice of Termination of Agreement
A party terminating the merger agreement in accordance with the above
provisions must give written notice to the other party using the addresses
provided in the merger agreement or otherwise furnished by the parties. A
telecopy notice is effective upon receipt of a telecopy confirmation. All other
methods of notice are effective upon delivery to the specified address.
Termination Fees Payable to II-VI
If the merger agreement is terminated by II-VI and II-VI Acquisition
pursuant to Sections 1, 2, and 3 of "Termination by II-VI and II-VI
Acquisition," above, or by Laser Power pursuant to Section 1 of "Termination by
Laser Power" above, Laser Power will immediately pay to II-VI a termination fee
of $2.0 million, which fee is intended as liquidated damages to compensate for
an amount that would be otherwise impossible to calculate with precision.
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Termination Fees Payable to Laser Power
II-VI will pay to Laser Power a termination fee of $2.5 million in cash
promptly upon termination of the merger agreement if Laser Power has actually
paid Union Miniere USA, Inc. the termination fee pursuant to the Union Miniere
USA, Inc./Laser Power merger agreement and of the merger agreement terminates
for any reason other than the following:
(1) prior to the termination date, a third-party publicly announces a
third-party acquisition proposal subsequent to which the minimum
condition under the offer is not satisfied;
(2) the merger agreement is terminated by II-VI and II-VI Acquisition
pursuant to Section 1 of "Termination by II-VI and II-VI Acquisition,"
above;
(3) the merger agreement is terminated by Laser Power or II-VI and II-VI
Acquisition pursuant to Section 3 of "Termination by Laser Power or
II-VI and II-VI Acquisition," above as a result of an action brought
by persons other than a governmental entity; or
(4) the merger agreement is terminated by II-VI and II-VI Acquisition
pursuant to Sections 1 and 2 of "Termination by Laser Power or II-VI
and II-VI Acquisition, above".
Such termination fee will constitute liquidated damages discharging all
other rights, claims, or obligations under the merger agreement.
CONDITIONS TO THE MERGER
Conditions to the Obligations of Each Party
The obligations of Laser Power and II-VI Acquisition to consummate the
merger are subject to the satisfaction of the following conditions:
. If required by Delaware General Corporation Law, the merger agreement
must be approved in accordance with Delaware Corporate Law by the
affirmative vote of the holders of a majority of the voting of Laser
Power common stock.
. Any applicable waiting period under the Hart Scott Rodino Act relating
to the merger will have expired or been terminated.
. The merger registration statement must be effective. There can be no
stop order issued by the SEC to suspend the effectiveness of the merger
registration statement, and any proceedings initiated by the SEC in this
regard must be concluded or withdrawn. All state securities or blue sky
authorizations necessary to close the merger must be obtained.
. No provision of any applicable law and no judgment, order, decree or
injunction will prohibit or restrain the consummation of the merger;
provided, however, that the parties will each use their reasonable best
efforts to have any such judgment, order, decree or injunction vacated.
. Representations must be obtained from the DOD under the National
Industrial Society Program Regulations that after the merger II-VI will
be able to operate those portions of the business of the surviving
corporation that are governed by the National Industrial Security
Program Regulations, either unconditionally or subject only to such
conditions as are customarily imposed under the National Industrial
Security Program, and are not, in the judgment of II-VI, after
consultation with Laser Power, to the extent practicable, materially
burdensome to II-VI and its affiliates.
. II-VI Acquisition must have accepted for payment and paid for all shares
validly tendered in the offer and not withdrawn.
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Conditions to the Obligations of II-VI and II-VI Acquisition
The obligations of II-VI and II-VI Acquisition to consummate the merger are
subject to the satisfaction of the following further conditions:
. Laser Power will have performed in all material respects all of its
obligations required to be performed by it at or prior to the time the
merger becomes effective, the representations and warranties of Laser
Power contained in the merger agreement are true in all material
respects at and as of the time the merger becomes effective (provided
that representations made as of a specific date are required to be true
as of such date only) as if made at and as of such time and II-VI
Acquisition has received a certificate signed by the chief executive
officer and the chief financial officer of Laser Power to his knowledge
to the foregoing effect.
. There will not be pending any action or proceeding by any governmental
authority or any action or proceeding by any other person before any
court or governmental authority that has reasonable likelihood of
success seeking to: (i) make illegal, to delay materially or otherwise
directly or indirectly to restrain or prohibit the consummation of the
merger or seeking to obtain material damages; (ii) restrain or prohibit
II-VI's (including its affiliates) ownership or operation of all or any
material portion of the business or assets of the surviving corporation
or Laser Power, or to compel II-VI or any of its affiliates to dispose
of or hold separate all or any material portion of the business or
assets of the surviving corporation or Laser Power; (iii) impose or
confirm material limitations on the ability of II-VI or any of its
affiliates to effectively control the business or operations of the
surviving corporation or Laser Power or effectively to exercise full
rights of ownership of the shares of Laser Power's common stock,
including, without limitation, the right to vote any shares acquired or
owned by II-VI or any of its affiliates on all matters properly
presented to Laser Power's stockholders; or (iv) require divestiture by
II-VI or any of its affiliates of any material amount of share; and no
court, arbitrator or governmental authority has issued any judgment,
order, decree or injunction, and there will not be any statute, rule or
regulation, that, in the sole judgment of II-VI is likely, directly or
indirectly, to result in any of the consequences referred to in the
preceding clauses of this section; provided, however, that II-VI will
use its reasonable best efforts to have such judgment, order, decree or
injunction vacated.
. The parties will receive, each in form and substance satisfactory to II-
VI and II-VI Acquisition, all authorizations, consents, orders and
approvals of all governmental authorities and officials, including,
without limitation, approvals or agreements required by the DOD under
the National Industrial Security Program Regulations, and all third
party consents and estoppel certificates, which II-VI and II-VI
Acquisition deem necessary or desirable for the consummation of the
transactions contemplated by the merger agreement or the conduct of the
business of Laser Power and its subsidiaries by II-VI after the merger.
. The merger registration statement will be effective, no stop order
suspending the effectiveness of the merger registration statement will
have been issued by the SEC and no proceedings for that purpose will
have been initiated by the SEC that have not been concluded or withdrawn
and all state securities or blue sky authorizations necessary to
consummate the merger will have been obtained.
. The aggregate number of dissenting shares will not equal 10% or more of
the shares of Laser Power outstanding as of the record date for the
Laser Power stock holder meeting.
. Since the date of the merger agreement, there will not have occurred any
change, event, occurrence, development or circumstance which,
individually or in the aggregate, has had, or would reasonably be
expected to have, a material adverse affect on Laser Power.
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Conditions to the Obligations of Laser Power
The obligation of Laser Power to consummate the merger is subject to the
satisfaction of the following further conditions:
. II-VI and II-VI Acquisition must have performed in all material
respects: all of their obligations required to be performed at or prior
to the time the merger becomes effective, the representations and
warranties of II-VI and II-VI Acquisition contained in the merger
agreement and in any certificate or other writing delivered by it must
be true in all material respects at and as of the time the merger
becomes effective (provided that representations made as of a specific
date are required to be true as of such date only). Laser Power must
have received a certificate signed by the president or any vice
president of II-VI to this effect; and
. The board of directors of Laser Power must have received advice,
reasonably satisfactory to the board, from an independent advisor to the
effect that these transactions are fair and reasonable to Laser Power
and its stockholders.
Miscellaneous
Amendments and Waivers. Any provision in the merger agreement may be amended
or waived as long as the amendment or waiver is signed. An amendment must be
signed by Laser Power and II-VI Acquisition. A waiver must be signed by the
party against whom the waiver is to be effective. However, no amendment may be
made which by law requires further approval by the stockholders of Laser Power
without further approval of the stockholders. The merger agreement provides
that failure or delay by any party in exercising any right, power or privilege
will not operate as a waiver. Any single or partial exercise of any right,
power or privilege will not preclude any other or further exercise of the
right, power or privilege.
Governing Law. The merger agreement is governed by and should be construed
under Delaware General Corporation Law.
SOURCE AND AMOUNT OF FUNDS
II-VI entered into a credit agreement dated as of August 14, 2000, with PNC
Bank, National Association, and certain other lenders. Under the terms of the
credit agreement, the lenders will provide credit facilities in the aggregate
principal amount of $45,000,000 to II-VI in order to fund the acquisition of
Laser Power as provided for in the merger agreement, refinance existing
indebtedness of II-VI and Laser Power, pay transaction fees and expenses
related to the offer, the merger and the credit facilities and for general
corporate purposes before and after the merger. The credit agreement provides
that the credit facilities will be secured by certain assets of II-VI, Laser
Power and their respective subsidiaries including, security interests in
inventory and accounts receivable and pledges of the capital stock of II-VI's
and Laser Power's respective domestic and foreign subsidiaries.
On August 14, 2000, II-VI borrowed $25,000,000 pursuant to the credit
agreement to fund the purchase of the shares of Laser Power common stock
tendered pursuant to the offer and for other general corporate purposes. II-VI
exercised its election pursuant to the credit agreement and converted the full
amount borrowed to a term loan. In addition, on August 14, 2000, II-VI
converted borrowings of $2,750,000 under its previous line of credit with PNC
Bank into borrowings under the new credit agreement. As a result, $17,250,000
of the credit facilities remain available to II-VI subject to the terms and
conditions of the credit agreement and related loan documents.
LITIGATION
On June 13, 2000, a complaint naming Laser Power Corporation and certain
current and former directors of the company as defendants was served on the
Corporation. The complaint seeks to assert a breach of fiduciary duty claim,
and requests class action relief. It is styled C. Oliver Burt, III v. Laser
Power Corp., et al., Case No GIC 749273 (San Diego Superior Court). On
September 1, 2000, the Superior Court dismissed the claim regarding this
complaint against Laser Power, without leave to amend. The Court also dismissed
the
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claim against the directors, with leave to amend. The plaintiff has until
September 15, 2000 to file an amended complaint. Laser Power believes that the
claims are without merit and intends to defend itself vigorously. However,
there can be no assurance that Laser Power will prevail in these proceedings or
that an outcome unfavorable to Laser Power in these proceedings will not
materially adversely affect Laser Power's business, financial condition or
results of operations. Laser Power had previously entered into indemnification
contracts with each of its officers and directors, including the directors who
were named defendants in the complaint. As a result, Laser Power is paying the
expenses of the directors in defending themselves in this matter subject to
reimbursement under its insurance policies. Subject to certain limited
exceptions, Laser Power will reimburse the directors for any monetary damages
assessed against the individual directors that are not covered by Laser Power's
insurance policies. In addition, the conduct of litigation can be time-
consuming and costly. There can be no assurance that these factors will not
materially adversely affect Laser Power's business, financial condition or
results of operations.
APPRAISAL RIGHTS
Laser Power stockholders at the time of the merger who do not vote in favor
of the merger will have the right under the Delaware General Corporation Law to
dissent and demand appraisal of their Laser Power shares in accordance with
Section 262 of the Delaware General Corporation Law (the full text of which is
attached as Annex C to this information statement/prospectus). Under Section
262, dissenting stockholders who comply with the applicable statutory
procedures will be entitled to receive a judicial determination of the fair
value of their Laser Power shares (exclusive of any element of value arising
from the accomplishment or expectation of the merger) and to receive payment of
such fair value in cash, together with a fair rate of interest, if any. In Cede
& Co. and Cinerama, Inc. v. Technicolor, Inc., the Supreme Court of the State
of Delaware construed Section 262 of the Delaware General Corporation Law and
held that the "accomplishment or expectation" exclusion from the calculation of
fair value set forth in the preceding sentence is narrow and is designed to
eliminate use of pro forma data and projections of a speculative variety
relating to the completion of a merger. The court held that it is appropriate
to include in the calculation of fair value any known elements of value,
including those elements of value which exist on the date of the merger because
of a majority acquiror's interim action in a two-step cash-out transaction. We
cannot assure you as to the methodology a court would use to determine fair
value or how a court would select which of the elements of value are to be
included in such a determination. Any such judicial determination of the fair
value of Laser Power shares could be based upon factors other than, or in
addition to, the price per Laser Power share to be paid in merger or the market
value of the Laser Power shares. The value so determined could be more or less
than the price per Laser Power share to be paid in the merger.
Rule 13e-3 of the General Rules and Regulations under the Exchange Act,
which we do not believe would apply to the merger if it occurs within one year
of consummation of the exchange offer, would require, among other things, that
some financial information concerning Laser Power, and some information
relating to the fairness of the proposed transaction and the consideration
offered to stockholders of Laser Power therein, be filed with the SEC and
disclosed to you prior to consummation of the merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following describes the material United States federal income tax
consequences to Laser Power stockholders that receive Laser Power common stock
for II-VI common stock and cash pursuant to the merger. This discussion is
based on provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect as of the date hereof and all of
which are subject to change, possibly with retroactive effect. This discussion
does not address all aspects of United States federal income taxation that may
be applicable to Laser Power stockholders in light of their particular
circumstances or to Laser Power stockholders subject to special treatment under
United States federal income tax law (including, without limitation,
partnerships, foreign persons who may be subject to tax under the provisions of
the Foreign Investment in Real Property Tax Act of 1980, certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities,
traders in securities that elect to
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apply a mark-to-market method of accounting, certain U.S. expatriates, persons
that hold Laser Power common stock as part of a straddle, hedge, conversion
transaction or other integrated investment, Laser Power stockholders whose
functional currency is not the United States dollar and Laser Power
stockholders who acquired Laser Power common stock through the exercise of
employee stock options or otherwise as compensation). This discussion is
limited to Laser Power stockholders that hold their Laser Power common stock as
capital assets and does not consider the tax treatment of Laser Power
stockholders that hold Laser Power common stock through a partnership or other
pass-through entity. Furthermore, this summary does not discuss any aspect of
state, local or foreign taxation or any aspect of the Foreign Investment in
Real Property Tax Act of 1980.
A Laser Power stockholder that receives II-VI common stock and cash in
exchange for that stockholder's Laser Power common stock pursuant to the merger
will realize gain or loss equal to the difference between (a) the sum of (i)
the fair market value of the II-VI common stock and (ii) the cash received on
the closing date, and (b) that stockholder's aggregate tax basis in the Laser
Power common stock exchanged therefor. The recognized gain or loss will
constitute a capital gain or loss. Any capital gain or loss recognized will
constitute long-term capital gain or loss if the Laser Power stockholder's
holding period for the Laser Power common stock exchanged is greater than one
year at the effective time of the merger. The II-VI shares received by Laser
Power stockholders in exchange for Laser Power shares pursuant to the merger
will have a tax basis equal to their fair market value at the effective time of
the merger and a new holding period beginning on the day following the
applicable valuation date.
Cash Received in Lieu of Fractional Shares. Cash received in lieu of a
fractional share of II-VI common stock will be treated as received in
redemption of such fractional share interest, and a Laser Power stockholder
will recognize gain or loss measured by the difference between the amount of
cash received and the portion of the basis of the II-VI common shares allocable
to such fractional interest. Such gain or loss generally will constitute a
capital gain or loss and will be a long-term capital gain or loss if the Laser
Power stockholder's holding period in the Laser Power common stock exchanged
was greater than one year as of the date of the exchange.
Laser Power Rights. Because there is no specific binding authority that
deals with securities such as the Laser Power rights, we, upon consultation
with our counsel, Buchanan Ingersoll Professional Corporation, express no view
with respect to the United States federal income tax treatment of the Laser
Power rights becoming separately transferable apart from the Laser Power
shares, the redemption of the Laser Power rights or the acquisition by II-VI of
the Laser Power rights. Laser Power stockholders should consult their tax
advisors as to the United States federal income tax consequences of
transactions with respect to the Laser Power rights.
The foregoing describes the material federal income tax consequences of the
merger. However, it does not purport to be a complete analysis of all potential
federal income tax consequences of the merger. Laser Power stockholders are
urged to consult their tax advisors concerning the United States federal,
state, local and foreign tax consequences of the merger to them.
ACCOUNTING TREATMENT
The business combination will be accounted for as a "purchase," as such term
is used under generally acceptable accounting principles, for accounting and
financial reporting purposes. Laser Power will be treated as the acquired
corporation for such purposes. Laser Power's assets, liabilities and other
items will be adjusted to their estimated fair value on the closing date of the
combination and combined with the historical book values of the assets and
liabilities of II-VI. Applicable income tax effects of such adjustments will be
included as a component of II-VI's deferred tax assets or liabilities. The
difference between the estimated fair value of the assets, liabilities and
other items (adjusted as discussed above) and the purchase price will be
recorded as
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an intangible asset and amortized against II-VI's earnings over a fifteen year
period following completion of the combination. For further information
concerning the amount of goodwill to be recorded in connection with the
combination and the amortization thereof, see Note (e) of Notes to Unaudited
Pro Forma Condensed Consolidated Financial Statements on page 75.
II-VI has prepared the Unaudited Pro Forma Condensed Consolidated Financial
Statements contained in this information statement/prospectus using the
purchase method of accounting. See "Unaudited Pro Forma Condensed Consolidated
Financial Statements" on page 71.
THE COMPANIES
II-VI INCORPORATED
General Description of Business
II-VI Incorporated (pronounced "Two-Six Incorporated") develops,
manufacturers and markets high technology materials and derivative products for
precision use in industrial, medical, telecommunications and military/aerospace
applications. Founded in 1971, we use advanced material growth technologies
coupled with proprietary high precision fabrication, micro-assembly, and thin-
film coating production processes. The resulting optical and optoelectronic
devices are supplied to manufacturers and users of a wide variety of laser,
detection and telecommunication components and systems. A key strategy is to
develop and manufacture complex materials from elements of chemistry's periodic
table. We focus on providing critical products to the heart of our customer's
assembly lines for products such as high power laser material processing
systems, fiber- optic telecommunication transmitters and receivers, and
advanced medical x-ray systems. We believe we are a market leader for high
power carbon dioxide and YAG laser optical elements, and x-ray and gamma ray
detectors for the nuclear radiation industry.
Our United States manufacturing operations are located in Pennsylvania and
Florida, and our international production operations are based in Singapore and
China. In addition to sales offices at each of our manufacturing sites, as well
as Iowa and California, we have sales and marketing subsidiaries in Japan and
the United Kingdom. Approximately one-half of our revenues are for product
sales outside of the United States.
Our products are key optical and optoelectronic components used in the
laser, nuclear radiation detection and telecommunication industries.
. Our laser-related products include laser gain materials for solid state
lasers and many of the high precision optical elements used to focus and
direct laser beams to target or work surfaces. The majority of our laser
products require advanced optical materials that are internally
produced. Our vertical integration from material growth, through
fabrication and thin-film coating provides us with a significant
competitive advantage.
. Nuclear radiation detector products are based on the semiconductor
material Cadmium Zinc Telluride (CdZnTe). These detectors are attractive
due to the increased performance, reduced size, improved ruggedness and
lower voltage requirements as compared to traditional technologies.
. New products have been recently introduced for the telecommunications
industry. These products, which are building blocks for next generation
optical networks, demand the high precision and rigid metrology core
competencies that have been developed for our laser product lines.
We are at the forefront of advanced material growth research, development
and high volume production. Over the past three years we have expanded our
material growth development to include single crystal Silicon Carbide (SiC) for
use in blue and green Light Emitting Diodes (LEDs), diode lasers and high
performance electronics. Significant progress has been made in this relatively
short development period and at the present time we are working closely with
potential customers to qualify our products.
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Our Market Segments
Our business is comprised of four segments:
1) Design, manufacture and marketing of optical and electro-optical
components, devices and materials for infrared, near infrared and
visible light lasers and instrumentation.
2) Manufacture and marketing of x-ray and gamma-ray detectors and
components for medical, industrial, environmental and scientific
instruments.
3) Production of micro-fabricated and micro-assembled devices for
telecommunications.
4) Development of single crystal growth and fabrication of Silicon Carbide
(SiC) substrates for use in the manufacture of high temperature
electronics and blue and green high brightness LEDs.
Our reportable segments, in accordance with Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information", currently are optical components (which is a combination
of segments 1, 3 and 4 above) and radiation detectors (which is segment 2
above).
Laser Components Market
In recent years, dramatic increases in laser component consumption have been
driven by continued worldwide proliferation of laser processing applications.
Manufacturers are seeking solutions to increasingly complex demands for
quality, precision, speed, throughput, flexibility, automation and cost
control. High power CO\\2\\ and YAG lasers provide these benefits in a wide
variety of cutting, welding, drilling, ablation, balancing, cladding, heat
treating, and marking applications. For example, automobile manufacturers use
lasers to facilitate rapid prototyping, production simplification, efficient
sequencing, and computer control on high throughput production lines. Tailored
Blank Welding is used to reduce the weight, increase the corrosion resistance
and strengthen certain chassis and body parts of automobiles. The potential to
weld the all aluminum car is being developed by automobile manufacturers
worldwide. Manufacturers of recreation vehicles, motorcycles, lawn mowers and
garden tractors cut, trim and weld metal parts with lasers to achieve
flexibility, high consistency, reduced post processing and lower costs.
Furniture manufacturers utilize lasers to provide easily reconfigurable, low-
distortion, low-cost prototyping and production capabilities that facilitate
the manufacturing of customer specified designs. On high-speed processing
lines, laser marking provides automated date coding for food packaging and
computer driven container identification for pharmaceuticals.
We provide optical elements and components for both CO\\2\\ and YAG laser
systems. In addition to use by original equipment manufacturers (OEMs), a
replacement part aftermarket exists in support of an estimated current
worldwide installed base of 90,000 industrial YAG and CO\\2\\ lasers.
Solid-State Radiation Detection Market
Solid-state radiation detectors and components are sold primarily to
companies engaged in the manufacture of medical diagnostic, medical imaging or
industrial gauging equipment. In an increasing number of applications, the use
of gamma- or x-ray radiation enables more rapid and accurate measurement of
medical conditions or industrial quality than can be observed by other methods.
Solid-state detectors based on CdZnTe, a material that recently entered the
marketplace, are making inroads against older, more established technologies
such as cryogenically cooled germanium detectors or sodium iodide scintillators
coupled to photomultiplier tubes. CdZnTe detectors have already been
substituted for the older technologies in applications where increased
accuracy, simpler operation, portability and/or lower cost are required.
Currently, CdZnTe is beginning to enable new medical and industrial
applications not feasible with the older technologies and is now used routinely
in cancer probes, bone densitometry systems and process control instruments.
According to our best estimates, the market for solid-state radiation
detectors is currently $250 million and growing at 10% per year. Digital
radiography (the recording of digital x-ray images) represents the largest
market segment followed in order by nuclear medicine (the detection or imaging
of radioactively tagged materials in the body), industrial gauging, radiation
monitoring and nuclear safeguards/non-proliferation. When CdZnTe entered the
market in the mid-1990s, it could address less than 10% of the applications.
Presently, we believe that the CdZnTe addressable market has grown to $50
million.
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During the next decade, the performance of CdZnTe and other solid-state
detectors will be improved through additional research and development,
creating the potential for digital imaging to replace x-ray film in a myriad of
traditional radiography applications.
We believe that the market for CdZnTe detectors and imagers will grow faster
than the overall market rate of 10% because of several factors, including:
. the strong migration toward "film-less" detection methods that enable
the direct recording of digital images or videos which can be stored,
recalled and transmitted via the Internet;
. the desire for lower radiation dosage;
. the desire for simpler, safer operation at room temperature;
. the increasing requirement that equipment be "intrinsically safe" in
environments where a spark might start a fire;
. the general trend towards equipment miniaturization; and
. the need to inspect, document and control quality at additional points
within the manufacturing process in a wide range of industries; for
example the measurement and control of film thickness during the
painting of automobile bodies.
Equipment manufacturers increasingly desire to procure fully tested,
packaged components rather than devices that must be qualified and assembled.
We believe that this trend will require leading suppliers to provide products
containing ever-higher levels of signal processing and, as a result, the market
will place high value on suppliers having strong applications engineering
capabilities and a focus on customer relationships.
Telecommunications Components
In recent years dramatic increases in demand for multimedia information,
entertainment, and voice and data communications have resulted in a
corresponding increase for greater bandwidth. This has resulted in a
significant increase in fiber-optic network deployment, which subsequently has
created substantially increased demand for precision telecommunication optical
components.
Optical and opto-electronic materials are fabricated into telecommunication
elements such as:
. Mirror Blocks
. Air Gap Etalons
. Waveplates
. Filter Taps
. Polarization Rotators
. Prisms
In telecommunication systems certain optical components help lock the laser
output wavelength to the proper channel on the telecommunication system's grid.
Other optical components function as an isolator, which is a device that
ensures that laser light in a fiber optic is not directed back into the source
of transmission. Another component such as a prism functions as an optical
multiplexer.
To meet the insatiable bandwidth demands of the Internet world, system
manufacturers are looking to merchant optical component and opto-electronic
material suppliers for solutions. Current global industry capacity to produce
materials, devices and components is insufficient.
Silicon Carbide Electronic Materials Market
Silicon carbide is a wide band gap semiconductor material that offers high-
temperature, high-power and high-frequency capabilities in applications that
are rapidly emerging at the high-performance end of the
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optoelectronic, telecommunication, power distribution and transportation
markets. Silicon carbide has certain inherent physical and electronic
advantages over competing materials such as silicon and gallium arsenide,
including the ability to operate at up to 400 degrees Centigrade (750 degrees
Fahrenheit) and the capability to conduct heat away from operating devices up
to twice as fast. Typically, either silicon carbide or gallium nitride layers
are deposited on a silicon carbide or alternative substrate and desired
optoelectronic or electronic devices are fabricated in the resulting material
structure. Silicon carbide based structures are being developed and deployed
for the manufacture of a wide variety of microwave and power switching devices
while gallium nitride based structures are already standard in the manufacture
of blue and green light emitting diodes and blue laser diodes.
We believe that wide band gap semiconductor devices incorporating silicon
carbide materials technology will penetrate a wide range of applications in the
optoelectronic, telecommunication, power distribution and transportation
markets during the next decade. For instance, blue and green LEDs built on
silicon carbide substrates offer the promise of higher output power than
devices currently built on less expensive but thermally insulating sapphire
substrates. The realization of this promise will establish silicon carbide
substrates as an important building block in high brightness computer driven
signs or displays, in high brightness automotive lighting and in the
replacement of incandescent and eventually fluorescent lighting by high power,
high efficiency solid-state lamps. High power, high frequency silicon carbide
microwave devices promise to rival gallium arsenide devices in
telecommunication base station transmitters and silicon devices in both
commercial and military air traffic radar applications. Silicon carbide high
power, high-speed switching devices promise to improve the performance and
reliability of motor controls in a wide variety of applications and could play
a key role in the evolution of the electric car.
Our Strategy
Our strategy is to build businesses with world-class, high technology
materials capabilities at their core. Each of our current business activities
follows this model: CO\\2\\ and infrared optics based on ZnSe and ZnS, near
infrared and visible laser components based on YAG and YLF, and solid-state
radiation detectors based on CdZnTe. Consistent with this strategy, our
initiative to enter the optoelectronic and electronic substrates business is
predicated on the establishment of silicon carbide capabilities. In every case,
we subsequently manufacture precision parts and components from these materials
using established but evolving expertise in low damage surfacing and micro
fabrication, thin-film coating, and exacting metrology. A substantial portion
of our business is based on long-term contracts with market leaders, which
enables substantial forward planning and production efficiencies. In addition,
industry leading product quality and delivery performance allows us to achieve
comparatively high operating margins in major segments of our business. We
intend to capitalize on the execution of this proven model and continually gain
market share for laser optics and components, telecommunication devices, solid-
state radiation detectors, and optoelectronic/electronic materials and
substrates.
. Continue Investment to Gain CO\\2\\ and YAG Market Share Worldwide. We
continually invest in our manufacturing operations worldwide to increase
production capacity. All U.S. and international manufacturing operations
are being expanded. Additional materials growth capability is being
added for CdZnTe, ZnSe, ZnS, YAG and YLF. A piezo-electric material is
under development at our Advanced Materials Development Center in
Pennsylvania. A proprietary material for telecommunication applications
is under development in Florida.
. Enhance Our Reputation as a Worldwide Quality and Customer Service
Leader. We are committed to understanding our customers' needs and
exceeding their expectations. We have established ourselves as a
consistent high quality supplier of components into our customers'
assembly lines. In many cases we deliver on a just in time (JIT) basis.
We believe our on-time delivery record and product return rates are the
best in the industries we serve via our quality mission statement, "We
pledge to exceed our internal and external customer requirements through
employee dedication to continuous improvement."
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<PAGE>
. Pursue Strategic Acquisitions and Alliances. Some of the markets we
participate in remain fragmented and we expect consolidation to occur
over the next several years. We will pursue strategic acquisitions and
alliances with companies whose products or technologies compliment our
current products, expand our market coverage, increase our addressed
market or create synergies with our current capabilities. We intend to
identify acquisition opportunities that accelerate our access to
emerging high growth segments of the markets we serve.
. Continue Extension of Technology Leadership in the Gamma and X-ray
Detector Field. We believe our eV PRODUCTS division is the leader in the
manufacture of solid-state gamma and x-ray detector devices and
components. Cadmium Zinc Telluride (CdZnTe) handheld probes in the
medical field allow the introduction of new cancer location techniques.
CdZnTe based imaging arrays are being introduced in nuclear medicine.
CdZnTe is being developed for direct read digital radiography, which
will allow a physician to view relevant parts of the body in real time
using a fraction of the x-ray dose required with film. Our eV PRODUCTS
division is working on these medical applications with market leaders
worldwide. The high pressure Bridgman growth process for producing
CdZnTe is a materials expertise unique to II-VI.
. Utilize Proven Materials Growth Expertise to Perfect Silicon Carbide
(SiC). We are a proven provider of hard to grow materials and opto-
electronic crystals. We intend to leverage our skills and experiences in
commercially producing ZnSe, ZnS, CdZnTe, YAG and YLF to move rapidly
forward with our SiC development program. We intend to gain market share
and become the reliable second source of SiC substrates to the worldwide
marketplace in the next three years. We will utilize our low damage
fabrication experience and exacting metrology in achieving this
position.
. Extend Proven Fabrication, Thin-Film Coating, Assembly and Exacting
Metrology Capabilities to Telecommunications Components. We are a
respected supplier of waveplates, etalons, frequency doublers and other
highly precise components to the YAG laser and related markets. We have
recently extended our high accuracy fabrication, thin-film coating,
assembly and exacting metrology expertise to the manufacture of the
passive components such as: micro-waveplates, miniature air-gap etalons
and micro-prisms that are critical to the performance of the receivers,
transmitters and add-drop modules being deployed in the rapid expansion
of fiber optic networks. We are establishing a stand-alone facility in
Florida for the production of telecommunications products and will
rapidly expand our capacity in response to market place demand.
Our Products
Our products include optical, optoelectronic and electronic materials,
devices and components for use in laser, detection, telecommunication and
advanced electronic and optoelectronic applications. These products are sold to
laser system manufacturers and end-users, manufacturers of nuclear radiation
detection systems and component suppliers to the telecommunications,
optoelectronic and electronic industries. Presently, the majority of our
products are attributable to the sale of optical components into multiple
segments of the laser industry.
Laser Components
We supply a broad line of precision optical components such as lenses,
waveplates, and mirrors to the carbon dioxide laser market. Carbon dioxide
lasers are used in a wide variety of industrial processes including cutting,
welding, drilling, marking and heat treating of materials such as steel alloys,
non-ferrous metals, plastics, wood, paper, fiberboard, ceramics and composites.
Carbon dioxide lasers are also used in cosmetic and invasive medical surgery.
Our precision optical components are used to regulate the amount of laser
energy, enhance the properties of the laser beam, and focus and direct laser
beams to a target work surface. The optical components include both reflective
and transmissive optics and are made from materials such as Zinc Selenide,
Copper, Silicon and Germanium. Transmissive optics used with carbon dioxide
lasers are predominately made from ZnSe. We are the largest manufacturer in the
world of this optical material that provides us a significant
40
<PAGE>
cost advantage. We believe our Zinc Selenide production capability, high
precision fabrication operations and proprietary thin film coating technology
has earned us a reputation as the quality leader in this world market.
Additionally, we supply replacement optics (under the trade name of
INFRAREADY) and refurbishing services to end users of carbon dioxide lasers.
Over time optics may become contaminated and must be replaced to maintain
efficient laser operations. This aftermarket portion of our business continues
to grow as laser applications proliferate worldwide.
Key materials and precision optical components for YAG and other solid-state
laser systems are part of our product offering. The increasing power levels and
reduced operating costs of evolving YAG laser systems are enabling this
technology to address new applications. YAG lasers are now used in high power
application such as cutting, welding, marking and date coding. Additionally,
YAG laser energy can be delivered through optical fibers, which provides high
flexibility beam delivery systems.
We supply a family of standard and custom laser gain materials and optics
for industrial, medical, scientific and research YAG lasers. Our YAG laser gain
materials are produced to stringent industry specifications and precisely
fabricated into rods or slabs. We also refurbish YAG rods for YAG laser end
users. Additionally, we offer waveplates, polarizers, lenses, prisms and
mirrors for visible and near-infrared applications which are used to control or
alter visible or near-infrared energy and its polarization.
Solid State Radiation Detectors
We design, manufacture and market CdZnTe room temperature, solid state
radiation detectors combined with custom designed low noise front-end
electronics. New and expanding applications in industry, medicine and research
are fueling increased demand for our products. Our solid-state CdZnTe nuclear
radiation detectors are attractive because of their reduced size, improved
ruggedness, and lower voltage requirements as compared to traditional detectors
based on scintillator/photomultiplier or cooled germanium technologies.
The use of CdZnTe hand-held probes in the medical field has enabled the
introduction of new cancer location techniques, based on the injection of a
radiolabeled antibody that attaches to cancer cells. This technology provides
the surgeon the tools to accurately identify and remove cancerous tissue.
CdZnTe-based imaging arrays can be used in both nuclear medical (internally
emitted gamma rays) and radiography (x-rays from external source). In nuclear
medicine, CdZnTe makes feasible of a new generation of gamma cameras, offering
much improved position sensitivity and the ability to produce images using
lower doses of injected radioactivity. In radiography, higher density CdZnTe
can provide much improved sensitivity to the higher x-ray energies used in some
of the newer diagnostic techniques. Direct-read digital radiography cameras are
being developed which, if successful, will allow the physician to view the
relevant part of the body in real time, reducing the time required for
diagnosis.
Research, Development and Engineering
We devote significant resources to research, development and engineering
programs directed at the continuous improvement of existing products and
processes and to the timely development of new technologies, materials and
products. We believe that our research, development and engineering activities
are essential to our ability to establish and maintain a leadership position in
each of the markets that we serve. As of March 31, 2000 we employed 125 people
in research, development and engineering functions.
During the past year, we have made focused investments in:
. Telecommunication Device Development: Where we have developed
microfabrication, thin-film coating and metrology techniques to enable
the manufacture of several new devices of high interest to
telecommunication customers. Product introductions of Air-Gap Etalons,
Waveplates and Polarization
41
<PAGE>
Rotators are in progress. Initial production orders have been received
and we plan to have capacity in place within six months to produce up to
50,000 devices per month for supply to key customers.
. Silicon Carbide Substrate Technology: We presently have several crystal
growth furnaces producing 6H and 4H ingots and one additional furnace
under construction to support the development of a new proprietary Axial
Gradient Transport Growth Process (patent applied for in March 2000). In
addition, ingot slicing and substrate polishing facilities are in place
and qualification products are being supplied to key customers.
. High Performance CdZnTe Materials: Where the marketplace success of eV
PRODUCTS depends our capability and capacity to produce radiation
detectors with ever-higher sensitivity, resolution and efficiency at
lower cost. Key advancements have been achieved and will continue to be
sought in the production of larger single crystal ingots as well as in
the fabrication techniques for the manufacture of monolithic arrays of
closely spaced detectors. As improved performance is indicated, new
applications and market potential are opened to CdZnTe products.
. Large Diameter YAG Manufacturing: Where our research and development
activities are focused on producing materials that will accelerate the
evolution of kilowatt-class YAG lasers. Achievements in process control
and reliability are rapidly transferred into production at our New Port
Richey, FL manufacturing facility, largely due to effective teamwork and
crossover between our development and manufacturing personnel.
. Our New Advanced Materials Development Center: Where existing research,
such as on Large Diameter YAG, is proceeding and new programs, such as
research on the single crystal growth of PMN-PT, an advanced
piezoelectric material, has been initiated. This 6,000 square foot
facility is dedicated to enhancing our leadership in the development of
advanced materials for the telecommunications, electronics,
optoelectronics, radiation detection, electro-optics and laser markets.
The development of our products and processes is largely based on
proprietary technical know-how and expertise. We rely on a combination of
contract provisions and trade secret laws to protect our proprietary rights.
We intend, however, to protect our rights when they are, in our view,
infringed.
Research, development and engineering expenditures were $2,952,000,
$3,258,000, $3,358,000 and $2,605,000 for the fiscal years ended June 30,
1997, 1998 and 1999 and the nine months ended March 31, 2000, respectively.
For these same periods, the customer and/or government funded portions of
these expenditures were $2,657,000, $2,206,000, $1,436,000 and $840,000.
Marketing and Sales
We market our products through a direct sales force in North America,
Japan, South East Asia and the UK, and through representatives and
distributors elsewhere in Europe, Asia, and South America. Our market strategy
is focused on building market awareness and acceptance of our products. New
products are constantly being produced and sold to our established customers
in the laser component market places.
Each of our product lines is responsible for their own worldwide marketing
and sales functions, as follows.
1) The laser component businesses share many common customers and sell
through our subsidiaries II-VI Japan and II-VI UK as well as through a
common distributor in most of Europe.
2) The eV PRODUCTS marketing and sales initiative is handled through a
direct sales force in the US coupled with four manufacturers
representatives. An array of distributors and representatives are used
throughout the rest of the world.
3) The telecommunications business unit shares its marketing with our VLOC
subsidiary.
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<PAGE>
4) The senior management and technical staff work closely with potential
customers providing samples and deliverable products from our wide band
gap wafer materials activities in SiC.
Our sales force develops close relationships with our OEM customers
worldwide. All divisions actively market their products through targeted
mailings, telemarketing, select advertising and attendance at trade shows. Our
sales force includes a highly trained team of application engineers to assist
customers in designing, testing and qualifying our parts as key components of
our customers' systems. As of March 31, 2000, we employed 52 individuals in
sales, marketing and support and maintained regional sales operations in Japan,
Singapore, China and the UK.
Manufacturing Technology and Processes
A majority of the products we produce depend on our ability to manufacture
difficult optical, opto-electronic or electronic materials. The table below
shows these key materials and the processes used to produce them.
<TABLE>
<CAPTION>
Materials
Product Line Produced Growth Process Utilized
------------ --------- -----------------------
<S> <C> <C>
. Laser Components ZnSe and ZnS Chemical Vapor Deposition
. Laser Components YAG and YLF Czochralski
. Solid State Detectors CdZnTe High Pressure Bridgman and
Conventional Bridgman
. SiC Substrates SiC Physical Vapor Transport
</TABLE>
The ability to produce these difficult materials and to control the quality
and yields is an expertise of II-VI. Processing of these materials into
finished products is difficult to accomplish; yet the quality and
reproducibility of these products are critical to the performance of our
customer's instruments and systems. In the markets we serve there are a limited
number of suppliers of many of the components we manufacture.
The network of our worldwide manufacturing sites allows products to be
produced in the most cost-effective area of the world. We believe our cost to
produce our infrared and near infrared components are the lowest among all
competitors. We employ numerous advanced manufacturing technologies and systems
in all product-manufacturing facilities. These include automated CNC optical
fabrication, high throughput thin-film coaters, micro precision metrology and
custom-engineered automated furnace controls for the crystal growth processes.
Producing products for use across the electromagnetic spectrum requires the
capabilities to repeatedly produce products with high yields to tolerances in
the nanometer range. We embody a technology and quality mindset that gives our
customers the confidence to utilize our products in a just in time basis
straight into the heart of their production lines.
Sources of Supply
The major raw materials used by us are Zinc, Selenium, Hydrogen Selenide,
Hydrogen Sulfide, Cadmium, Tellurium, Yttrium Oxide, Aluminum Oxide and
Iridium. We produce virtually all of our Zinc Selenide and Zinc Sulfide
requirements internally, although small quantities of Zinc Selenide and Zinc
Sulfide may be purchased from outside vendors from time to time. We also
purchase Gallium Arsenide, Copper, Silicon, Germanium, Quartz, optical glass
and small quantities of other materials for use as base materials for laser
optics. We purchase Thorium Fluoride and other materials for use in optical
fabrication and coating processes. There are more than two suppliers for all of
the above materials except for Zinc Selenide, Hydrogen Selenide and Thorium
Fluoride (excluding us), for each of which there is only one proven source of
merchant supply. For most materials, we have entered into annual purchase
arrangements whereby suppliers provide discounts for annual volume purchases in
excess of specified amounts.
The continued high quality of these materials is critical to the stability
of our manufacturing yields. We conduct testing of materials at the onset of
the production process to meet evolving customer requirements.
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Additional research may be needed to better define future starting material
specifications. We have not experienced significant production delays due to
shortages of materials. However, we do occasionally experience problems
associated with vendor supplied materials not meeting contract specifications
for quality or purity. A significant failure of our suppliers to deliver
sufficient quantities of necessary high-quality materials on a timely basis
could have a materially adverse effect on our results of operations.
Customers
Our customer base for our laser component products consists of over 4,000
customers worldwide.
The three main groups of customers for our laser component products are as
follows:
. Leading original equipment manufactures (OEMs) and system integrators of
high power industrial, medical and military laser systems,
. Laser end users who require replacement optics for their existing laser
systems, and
. Scientific and military customers, including the U.S. military and its
allies, for use in advanced infrared imaging systems for state-of-the-
art weapon systems.
For our telecommunications component products, our customers are
telecommunication companies who utilize our products as discrete optical
elements for active and passive components for frequency stabilization, DWDM
(dense wavelength division multiplexing) applications and optical networking.
We are currently dependent on a limited number of key customers for this
product line.
For our solid state radiation detector products, our customers are
manufactures of equipment and devices for industrial process control, nuclear
medicine, x-ray imaging, environmental monitoring, nuclear safeguards and
nonproliferation, and health physics. We are currently dependent on a limited
number of key customers for this product line.
Our silicon carbide electronic materials product sales to date have been
limited and we do not have an established customer base for this product line.
Bookings and Backlog
We define our bookings during a fiscal period as incoming orders believed to
be deliverable to customers in the next twelve months net of any order
cancellations. Certain long-term research and development contracts exceeding
twelve-month may be booked in their entirety, but in no event would exceed
twenty-four months. For the nine months ended March 31, 2000, our bookings were
$59.9 million compared to bookings of $44.0 million for the nine months ended
March 31, 1999. We believe that the increase in bookings reflects continued
acceptance of our products over competing technologies and vendors and show our
customers desire our high quality products delivered in a timely manner.
We define our backlog as customer orders available for shipment in the next
twelve months and certain long-term research and development contracts not
exceeding twenty-four months as of the end of the fiscal period. As of March
31, 2000, our backlog was $25.4 million compared to $19.1 million and $17.4
million at June 30, 1999 and March 31, 1999, respectively. The increase in
backlog is primarily reflective of higher bookings during fiscal year 2000.
Employees
As of March 31, 2000, we employed 774 persons worldwide. Of these employees,
125 were engaged in research, development and engineering, 469 in direct
production and the balance in sales and marketing, administration, finance and
support services. Our production staff includes highly skilled optical
craftsmen. None of our employees are covered by a collective bargaining
agreement, and we have never experienced any
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<PAGE>
work stoppages. We have a long-standing policy of encouraging active employee
participation in selected areas of operations management. We believe our
relations with our employees to be good. We reward our employees with incentive
compensation based on achievement of performance goals.
II-VI Board of Directors and Management
The directors and executive officers of II-VI and their backgrounds are as
follows:
Carl J. Johnson, a co-founder of II-VI in 1971, serves as Chairman, Chief
Executive Officer, and Director of II-VI. He served as President of II-VI from
1971 until 1985 and has been a Director since its founding and Chairman since
1985. From 1966 to 1971, Dr. Johnson was Director of Research & Development for
Essex International, Inc., an automotive electrical and power distribution
products manufacturer. From 1964 to 1966, Dr. Johnson worked at Bell Telephone
Laboratories as a member of the technical staff. Dr. Johnson completed his
Ph.D. in Electrical Engineering at the University of Illinois in 1969. He holds
B.S. and M.S. degrees in Electrical Engineering from Purdue University and
Massachusetts Institute of Technology (MIT), respectively. Dr. Johnson serves
as a director of Xymox Technology, Inc., Armstrong Laser Technology, Inc. and
Applied Electro-Optics Corporation.
Thomas E. Mistler, has served as a Director of II-VI since 1977. Since
September 1, 1999 Mr. Mistler has been President, Chief Executive Officer and a
director of ESCO Holding Corp. and Engineered Arresting Systems Corporation of
Aston, Pennsylvania. Previously, he was Senior Vice President of Energy Systems
Business for Westinghouse Electric Corporation in Pittsburgh, Pennsylvania.
From 1984 to 1998, Mr. Mistler served in various engineering, marketing and
general management capacities with Westinghouse Electric Corporation in
Morristown, New Jersey, and Pittsburgh, Pennsylvania. He was located in Riyadh
from 1981 to 1984 where he served as President of Westinghouse Saudi Arabia
Limited. Mr. Mistler joined Westinghouse Electric Corporation in 1965 after
graduating from Kansas State University with B.S. and M.S. degrees in
Engineering. Mr. Mistler is a trustee and former vice-chairman of Brothers
Brother Foundation, an international charitable organization.
Richard W. Bohlen, has served as a Director of II-VI since 1984. Mr. Bohlen
was Senior Vice President, Operations, Rockwell International Corporation from
1989 to 1991. Previously, he was President of the Measurement and Flow Control
Division of Rockwell International Corporation from 1986 to 1988. From 1977
until 1986, he was President of the Municipal and Utility Division at Rockwell.
In 1972 he became Director of Technology for Rockwell's Industrial Products
Group and served as Corporate Director of Business Strategy from 1973 to 1976.
Mr. Bohlen spent the first fifteen years of his career in the aerospace
industry with Grumman Corporation and Rockwell International Corporation. He
formerly served as director of GF Corporation and as chairman and director of
the Pacific Coast Gas Association. Mr. Bohlen holds the B.S., M.S. and M.B.A.
degrees from Massachusetts Institute of Technology (MIT), Polytechnic Institute
of NY and California State University (Fullerton, California), respectively.
Duncan A.J. Morrison, has served as a Director of II-VI since 1982. Mr.
Morrison has been President at ARRI Canada Ltd. since October 1994. Previously,
he was a Vice President of Corporate Financial Consulting with Seapoint
Financial Corporation in Toronto, Canada. From 1987 until 1990, Mr. Morrison
was the Chief Financial Officer of the CTV Television Network Ltd. in Toronto,
Canada. From 1976 until 1986, Mr. Morrison was the Vice President/Controller of
Copperweld Corporation in Pittsburgh, Pennsylvania. He was Vice President,
Treasurer and the Comptroller of Kysor Industrial Corporation in Cadillac,
Michigan from 1966 to 1976. Mr. Morrison is a director of Minder Research
Corporation (electronics manufacturer). Mr. Morrison was born in Canada and
graduated from Westerveld Business College in London, Ontario, with a B.A. in
Accounting.
Peter W. Sognefest, has served as a Director of II-VI since 1979. Since May
1996, Mr. Sognefest has been President and Chief Executive Officer of Xymox
Technology, Inc. From March 1994 until April 1996, he was President and Chief
Executive Officer of LH Research, Inc. From 1992 until February 1994, he was
President
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<PAGE>
and Chief Executive Officer of IRT Corporation. Until 1992, Mr. Sognefest was
Chairman of Digital Appliance Controls, Inc. (DAC; a wholly-owned subsidiary of
Emerson Electric Company). He founded DAC in 1984 to design, manufacture and
market digital appliance controls and sold the company to Emerson Electric
Company in July, 1991. Mr. Sognefest was previously Vice President and General
Manager of the Industrial Electronics Division of Motorola, Inc. from 1982 to
1984, having joined Motorola in 1977. From 1967 to 1977, he was with Essex
Group, Inc., a wholly-owned subsidiary of United Technologies Corporation,
where he held the position of General Manager of Semi-Conductor Operations. Mr.
Sognefest holds the B.S. and M.S. degrees in Electrical Engineering from the
University of Illinois.
Francis J. Kramer, has served as a Director of II-VI since 1989. Mr. Kramer
has been employed by II-VI since 1983 and has been its President and Chief
Operating Officer since 1985. Mr. Kramer joined II-VI as Vice President and
General Manager of Manufacturing and was named Executive Vice President and
General Manager of Manufacturing in 1984. Prior to his employment by II-VI, Mr.
Kramer was the Director of Operations for the Utility Communications Systems
Group of Rockwell International Corp. Mr. Kramer graduated from the University
of Pittsburgh in 1971 with a B.S. degree in Industrial Engineering and from
Purdue University in 1975 with an M.S. degree in Industrial Administration.
Herman E. Reedy has been with II-VI since 1977 and is Vice President and
General Manager of Quality and Engineering. Previously, Mr. Reedy held
positions at II-VI as General Manager of Quality and Engineering, Manager of
Quality and Manager of Components. From 1973 until joining II-VI, Mr. Reedy was
employed by Essex International, Inc., serving last as Manager, MOS Wafer
Process Engineering. Prior to 1973, he was employed by Carnegie Mellon
University and previously held positions with SemiElements, Inc. and
Westinghouse Electric Corporation. Mr. Reedy is a 1975 graduate of the
University of Pittsburgh with a B.S. degree in Electrical Engineering.
James Martinelli has been employed by II-VI since 1986 and has served as
Chief Financial Officer and Assistant Secretary since May of 1994. Mr.
Martinelli joined II-VI as Accounting Manager and was named Controller in 1990.
He held the office of Treasurer from May of 1994 to August 2000. Prior to his
employment by II-VI, Mr. Martinelli was Accounting Manager at Tippins
Incorporated and Pennsylvania Engineering Corporation from 1980 to 1985. Mr.
Martinelli graduated from Indiana University of Pennsylvania in 1980 with a
B.S. degree in Accounting and is a member of the Pennsylvania Institute of
Certified Public Accountants.
The directors of II-VI Acquisition are Carl J. Johnson, Francis J. Kramer
and James Martinelli.
The executive officers of II-VI Acquisition are as follows:
<TABLE>
<S> <C>
Carl J. Johnson Chief Executive Officer
Francis J. Kramer President
James Martinelli Secretary and Treasurer
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The table and the subsequent discussion should be read in conjunction with
the consolidated financial statements and the notes thereto which are
incorporated by reference.
<TABLE>
<CAPTION>
Nine-Months Ended Fiscal Year Ended June
March 31, 30,
----------------- -----------------------
2000 1999 1999 1998 1997
-------- -------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales......................... $ 52,013 $ 43,565 $60,314 $59,134 $50,084
Contract research and
development...................... 840 976 1,436 2,206 2,657
-------- -------- ------- ------- -------
Total........................... 52,853 44,541 61,750 61,340 52,741
Costs and expenses:
Cost of goods sold................ 29,609 26,838 36,590 34,049 27,580
Contract research and
development...................... 636 686 1,041 1,690 1,950
Internal research and
development...................... 1,969 1,769 2,317 1,568 1,002
Selling, general and
administrative................... 12,947 10,035 13,563 14,268 12,713
-------- -------- ------- ------- -------
Operating costs and expenses........ 45,161 39,328 53,511 51,575 43,245
-------- -------- ------- ------- -------
Income from operations.............. 7,692 5,213 8,239 9,765 9,496
Other expense (income), net......... 212 168 201 177 (488)
-------- -------- ------- ------- -------
Earnings before income taxes........ 7,480 5,045 8,038 9,588 9,984
Income taxes........................ 2,020 1,616 2,575 2,808 2,873
-------- -------- ------- ------- -------
Net earnings........................ $ 5,460 $ 3,429 $ 5,463 $ 6,780 $ 7,111
======== ======== ======= ======= =======
Diluted earnings per share.......... $ 0.83 $ 0.53 $ 0.84 $ 1.02 $ 1.08
======== ======== ======= ======= =======
</TABLE>
Results of Operations for the Nine-Months Ended March 31, 2000 and 1999
For the nine months ended March 31, 2000, net earnings were $5,460,000
($0.83 per share-diluted) on revenues of $52,853,000. This compares with net
earnings of $3,429,000 ($0.53 per share-diluted) on revenues of $44,541,000 for
the same period last fiscal year.
Order bookings for the nine months ended March 31, 2000 were $60,329,000
compared to $43,959,000 for the same period last fiscal year, an increase of
37%. Bookings for contract research and development for the nine months ended
March 31, 2000 were $2,350,000 compared to $241,000 for the same period last
fiscal year. Excluding these long-term research and development contract
bookings, manufacturing bookings increased 33%. For the year-to-date, bookings
for laser optics and component products increased approximately 35% and
included bookings of approximately $700,000 for telecommunication products
while bookings for the eV PRODUCTS division increased approximately 70%.
For the nine months ended March 31, 2000, revenues increased 19% to
$52,853,000 from $44,541,000 for the same period last fiscal year. Revenues
from laser optics and products increased by approximately 20% while revenues
from the eV PRODUCTS division increased by approximately 5%.
For the nine months ended March 31, 2000, manufacturing gross margin was
$22,404,000 or 43% of revenues compared to $16,727,000 or 38% of revenues for
the same period last fiscal year. The higher gross margin percentage reflects
productivity gains and cost control programs, lower per unit cost associated
with higher production volume for laser optics and component products and a
strengthened Japanese Yen.
For the nine months ended March 31, 2000, internal research and development
expenses were $1,969,000 or 4% of revenues compared to $1,769,000 or 4% of
revenues for the same period last fiscal year. The
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<PAGE>
increased expenses reflect projects associated with developing nuclear
radiation detectors, infrared optics and materials and silicon carbide.
For the nine months ended March 31, 2000, selling, general and
administrative expenses were $12,947,000 or 24% of revenues compared to
$10,035,000 or 23% of revenues for the same period last fiscal year. The dollar
and percentage increases are attributable to increased compensation expense
associated with II-VI worldwide profit-driven bonus programs and increased
professional service expenses.
For the nine months ended March 31, 2000, other expense was $212,000
compared to $168,000 for the same period last fiscal year. The year-to-date
fluctuation is a direct result of interest expense resulting from changes in
average borrowings.
For fiscal 2000, II-VI's year-to-date effective income tax rate is 27%
compared to an effective income tax rate of 32% for the same period last fiscal
year. The decrease in the effective income tax rate is primarily attributable
to an increase in the utilization of the tax savings available to the Company
from its foreign sales corporation.
Liquidity and Capital Resources as of March 31, 2000
Cash decreased during the first nine months of fiscal 2000 by $337,000
primarily due to capital expenditures, the purchase of 1,252,000 shares of
Laser Power Corporation common stock and increases in inventory and accounts
receivable. These items were offset by net earnings before depreciation and
amortization of $9,394,000 and decreases in other assets. II-VI generated
$7,029,000 in cash from operations during the first nine months of fiscal 2000.
II-VI believes internally generated funds, existing cash reserves and
available borrowing capacity will be sufficient to fund its working capital
needs, capital expenditures and scheduled debt payments for fiscal 2001.
The impact of inflation on II-VI's business has not been material.
Fiscal 1999 Compared to Fiscal 1998
Net earnings decreased 19% in fiscal 1999 to $5.5 million from $6.8 million
in fiscal 1998. Revenues grew 1% to $61.8 million in fiscal 1999 compared to
$61.3 million last fiscal year. Bookings decreased 7% to $60.0 million in
fiscal 1999 compared to $64.2 million in fiscal 1998. Order backlog decreased
9% to $18.0 million at June 30, 1999 from $19.8 million at June 30, 1998 as a
result of shipments exceeding bookings in fiscal 1999. Manufacturing orders
comprised 97% of the backlog at June 30, 1999, compared to 93% of backlog at
June 30, 1998.
Net earnings decreased 19% in fiscal 1999 to $5.5 million from $6.8 million
in fiscal 1998. The major contributors to the net earnings decrease were lower
manufacturing gross margins, higher internal research and development expenses
and a higher effective tax rate. Each of these are explained further in this
section.
Bookings decreased 7% to $60.0 million in fiscal 1999 compared to $64.2
million in fiscal 1998. Bookings of II-VI's VLOC subsidiary and infrared optics
and material products decreased by a total of approximately 10% while bookings
of the eV PRODUCTS division increased by approximately 10%.
Revenues grew 1% to $61.8 million in fiscal 1999 compared to $61.3 million
last fiscal year. Revenues from contract research and development decreased to
$1.4 million in fiscal 1999 from $2.2 million in fiscal 1998. Revenues of the
eV PRODUCTS division increased approximately 30%, revenues from II-VI's VLOC
subsidiary decreased approximately 10% and revenues from infrared optics and
material products remained consistent as compared to last fiscal year.
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Manufacturing gross margin was $23.7 million or 39% of manufacturing
revenues in fiscal 1999 compared to $25.1 million or 42% of manufacturing
revenues in fiscal 1998. The decrease in the gross margin percentage reflects
higher per unit costs at II-VI's VLOC subsidiary and continued price
sensitivity in the infrared optics and materials market.
Contract research and development gross margin was $395,000 or 28% of
contract research and development revenues in fiscal 1999 compared to $516,000
or 23% of contract research and development revenues in fiscal 1998. II-VI has
decreased the amount of contract research and development projects it
undertakes in an effort to focus on internal research and development projects
and higher margin manufacturing products.
Company-funded internal research and development increased to $2.3 million
in fiscal 1999 from $1.6 million in fiscal 1998. The increased expense is the
result of internally funded projects associated with the development of new
materials to improve and expand product offerings, as well as continued efforts
to improve material growth yields.
Selling, general and administrative expenses were $13.6 million or 22% of
revenues in fiscal 1999 compared to $14.3 million or 23% of revenues in fiscal
1998. The dollar and percentage decreases reflect planned discretionary cost
reductions, decreased expense associated with II-VI's worldwide profit-driven
bonus program and improved utilization of existing personnel and resources.
Other expense, including interest expense, increased to $201,000 in fiscal
1999 from $177,000 in fiscal 1998. Interest expense increased to $415,000 in
fiscal 1999 from $23,000 in fiscal 1998. The primary reasons for the increase
in interest expense are increased borrowings on II-VI's line of credit facility
and the absence of the capitalization of interest during fiscal 1999. During
fiscal 1999, II-VI wrote down certain assets held for sale totaling
approximately $200,000. These expenses were partially offset by the occurrence
of foreign currency gains due to the strengthening of the Japanese Yen against
the U.S. dollar.
The effective corporate income tax rate was 32% in fiscal 1999 compared to
29% in fiscal 1998. The increase in the effective corporate income tax rate was
partially attributable to a change in the level of profit generated by II-VI's
foreign subsidiaries. II-VI's future effective tax rates will continue to be
affected by the level of profit or loss generated by the foreign subsidiaries.
Fiscal 1998 Compared to Fiscal 1997
Net earnings decreased 5% in fiscal 1998 to $6.8 million from $7.1 million
in fiscal 1997. Revenues grew 16% to $61.3 million in fiscal 1998 from $52.7
million last fiscal year. Bookings increased 13% to $64.2 million in fiscal
1998 from $56.7 million in fiscal 1997. Order backlog increased 17% to $19.8
million at June 30, 1998 from $16.9 million at June 30, 1997 as a result of
bookings outpacing shipments in fiscal 1998. Manufacturing orders comprised 93%
of the backlog at June 30, 1998 compared to 83% of backlog at June 30, 1997.
Net earnings decreased 5% in fiscal 1998 to $6.8 million, down from $7.1
million in fiscal 1997. The major contributors to the net earnings decrease
were lower manufacturing gross margins, higher selling, general and
administrative expenses, higher internal research and development expenses and
higher other expenses. Each of these are explained further in this section.
Bookings increased 13% to $64.2 million in fiscal 1998 compared to $56.7
million in fiscal 1997. Manufacturing bookings increased by approximately $9.7
million while contract research and development bookings decreased by
approximately $2.2 million. The largest portion of the growth in manufacturing
orders was due to increased demand for infrared optics and materials in the
international industrial markets, excluding Japan, as well as increased
bookings at II-VI's VLOC subsidiary.
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Revenues grew 16% to $61.3 million in fiscal 1998 compared to $52.7 million
last fiscal year. All of this growth was in manufacturing revenues, offset by a
decrease in contract research and development. Contract research and
development revenues decreased 17% to $2.2 million in fiscal 1998 from $2.7
million in fiscal 1997. II-VI has decreased the amount of contract research and
development projects it undertakes in an effort to focus on internal research
and development projects and higher margin manufacturing products.
Manufacturing gross margin was $25.1 million or 42% of net sales in fiscal
1998 compared to $22.5 million or 45% of net sales in fiscal 1997. The dollar
increase was attributable to higher sales volume, particularly sales of
infrared optics and materials and sales of products from II-VI's VLOC
subsidiary. The decrease in gross margin as a percentage of net sales was the
result of increased per unit manufacturing costs in the eV PRODUCTS division
due to slower-than-expected revenue growth, operating inefficiencies at II-VI's
VLOC subsidiary resulting from its relocation to a new manufacturing facility,
price sensitivity in the infrared optics and material market and the
strengthening of the U.S. dollar against the Japanese Yen.
Contract research and development gross margin was $516,000 or 23% of
contract research and development revenues in fiscal 1998 compared to $707,000
or 27% of contract research and development revenues in fiscal 1997. II-VI has
decreased the amount of contract research and development projects it
undertakes in an effort to focus on internal research and development projects
and higher margin manufacturing products.
II-VI internal research and development increased to $1.6 million in fiscal
1998 from $1.0 million in fiscal 1997. II-VI continues to expand its internal
research and development projects, including nuclear radiation detector
development and infrared optics and materials development.
Selling, general and administrative expenses were $14.3 million or 23% of
revenues in fiscal 1998 compared to $12.7 million or 24% of revenues in fiscal
1997. This dollar increase is attributable to higher general and administrative
expenses needed to support II-VI's growth. The decrease in selling, general and
administrative expenses as a percentage of net revenues reflects improved
utilization of existing personnel and resources to support II-VI's overall
growth.
Other expense, including interest expense, was $177,000 in fiscal 1998
compared to other income of $488,000 in fiscal 1997. The primary reasons for
the increase in other expense are the lower investment earnings on lower cash
balances compared to the previous year and the occurrence of foreign currency
losses due to the strengthening of the U.S. dollar against the Japanese Yen and
the Singapore dollar.
The effective corporate income tax rate was 29% in fiscal 1998 compared to
29% in fiscal 1997.
Market Risks
II-VI is exposed to market risks arising from adverse changes in interest
rates and foreign currency exchange rates. In the normal course of business,
II-VI uses a variety of techniques and instruments as part of its overall risk
management strategy.
In the normal course of business, II-VI enters into foreign currency forward
exchange contracts with its banks. The purpose of these contracts is to hedge
the impact of foreign currency fluctuations on committed or anticipated foreign
currency positions. II-VI monitors its positions and the credit ratings of the
parties to these contracts. While II-VI may be exposed to potential losses due
to credit risk in the event of non-performance by the counterparties to these
financial instruments, it does not anticipate such losses. II-VI entered into a
low interest rate, 237 million Yen loan with PNC Bank in September 1997 in an
effort to minimize the foreign currency exposure in Japan.
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Recently Issued Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
at fair value. This statement is effective for fiscal years beginning after
June 15, 2000. II-VI is currently evaluating the impact that SFAS No. 133 will
have on its financial position and its results of operations.
Other Matters
II-VI experienced no material problems with its information and non-
information systems, or those of its vendors, customers or financial
institutions, as a result of the date change to the year 2000. II-VI continues
to monitor for unexpected issues that could possibly still develop. The year
2000 problem has many aspects and potential consequences, some of which are not
reasonably foreseeable, and there can be no assurance that unforeseen
consequences will not arise.
To date, II-VI has spent approximately $170,000 on the year 2000 issue and
believes that the remaining potential cost related to the year 2000 issue will
be insignificant.
Quarterly Results
The following table presents our unaudited quarterly operating results for
each of the seven quarters ended March 31, 2000, both in dollars and as a
percentage of our total revenue for each quarter. This information has been
derived from our consolidated financial statements. You should not draw any
conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
Three-Months Ended
-----------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- -------- -------- --------- -------- --------
(in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales............. $13,494 $14,811 $15,260 $16,749 $16,122 $16,653 $19,238
Contract research and
development.......... 299 399 278 460 76 221 543
------- ------- ------- ------- ------- ------- -------
Total............... 13,793 15,210 15,538 17,209 16,198 16,874 19,781
Costs and Expenses:
Cost of goods sold.... 8,969 9,077 8,792 9,752 9,228 9,476 10,905
Contract research and
development.......... 235 305 146 355 58 168 410
Internal research and
development.......... 578 574 617 548 623 602 744
Selling, general and
administrative....... 3,007 3,436 3,592 3,528 3,806 4,208 4,933
Other (income)
expense.............. 107 (107) 168 33 13 35 164
------- ------- ------- ------- ------- ------- -------
Earnings before income
taxes.................. 897 1,925 2,223 2,993 2,470 2,385 2,625
Income taxes............ 268 623 725 959 731 715 574
------- ------- ------- ------- ------- ------- -------
Net earnings............ $ 629 $ 1,302 $ 1,498 $ 2,034 $ 1,739 $ 1,670 $ 2,051
======= ======= ======= ======= ======= ======= =======
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
----------------------------------------------------------------
Three-Months Ended
----------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales............. 97.8 97.4 98.2 97.3 99.5 98.7 97.3
Contract research and
development.......... 2.2 2.6 1.8 2.7 0.5 1.3 2.7
---- ---- ---- ---- ---- ---- ----
100 100 100 100 100 100 100
Costs and Expenses:
Cost of goods sold.... 65.0 59.7 56.6 56.7 57.0 56.2 55.1
Contract research and
development.......... 1.7 2.0 0.9 2.0 0.4 1.0 2.1
Internal research and
development.......... 4.2 3.8 4.0 3.2 3.8 3.6 3.8
Selling, general and
administrative....... 21.8 22.5 23.1 20.5 23.5 24.9 24.9
Other (income)
expense.............. 0.8 (0.7) 1.1 0.2 0.1 0.2 0.8
---- ---- ---- ---- ---- ---- ----
Earnings before income
taxes.................. 6.5 12.7 14.3 17.4 15.2 14.1 13.3
Income taxes............ 1.9 4.1 4.7 5.6 4.5 4.2 2.9
---- ---- ---- ---- ---- ---- ----
Net earnings............ 4.6 8.6 9.6 11.8 10.7 9.9 10.4
==== ==== ==== ==== ==== ==== ====
</TABLE>
LASER POWER CORPORATION
General Description of Business
Laser Power designs, manufactures and markets high performance optics for
industrial, medical and military applications. Laser Power also provides thin
film design and coating services to industrial and military customers. Laser
Power's laser optics products are sold to laser system OEMs and end users as
original and replacement components in high power CO\\2\\ and other lasers.
Laser Power's infrared optics products are sold primarily to the U.S.
government and its prime contractors for use in night vision and thermal
imaging and guidance systems.
Laser Power's laser optics customers use high power CO\\2\\ lasers in a
variety of industrial processing applications, such as sheet metal cutting,
automobile body welding, surface hardening for engine components and scribing
and drilling delicate ceramic circuits. Laser Power also sells high performance
laser optics to medical equipment OEMs for lower power CO\\2\\ lasers used in
certain therapeutic and cosmetic procedures, including surgery and skin wrinkle
removal. In addition, Laser Power has developed very low absorption thin film
coatings for laser optics for various government programs.
Laser Power's infrared optics products are primarily windows, window
assemblies and domes. Windows and window assemblies are utilized in thermal
imaging systems that provide night vision, target acquisition and designation
and low altitude navigation capabilities. These systems are installed in
various platforms, including ground vehicles, helicopters and fixed-wing
aircraft. Domes are utilized as a protective cover and infrared filter for
various infrared guided missiles. Missile sizes range from small, man-portable
designs to larger designs mounted on ground vehicles, helicopters and fixed-
wing aircraft.
Laser Power's core competencies in the manufacture of laser optics and
infrared optics lie in its surface finishing processes and thin film coatings,
and in the growth of a key material used in most of its infrared windows. Laser
Power believes that its expertise in these areas provides it with a significant
competitive advantage.
Restructuring Plan
In August 1999 the Board of Directors approved a restructuring plan designed
to focus Laser Power on its core business, the manufacture and sale of high
performance laser and infrared optics and thin film coatings. To
52
<PAGE>
effect the restructuring plan, the Board approved the disposition of the Laser
Power's microlaser manufacturing business and the phase-out or sale of contract
research operations not related to the core business. The impact of the plan to
dispose or phase-out these operations is reported as discontinued operations in
the Consolidated Financial Statements for all periods presented.
On December 16, 1999, Laser Power concluded a transaction selling most of
its microlaser operations to Melles Griot, Inc., a unit of Barlow Scientific
Group Ltd. In exchange for the sale of essentially all of the assets related to
the visible microlaser product line, Laser Power received an initial payment of
approximately $2.0 million. An additional payment was made such that the sum of
the two payments equaled the net book value of the transferred assets. In
addition, the agreement provides for royalty payments on sales of certain laser
products, from October 1, 2000 until September 30, 2003. The maximum amount of
royalty payments is approximately $2.7 million. Royalty payments will be
reported as income from discontinued operations in the period in which they are
earned.
On February 11, 2000, Laser Power sold substantially all the tangible and
intangible assets of its Research Division and the 1550nm microlaser product
line which includes laser-based projection and display techniques and equipment
and other laser-based technologies for $750 thousand and the assumption of
certain lease obligations, to Photera Technologies, Inc. a Florida corporation,
a subsidiary of Schwartz Electro-Optics, Inc.
The assets of Laser Power's inactive 1550nm microlaser product line and the
related contract research operations which will be phased out are stated at
their estimated realizable value on the Consolidated Balance Sheet at September
30, 1999.
Industry and Market Overview
Industrial and Medical Laser Technology. The use of lasers in industrial and
medical applications continues to grow and to expand into new areas. High power
CO\\2\\ lasers are widely used in industrial applications, such as welding
automobile bodies, scribing delicate ceramic circuits and sheet metal cutting.
CO\\2\\ lasers offer greater quality, speed, flexibility and automation than
conventional cutting and welding technologies. Lower power CO\\2\\ lasers are
used in various medical procedures, including surgical, dermatology and
ophthalmology applications. Surgical laser procedures reduce blood loss and
post-operative pain compared to other procedures.
The precision optics which collect, form, reflect and transmit the laser
beam are crucial to a laser's function. In gas lasers, the lasing medium is
encased in a tube with optics at either end. These internal optics may direct
the beam from one tube to another, may turn the beam back on itself to further
energize the lasing medium or may allow part of the beam to exit the tube while
turning the rest of the beam back on itself. In addition to the internal
optics, a number of external optics may be used to deliver the beam for its
intended application. These external optics may include mirrors, beam
splitters, focusing lenses and other special function optics
Infrared Sensor Technology
Infrared sensors are used in a variety of military and aerospace
applications. Fielded systems range from small, personal use devices such as
range finders and night vision goggles to sophisticated airborne and space-
based imaging and targeting systems. As sensor and signal processing
technologies evolve, infrared-based technology is expected to gain wider
acceptance for commercial applications.
Infrared optics are critical to the performance of infrared sensor systems.
The typical infrared sensor system utilizes an optic, which acts as a window to
the environment external to the sensor package, such as a flat window or a
dome, and one or more internal optics. External thin film coatings and surfaces
of windows and domes degrade through exposure to the outside environment, and
where practical, these optics are periodically refurbished or replaced.
Refurbishment and replacement of damaged windows represents an important
component of Laser Power's infrared optics business.
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<PAGE>
Large Aperture Optics
The market for thin film design and coating services for large aperture
optics is expected to increase due to increased U.S. government funding for
development of ground, airborne and space based defensive laser weapon systems.
Although the number of fielded systems is likely to be small, design and
process research before and after fielding of these systems is expected to be a
sustainable market.
High performance thin film coating technology is an enabling technology for
extremely high-energy laser systems. For example, space based systems and
ground based systems with space based optical components might not be feasible
without light weight optics which are dependent on very low absorption thin
film coatings.
Laser Optics Products
Laser Power produces optics, including total reflectors, output couplers,
beam splitters and lenses, for use in high power industrial, medical,
scientific and military lasers. Laser Power's expertise in the area of surface
finishing and, in particular, thin film coatings, is critical to producing high
performance laser optics. In general, the performance of an optic is primarily
dependent on the quality of the thin film coating. Thin film coatings include
various reflective coatings for mirrors and transmissive and partially
transmissive coatings for lenses, beam splitters and output couplers. Laser
Power believes that the high quality of its thin film coatings and its
commitment to customer service enhance its reputation as a supplier of high
power and technically advanced laser optics.
CO\\2\\ Laser Optics
Reliable operation of high power CO\\2\\ lasers requires high quality, low
absorption optics. Laser Power supplies substantially all types of optics used
in CO\\2\\ lasers and laser systems. Such optics fall broadly into two
categories: transmissive and reflective optics.
Zinc selenide is the substrate material of choice for high power CO\\2\\
laser transmissive optics such as lenses, output couplers and beam splitters
because of its low absorption of laser energy. Generally, zinc selenide optics
with low absorption thin film coatings are able to handle up to three kilowatts
of power. As laser power increases to the multi-kilowatt range, reflective
optics replace transmissive optics in certain applications.
Reflective optics (such as folding mirrors, phase shifting mirrors, beam
bending mirrors and focusing mirrors) utilize a highly reflective substrate,
such as copper or silicon. Silicon optics are fabricated by conventional
polishing processes, while copper optics are usually fabricated by single-point
diamond turning, a process which involves cutting by gem quality diamonds to
create a mirror finish. Laser Power is a leader in the use of single-point
diamond turning methods to produce both standard optics and those with
complicated surfaces such as aspheres, parabolas and hyperbolas, which are used
with higher power CO\\2\\ lasers. Laser Power's fabrication and thin film
coating technologies have earned Laser Power a reputation as a leading
manufacturer of laser optics.
Laser Power supplies optics to high power CO\\2\\ laser and laser system
manufacturers and to the aftermarket as replacement parts. Because CO\\2\\
laser optics wear or become contaminated, every new laser installed increases
the market for replacement optics. In order to meet this growing aftermarket
demand, Laser Power provides same day shipment of critical replacement optics
for most high power CO\\2\\ lasers.
Other Laser Optics
In addition to CO\\2\\ laser optics, Laser Power provides optics for a
variety of industrial and military lasers operating at different wavelengths.
54
<PAGE>
Military Products and Services
Laser Power has developed thin film coatings for a variety of optics
utilized in ongoing U.S. government programs. Laser Power has developed very
low absorption thin film coatings for uncooled optics, which are critical to a
space-based laser for defense against long range ballistic missiles. Laser
Power has also developed thin film coatings for use in ground based and
airborne laser defense systems for use against shorter-range missiles.
The technology used to produce coatings for optics for these lasers is
derived from technology used by Laser Power for CO\\2\\ laser optics. Laser
Power believes that participation in these military programs fosters continued
improvement in its optics technology for commercial applications.
During fiscal year 2000, Laser Power expects to complete construction of a
large aperture optic thin film coating facility. When complete, the facility
will enable Laser Power to provide coating services for optics over 80 inches
in diameter. The U.S. government has funded construction of the facility.
Infrared Optics Products
Laser Power produces optics for use in infrared systems for night vision
imaging and navigation applications, principally for use by the U.S.
government. These products include monolithic and segmented windows and window
assemblies, focusing optics and missile domes. In addition, Laser Power
provides thin film design and coating services to customers for military and
commercial infrared applications. Performance of infrared optics is highly
dependent on the durability and optical performance of the thin film coatings
applied to the polished surfaces of the optics. Laser Power believes that the
high quality of its thin film coatings, along with its in-house capability for
growth of germanium substrates and expertise in high-speed fabrication and
polishing provide it with significant competitive advantages.
Germanium Windows
The substrate material utilized in optics for a significant number of
infrared systems is germanium. Depending upon the operating environment,
germanium windows may be heated through a metallic grid applied to the surface
of the optic. Windows manufactured by Laser Power are utilized in a variety of
platforms including the M1 tank and Bradley fighting vehicle, the AH-64 Apache
helicopter, and B-52 and tactical fixed-wing aircraft. Applications include
electronic viewing, night vision, target acquisition and designation, and low
altitude navigation and targeting. Laser Power supplies optics during
production phases of sensor programs, and provides post-production repair,
refurbishment and replacement services. Laser Power believes it is the
principal supplier of heated germanium windows for infrared systems utilized by
the U.S. government.
Other Windows
Laser Power also supplies windows fabricated from materials other than
germanium, such as silicon and zinc sulfide. These products are manufactured
utilizing the same fabrication and thin film coating processes as are germanium
windows. Typically, these products are sold in substantially lower volumes than
germanium windows.
Missile Domes
Laser Power manufactures domes for the U.S. Army's Javelin missile (a
shoulder launched infrared guided anti-tank missile), and is currently in the
development or pre-production phase of other U.S. government missile programs.
Missile domes are mounted on the tip of infrared guided missiles as a
protective cover for the underlying sensor system. These optics are designed to
optimize the performance of the sensor system while accommodating the size and
weight limitations of the missile. The resultant dome shape is difficult to
fabricate in a cost-effective manner utilizing conventional fabrication
techniques. Laser Power has developed
55
<PAGE>
and automated high-speed fabrication and polishing processes, which it
believes, have enabled it to become a leading supplier of missile domes.
Sales and Marketing
As of December 1, 1999, Laser Power employed 19 persons in continuing
operations in sales and marketing at sales offices in the United States and
Belgium. Laser Power promotes its products to OEM and end user customers
through a multi-faceted program which includes trade journal advertising,
catalog distribution, direct mail promotion, field sales presentations,
technical seminars, trade show exhibits and direct telemarketing. Laser Power
sells its products through its direct sales force in the United States and
Belgium and through its distributors in the rest of the world.
Research and Development
Laser Power believes that its future success depends in large part on its
ability to continue to enhance its existing products and manufacturing
processes and to develop new products and processes. As of December 1, 1999,
Laser Power had 14 employees in continuing operations performing research and
development in the United States and Belgium. Laser Power spent $2.4 million
during fiscal year 1999 on research and development. The sources of such funds
included contracts with customers as well as internal Company funds.
Laser Power continuously develops proprietary manufacturing processes for
optics fabrication and polishing to lower costs and provide a more flexible
manufacturing environment. In addition, Laser Power continues to improve thin
film designs and processes under programs funded by Laser Power and certain of
its customers.
The successful completion of process and product development activities and
the implementation of process changes or transition to manufacture and sale of
any resultant products is dependent on a number of factors. These factors
include availability of capital for investment in process improvements,
determination of demand and appropriate product design, length of development
period, development of appropriate manufacturing processes, product performance
and sales and marketing. There can be no assurance that development of process
improvements or new products will be successfully completed, or that new
products developed by Laser Power will be commercially available or achieve
market acceptance.
Manufacturing
Laser Power manufactures high performance optics and provides sophisticated
thin film design and coating services. Some materials are available only from
single suppliers.
Laser Power manufactures optics at its Temecula, California and Mexico
facilities. Thorium fluoride, zinc selenide, zinc sulfide and germanium are
important to the manufacture of optics. Laser Power purchases all of its
thorium fluoride for use in its low absorption thin film coating processes from
Cerac Incorporated ("Cerac"), which Laser Power believes is the sole source for
high quality thorium fluoride. Any interruption or cessation of supply by Cerac
would have a material adverse effect on Laser Power's business, financial
condition and results of operations.
In the case of zinc selenide and zinc sulfide, critical raw materials in a
significant percentage of Laser Power's optics products, Laser Power currently
relies principally on one supplier, the Advanced Materials unit of Rohm and
Hass Company. To date, Laser Power has not experienced any material
difficulties in the quantity or the quality of the zinc selenide and zinc
sulfide delivered. If any such problem arises in the future, Laser Power would
have to seek an alternate supplier. However, there can be no assurance that
Laser Power would be able to secure sufficient inventory of zinc selenide and
zinc sulfide to produce sufficient product to meet its customers' needs. A
transition to alternate arrangements would involve additional costs and delays
in production.
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<PAGE>
Germanium is mined as a byproduct of zinc mining. Germanium and refined
germanium are available through a limited number of suppliers worldwide.
Because of its status as a byproduct, availability of germanium is linked to
the effects of supply and demand for zinc. Germanium also has other uses such
as in solar panels used in space vehicles and satellites and in certain radar
systems. Changes in demand for and supply of germanium have resulted in
significant fluctuations in price in the past. While Laser Power attempts to
structure its contracts to protect it from the effects of price increases,
there can be no assurance that future price increases will not materially
affect the profitability of Laser Power's products which utilize germanium.
The manufacture of optics is capital intensive. Future manufacturing
capacity requirements may require substantial investment in equipment and
facilities. See "Certain Risk Factors Related to Laser Power's Business."
Patents and Proprietary Rights
In general, Laser Power's optics products do not use design technology,
which is patentable. Laser Power has filed a patent application for a thin film
design, which it believes, provides a significant competitive advantage in
certain high power CO\\2\\ laser applications. However, there can be no
assurance that a patent will be issued.
Laser Power has developed certain of its proprietary technology pursuant to
development contracts, including contracts with federal government agencies.
Under standard provisions in government contracts, the government may retain
certain rights in technology developed under such contracts. Laser Power's
strategy is to continue to develop a significant portion of its proprietary
technology pursuant to funding received from development contracts. There can
be no assurance that Laser Power will be able to continue to obtain funding for
the development of its proprietary technology, or that, if received, Laser
Power will obtain rights to such technology sufficient to permit Laser Power to
develop and market new products or to prevent third parties from using such
technology to compete with Laser Power.
In addition to patent protection, Laser Power also relies on copyright
protection, trade secrets, know-how, continuing technological innovation and
licensing opportunities to expand and bolster its competitive position. In an
effort to maintain the confidentiality and ownership of trade secrets and
proprietary information, Laser Power requires employees, consultants and
certain collaborators to execute confidentiality and invention assignment
agreements upon commencement of a relationship with Laser Power. These
agreements are intended to enable Laser Power to protect its proprietary
information by controlling the disclosure and use of technology to which it has
rights and provide for ownership by Laser Power of proprietary technology
developed at Laser Power or with Laser Power's resources. There can be no
assurance, however, that these agreements will provide meaningful protection
for Laser Power's trade secrets or other confidential information in the event
of unauthorized use or disclosure of such information or that adequate remedies
would exist in the event of such unauthorized use or disclosure. The loss or
exposure of trade secrets possessed by Laser Power could have a material
adverse effect on Laser Power's business, financial condition and results of
operations.
Laser Power's academic collaborators have certain rights to publish data and
information in which Laser Power has rights. There is considerable pressure on
academic institutions to publish discoveries in the high technology and physics
fields. There can be no assurance that such publication would not adversely
affect Laser Power's ability to obtain patent protection for certain
technologies in which it may have a commercial interest.
Competition
The industries in which Laser Power sells its products are highly
competitive. Laser Power's competitive position depends upon a number of
factors, including the price and performance of its products, the level of
customer service, the quality of its manufacturing processes, the compatibility
of its products with existing laser and infrared systems and Laser Power's
ability to participate in the growth of emerging technologies. In the laser
optics market, Laser Power primarily competes with II-VI, Coherent, Inc.
("Coherent") and Sumitomo
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Electric Industries, Ltd. II-VI produces its own supply of zinc selenide. Laser
Power uses zinc selenide as the substrate for 40% to 50% of the CO\\2\\ laser
optics sold by Laser Power and purchases this raw material from the Advanced
Materials unit of Rohm and Haas Corporation. In the infrared optics market,
Laser Power primarily competes with in-house optical fabrication and thin film
coating capabilities of major prime contractors, such as Raytheon Corporation.
Environmental, Health and Safety Matters
Laser Power uses or generates certain hazardous substances in its research
and manufacturing facilities. Laser Power believes that its handling and
disposal of such substances is in material compliance with applicable local,
state and federal environmental, safety and health regulations at each
operating location. Laser Power invests substantially in proper protective
equipment, process controls and specialized training to minimize risks to
employees, surrounding communities and the environment due to the presence and
handling of such hazardous substances. Laser Power conducts monthly workplace
monitoring regarding such substances. When exposure problems or potential
problems have been indicated, corrective actions have been implemented and re-
occurrence has been minimal or non-existent. Laser Power does not carry
environmental impairment insurance.
Laser Power uses a low-level radioactive material called thorium fluoride to
manufacture low absorption thin film coatings. The use, storage and disposal of
this material is governed by the State of California which last inspected and
licensed Laser Power's facilities and procedures in February 1996. All thorium
fluoride-bearing by-products are collected and disposed of at an appropriately
licensed facility.
The generation, use, collection, storage and disposal of all other hazardous
by-products resulting from Laser Power's manufacturing of its products and
research and development of new products, such as suspended solids containing
heavy metals or airborne particulates, are believed by Laser Power to be in
material compliance with local, state and federal regulations. Laser Power
believes that it possesses all of the permits and licenses required for
operation. Although Laser Power is not aware of any material environmental,
safety and health problems in its properties or processes, there can be no
assurance that problems will not develop in the future which would have a
material adverse effect on Laser Power.
Backlog
With the exception of contracts with the U.S. government and its prime
contractors, most customer orders for optics are from stock or for deliveries
within one to two months. Backlog of optics was $13.0 million at September 30,
1999, consisting primarily of backlog for infrared optics. Backlog of research
contracts fluctuates based on the timing of contract awards and was $700,000 at
September 30, 1999.
Employees
As of December 1, 1999, in continuing operations Laser Power had 207 full
time and 3 part time employees in the United States and 37 full time employees
in its foreign subsidiaries, and 27 full time employees in discontinued
operations in the United States. Of Laser Power's employees in continuing
operations, in the United States 14 were engaged in marketing, sales and
related customer-support services, 12 in research and development and 184 in
operations, administration and finance. None of Laser Power's employees is
represented by a labor union or covered by a collective bargaining agreement.
Laser Power has not experienced any work stoppages and considers its relations
with its employees to be good.
Executive Officers of Laser Power
The executive officers of Laser Power are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
James Martinelli 42 Chairman and Chief Executive
Officer
Bernard Brady 42 Chief Financial Officer,
Treasurer and Secretary
</TABLE>
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James Martinelli, Chairman, Chief Executive Officer and a director of Laser
Power since August 2000. Mr. Martinelli has been employed by II-VI since 1986
and has served as Chief Financial Officer and Assistant Secretary since May of
1994. Mr. Martinelli joined II-VI as Accounting Manager and was named
Controller in 1990. He held the office of Treasurer from May 1994 to August
2000. Prior to his employment by II-VI, Mr. Martinelli was Accounting Manager
at Tippins Incorporated and Pennsylvania Engineering Corporation from 1980 to
1985. Mr. Martinelli graduated from Indiana University of Pennsylvania in 1980
with a B.S. degree in Accounting and is a member of the Pennsylvania Institute
of Certified Public Accountants.
Bernard Brady, Chief Financial Officer, Vice President, Secretary and
Treasurer since April 2000. During 1999, Mr. Brady served as Chief Financial
Officer of DP Applications, Inc., a software company engaged in the production
and sale of Data Warehouse software. From 1995 through 1999, Mr. Brady served
as Vice President and Controller of EMI and controller of its wholly owned
subsidiary, Exotic Materials, Inc., a subsidiary of Laser Power and as Director
of Planning for Laser Power Corporation. Mr. Brady received an MBA from the
University of Utah.
Certain Risk Factors Related to Laser Power's Business
Laser Power's business and results of operations are subject to other risks,
including the following risk factors:
History of Operating Losses and Accumulated Deficit. Laser Power has
incurred operating losses in the past and, at September 30, 1999, had an
accumulated deficit of $9.6 million. The development, sales, marketing and
support of new products will require continued substantial expenditures for the
foreseeable future, which could result in additional operating losses. Laser
Power has funded a substantial portion of its product development efforts
through development contracts. Any failure by Laser Power to maintain its
external funding sources could result in increased operating losses. There can
be no assurance that Laser Power will maintain its external funding sources or
be profitable in the future or that present capital and any funds provided by
operations will be sufficient to fund Laser Power's future capital
requirements.
Competition. In each of the markets that Laser Power serves, Laser Power
faces competition from established companies, many of which have substantially
greater financial, engineering, research, development, manufacturing, sales,
marketing, service and support resources, including greater name recognition, a
larger installed base of products and long-standing customer relationships. In
addition, some of Laser Power's competitors are customers of Laser Power, which
might have the ability to perform or obtain the capability to perform projects,
which are presently being performed for them by Laser Power. There can be no
assurance that Laser Power will be able to maintain Laser Power's existing
contracts or obtain additional contracts for projects at favorable rates, that
Laser Power will be able to make the technological advances necessary to
maintain its competitive position or that its new products will receive market
acceptance. In addition, there can be no assurance that technological changes
or development efforts by Laser Power's competitors will not render Laser
Power's products or technologies obsolete or uncompetitive.
Dependence on New Products and Processes. To meet its strategic objectives,
Laser Power must continue to develop, manufacture and market new products,
develop new processes and improve its existing processes. As a result, Laser
Power expects to continue to make investments in research and development and
to consider from time to time the strategic acquisition of businesses,
products, or technologies complementary to Laser Power's business. The success
of Laser Power in developing, introducing and selling new and enhanced products
depends upon a variety of factors, including product selection, timely and
efficient completion of product design and development, timely and efficient
implementation of manufacturing and assembly processes, effective sales and
marketing and product performance in the field. There can be no assurance that
Laser Power will be able to develop and introduce new products or enhancements
to its existing products and processes in a manner that satisfies customer
needs or achieves market acceptance. The failure to do so would have a material
adverse effect on Laser Power's business, financial condition and results of
operations.
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Future Capital Requirements. Although Laser Power believes that its existing
cash balances and available lines of credit will be sufficient to meet its
capital requirements for at least the next 12 months, Laser Power may seek
additional equity or debt financing to compete effectively in the markets it
serves. The timing and amount of Laser Power's capital requirements cannot be
precisely determined at this time and will depend on a number of factors,
including the demand for Laser Power's products and products under development.
There can be no assurance that such additional financing will be available when
needed, or, if available, will be on terms satisfactory to Laser Power. If
additional funds are raised by issuing equity securities, further dilution to
the then existing stockholders will result.
Fluctuation in Quarterly Performance. Laser Power has experienced and
expects to continue to experience significant fluctuations in its quarterly
results. Laser Power may incur significant losses in the future due to product
design, development, manufacturing and marketing expenditures. If significant
variations were to occur between forecasts and actual orders, Laser Power may
not be able to reduce its expenses proportionately and in a timely manner, and
operating results could be adversely affected. In addition, Laser Power's
ability to fill orders in a timely and responsive manner is dependent upon
maintaining adequate manufacturing capacity and significant inventories of raw
material and finished optics for replacement orders. Laser Power has
experienced capacity constraints in the past which have resulted in delays in
order fulfillment and reduced gross margins. Future delays in order fulfillment
could lead to declines in product sales. If product sales or prices were to
decline substantially, inventory writedowns could occur. Price reductions or
increases in material costs could also have an adverse effect on Laser Power's
business, financial condition and results of operations.
Exposure to Government Markets. Product sales to customers in the defense
industry accounted for 54% of product sales from continuing operations in the
fiscal year ended September 30, 1999. These customers in turn generally
contract with a governmental entity, typically the U.S. government. In
addition, essentially all of Laser Power's contract research and development
revenues were derived from contracts with customers in the defense industry.
Many times, governmental programs are subject to funding approval and can be
modified or terminated with no warning upon the determination of a legislative
or administrative body. The loss or failure to obtain certain contracts could
have a material adverse effect on Laser Power's business, financial condition
and operating results. In addition, the loss of a major government customer or
any significant reduction or delay in orders by such customer, could have a
material adverse effect on Laser Power's business, financial condition and
operating results.
Exposure to Major Customer. Approximately 31% of Laser Power's sales from
continuing operations in the fiscal year ended September 30, 1999, were derived
from net sales to Lockheed Martin Corporation. The loss of this major customer,
or any significant reduction or delay in orders by such customer, would have a
material adverse effect on Laser Power's business, financial condition and
operating results.
Risks Associated With International Sales. International sales accounted for
approximately 25% of Laser Power's total revenues from continuing operations in
the fiscal year ended September 30, 1999, and Laser Power expects that
international sales will continue to account for a substantial portion of total
revenues. Laser Power may continue to expand its operations outside of the
United States and to enter additional international markets, both of which will
require significant management attention and financial resources. International
sales are subject to inherent risks, including unexpected changes in regulatory
requirements, tariffs and other trade barriers, political and economic
instability in foreign markets, difficulties in staffing and management and
integration of foreign operations, longer payment cycles, greater difficulty in
accounts receivable collection, currency fluctuations and potentially adverse
tax consequences. Since substantially all of Laser Power's foreign sales are
denominated in U.S. dollars, Laser Power's products may also become less price
competitive in countries in which local currencies decline in value relative to
the U.S. dollar. Laser Power's business and operating results may also be
materially and adversely affected by lower sales levels, which typically occur
during the summer months and the calendar year end in Europe and certain other
overseas markets. The sales of many of Laser Power's OEM customers are
dependent on international sales, which increases Laser Power's exposure to the
risks associated with international sales.
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Environmental, Health and Safety Concerns. Laser Power is subject to a
variety of federal, state and local governmental regulations related to the
storage, use and disposal of hazardous materials used by Laser Power in
connection with the manufacture of optics. Both the governmental regulations
and the costs associated with complying with such regulations are subject to
change in the future. There can be no assurance that any such change will not
have a material adverse effect on Laser Power's business, financial condition
and results of operations. Laser Power makes investments in protective
equipment, and continually reviews and monitors process controls, manufacturing
procedures and training to minimize the risks to employees, surrounding
communities and the environment due to the presence and handling of such
hazardous materials. The failure to properly handle such materials could lead
to harmful exposure to employees or to the improper discharge of hazardous
materials. Since Laser Power does not carry environmental impairment insurance,
such a failure could result in a material adverse effect on Laser Power's
business, financial condition and results of operations.
Volatility of Stock Price. Until 1997, there had been no public market for
the common stock, and there can be no assurance that an active public market
for the common stock will develop or be sustained. The trading price of the
common stock could be subject to significant fluctuations in response to
variations in quarterly operating results, the gain or loss of significant
orders, changes in earning estimates by analysts, announcements of
technological innovations or new products by Laser Power or its competitors,
general conditions in the optics and laser industries and other events or
factors. In addition, the stock market in general has experienced extreme price
and volume fluctuations that have affected the market price for many companies
in industries similar or related to that of Laser Power and that have been
unrelated to the operating performance of those companies. These market
fluctuations may materially and adversely affect the market price of the common
stock.
Properties
Laser Power leases a 60,000 square foot facility in Temecula, California and
uses the facility as its principal manufacturing facility and headquarters. The
Temecula lease agreement provides an initial term expiring in June 2007. In
addition to the initial lease term, the lease provides for two additional five-
year terms exercisable at Laser Power's option. Laser Power has an option to
purchase the Temecula facility at its fair market value at the time the option
is exercised.
Laser Power also leases facilities in Tijuana, Mexico and Gent, Belgium,
consisting of approximately 4,600 and 3,900 square feet, respectively. The
lease on the Mexico facility expires in September 2000, and the lease on the
Belgium facility expires in December 2000.
Laser Power leases a 44,000 square foot facility in San Diego, California,
formerly used for its headquarters and certain discontinued operations. This
facility is leased through December 31, 2001 and may be purchased pursuant to
an option that may be exercised at the expiration of the lease with a purchase
price equal to the prevailing market value of the property. As of July 1, 2000
this facility has been subleased to unrelated parties under terms which provide
for rental periods expiring concurrently with Laser Power's master lease, and
at rates which in the aggregate are less than the total cost to Laser Power.
The estimated loss was expensed in the fiscal year ended September 30, 1998.
Laser Power believes that its leased properties are adequately covered by
insurance. Laser Power believes that its facilities are adequate for its
current and projected needs and that additional space will be available as
needed.
Legal Proceedings
In October 1999, Laser Power and certain directors of Laser Power were sued
by Kathy and George Roelofsen, Jonathan Bryrum, and Cheryl Roelofsen, in the
Delaware Chancery Court (ROELOFSEN ET AL. VS KLIMASEWSKI ET AL, Del. Ch. C.A.
No. 17450NC). This matter which, purported breaches of fiduciary
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duty in connection with Laser Power's rejection of an acquisition proposal
during September 1999, has been dismissed by the plaintiffs without prejudice.
Other than the legal fees and expenses paid by the Company in the defense of
this matter, the claim did not result in any financial liability to the Company
and no settlement or other accommodation was paid to the plaintiffs.
On June 13, 2000, a complaint naming Laser Power Corporation and certain
current and former directors of the company as defendants was served on the
Corporation. The complaint seeks to assert a breach of fiduciary duty claim,
and requests class action relief. It is styled C. Oliver Burt, III v. Laser
Power Corp., et al., Case No GIC 749273 (San Diego Superior Court). This
litigation is in its early stages, however, Laser Power believes that the
claims are without merit and intends to defend itself vigorously. However,
there can be no assurance that Laser Power will prevail in these proceedings or
that an outcome unfavorable to Laser Power in these proceedings will not
materially adversely affect Laser Power's business, financial condition or
results of operations. Laser Power had previously entered into indemnification
contracts with each of its officers and directors, including the directors who
were named defendants in the complaint. As a result, Laser Power is paying the
expenses of the directors in defending themselves in this matter subject to
reimbursement under its insurance policies. Subject to certain limited
exceptions, Laser Power will reimburse the directors for any monetary damages
assessed against the individual directors that are not covered by Laser Power's
insurance policies. In addition, the conduct of litigation can be time-
consuming and costly. There can be no assurance that these factors will not
materially adversely affect Laser Power's business, financial condition or
results of operations.
Financial Statements
The consolidated financial statements for Laser Power are included in a
separate section of this registration statement beginning at page F-1.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations for the Nine-Months Ended July 2, 2000 and June 28, 1999
Revenues
For the nine months ended July 2, 2000 revenues were $24,420,000 compared to
$24,953,000 for the prior year, a decrease of $533,000 or 2%. The decrease is
principally related to reduced activity in a thin film coating contract.
Gross Profit
For the nine months ended July 2, 2000, gross profits were $6,333,000, or
25.9% of revenues; compared to $6,730,000, or 27.0% of revenues, a decrease of
$397,000 or 2% of revenue. The decline in gross profit as a percent of revenues
during the nine months ended July 2, 2000 compared to the prior year is due to
an activity reduction in the thin-film coating contract and a shift in infra-
red product mix.
Internal Research and Development Expense
For the nine months ended July 2, 2000, expenses were $839,000 compared to
$373,000 for the prior year. The increase was due to substantial increases in
laser optic manufacturing process development. Laser Power expects that
internal research and development expense will remain at or below current
levels for the remainder of the fiscal year.
Selling, General and Administrative Expense
For the nine months ended July 2, 2000, expenses were $3,628,000 compared to
$5,011,000 for the prior year, a decrease of $1,383,000 or 28%. The decrease
was due to a reduction in administrative staff and other non-staff expenses,
elimination of Laser Power's Del Mar, California facility and efficiencies from
Laser Power's strategic focus on its Precision Optics business. Selling,
general and administrative expense is not expected to materially change as a
percentage of sales in the near term.
Interest Expense
For the nine months ending July 2, 2000 interest expense was $330,000
compared to $241,000 for the prior year an increase of $89,000. The increase
was due to the allocation of interest to discontinued operations and the
acceleration of $90,000 of interest in connection with the early retirement of
the convertible subordinated debentures. Laser Power does not expect interest
expense to change materially in the near term since the reduction in interest
resulting from the application of proceeds will be offset by higher interest
rates on its floating rate debt and interest on new borrowings to finance
capital additions.
Termination Fee and Related Merger Costs
During the nine months ended July 2, 2000 Laser Power incurred $2,221,000 in
costs associated with the pending merger transaction with II-VI. Included in
these costs are legal and professional service fees and a $2,000,000 breakup
fee paid Union Miniere in connection with terminating a merger agreement in
favor of a superior proposal by II-VI.
Income Taxes
Except for alternate minimum taxes, US federal income taxes are not material
due to the application of tax loss carry forwards in the current year and net
losses in prior years. The availability of US federal tax loss carry forwards
for any specific future period may be limited by the application of the rules
relating to change of ownership. Laser Power has utilized its state and foreign
tax loss carry forwards and is now providing for
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such taxes. Previously, Laser Power's effective tax rate has been reduced by
the utilization of federal, state and foreign net operating loss carry
forwards.
Liquidity and Capital Resources
In November 1999, Laser Power entered into a credit agreement with Wells
Fargo Bank. The credit agreement expires in November 2002, is secured by
substantially all Laser Power assets, and provides a $4 million working capital
line of credit, subject to a borrowing base, a $1.95 million term loan
amortized over 5 years and a capital equipment financing facility. The amount
due under the working capital line is classified as long-term debt in the
Condensed Consolidated Balance Sheet. Laser Power utilized term loan proceeds
and an initial draw on the working capital line to retire debt under a prior
credit agreement. The credit agreement provided a 0.5% interest rate reduction
on the working capital line and term loan, after the net proceeds from the sale
of discontinued operations exceeds $2,000,000. Laser Power received the rate
reduction April 1, 2000.
Cash provided by continuing operations was $379,000 for the nine months
ended July 2, 2000, compared to a use of $1,498,000, or the prior year, a
$1,877,000 source of cash created by profit improvement and decreases in
inventory offset by additional accounts receivable, reductions in current
liabilities and merger costs.
Cash used in investing activities of continuing operations was $1,730,000
for the nine months ended July 2, 2000 compared to $1,832,000 for the prior
year, a decrease of $102,000. Laser Power has made substantial investments in
property and equipment for its manufacturing operations and plans to continue
investing in property and equipment for the balance of the fiscal year.
Cash used by financing activities was $964,000 for the nine months ended
July 2, 2000 compared to cash provided of $806,000 for the prior year, a
decrease of $1,770,000. During the nine months ended July 2, 2000, Laser Power
received $3,069,000 from the exercise of warrants and common stock options.
Laser Power used proceeds from the issuance of stock and cash received from the
sale of discontinued operations to repay borrowings and to fund capital
expenditures.
Laser Power believes that its current cash balance together with other
sources of liquidity are adequate to satisfy its cash requirements for at least
the next 12 months. Laser Power's current credit agreement limits its
investment in capital equipment and debt financing from other sources.
Fiscal Year Ended September 30, 1999 Compared to the Fiscal Year Ended
September 30, 1998
Revenues. For the fiscal year ended September 30, 1999, product sales were
$31.3 million compared to $30.0 million for fiscal 1998, an increase of $1.3
million or 4%. Contract research and development revenues were $2.7 million for
fiscal 1999 compared to $81,000 for fiscal 1998, an increase of $2.6 million.
The increase in product sales was due primarily to increased shipments of
infrared optics on long-term production contracts, partially offset by reduced
shipments of laser optics. Laser optics orders decreased due to delivery delays
resulting from relocation of the laser optic product line to Laser Power's
Temecula, California facility, and increased competition. The increase in
contract research and development revenues was due to a significant
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subcontract to design and construct a large aperture optic thin film coating
facility at the Temecula location, for which there were no revenues in fiscal
1998.
Laser Power's ability to increase product sales for fiscal 2000 is dependent
on successful consolidation of optics operations, increased manufacturing
capacity for anticipated customer requirements for infrared optics, and
recovery of laser optics market share. Contract research and development
revenues are expected to decrease due to a shift in focus from facility
construction to thin film coating process development.
Gross Profit. Gross profit on product sales was $8.2 million in fiscal 1999
compared to $7.9 million in fiscal 1999, an increase of $300,000 or 4%. Gross
profit on research and development revenues was $912,000 in fiscal 1999
compared to a gross loss of $158,000 in fiscal 1998. Gross margin on product
sales was 26% in fiscal 1999 and fiscal 1998. Increased gross margins due to a
product mix shift to infrared optics was offset by the negative impact on gross
margin of laser optic manufacturing inefficiencies related to the relocation to
Temecula. Gross margin on contract research and development revenues was 33% in
fiscal 1999. Losses on fixed price contracts experienced in fiscal 1998 did not
recur in fiscal 1999.
Internal Research and Development Expense. Internal research and development
expense was $620,000 in fiscal 1999 compared to $870,000 in fiscal 1998, a
decrease of $250,000 or 29%. The decrease was due to a change in focus in
development activities from new product development to process improvement,
which is primarily accounted for in cost of sales. As a percentage of sales,
Laser Power does not expect internal research and development expense to
increase significantly in the near term. In the long term, increases and
decreases as a percentage of sales are less predictable and depend on a number
of factors, including Laser Power's ability to obtain contract funding for
development of key technologies.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $6.5 million in fiscal 1999 and fiscal 1998. A
reduction in corporate administrative expense was offset by an increase in
operating unit selling and administrative expenses. Laser Power anticipates
that these expenses will continue to increase to enable the sales and marketing
activities and information systems infrastructure necessary to support Laser
Power's long-term growth objectives. However, as a percentage of sales, these
expenses are expected to remain constant or increase moderately.
Interest Expense. Net interest expense was $342,000 in fiscal 1999 compared
to $187,000 in fiscal 1998, an increase of $155,000 or 83%. The increase was
due primarily to higher average borrowings during fiscal 1999 resulting from
capital and other expenditures related to consolidation of optics operations
and use of cash to fund discontinued operations. Future increase or decrease in
interest expense will depend in part on the time required to dispose of
discontinued operations and the timing of proceeds from disposal.
Income Taxes. Income taxes were $11,000 in fiscal 1999 compared to $249,000
in fiscal 1998, a decrease of $238,000 or 96%. The tax provision in 1998 was
due to taxable income of EMI for the period prior to the merger of EMI and
Laser Power. Laser Power has substantial federal and state tax operating loss
carryforwards available for future periods. The availability of these
carryforwards may be limited by the application of rules relating to a change
in control as a result of the merger with EMI and the completion of Laser
Power's initial public offering of Common Stock in August 1997.
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended August 31,
1997
Revenues. For the fiscal year ended September 30, 1998, product sales were
$30.0 million compared to $29.1 million for fiscal 1997, an increase of $.9
million or 3%. Contract research and development revenues were $81,000 for
fiscal 1998 compared to $623,000 for fiscal 1997, a decrease of $542,000 or
87%. The increase in product sales was due primarily to shipments of infrared
optics on long-term production contracts. The decrease in contract research and
development revenues was primarily due to a reduction in commercial laser and
optics technology development contracts.
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Gross Profit. Gross profit on product sales was $7.9 million in fiscal 1998
compared to $9.7 million in fiscal 1997, a decrease of $1.8 million or 19%.
Gross loss on research and development revenues was $158,000 in fiscal 1998
compared to a gross profit of $204,000 in fiscal 1997, a decrease of $.4
million. Gross margin on product sales was 26% in fiscal 1998 compared to 33%
in fiscal 1997. The decrease in gross margin was primarily due to manufacturing
inefficiencies and reduced selling prices in the laser optics product line. A
gross loss was experienced on contract research and development revenues in
fiscal 1998 due to costs incurred to complete a fixed price development
contract.
Internal Research and Development Expense. Internal research and development
expense was $870,000 in fiscal 1998 and $916,000 in fiscal 1997.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $6.5 million in fiscal 1998 compared to $5.8 million
in fiscal 1997, an increase of $.7 million or 12%. The increase was due to the
increased expense of being a publicly held company after Laser Power's IPO in
June 1997.
Interest Expense. Net interest expense was $187,000 in fiscal 1998 compared
to $254,000 in fiscal 1997, a decrease of $68,000 or 27%. The decrease was due
primarily to income from investment of the net proceeds of Laser Power's
initial public offering, partially offset by increased borrowings for capital
investments.
Income Taxes. Income taxes were $249,000 in fiscal 1998 compared to $185,000
in fiscal 1997, an increase of $64,000 or 35%. The increase was due to
increased taxable income of EMI prior to its merger with Laser Power. Laser
Power's effective tax rate in fiscal 1997 was reduced substantially by the
utilization of federal and state tax net operating loss carryforwards.
Liquidity and Capital Resources. Laser Power completed its initial public
offering in August 1997, raising approximately $8.1 million, net of offering
costs. Prior to the public offering, Laser Power satisfied its liquidity
requirements primarily from cash generated from operating activities and the
net proceeds of private sales of preferred and common stock and, to a lesser
extent, from issuance of subordinated debentures and capital equipment leasing
and bank debt.
In November 1999, Laser Power entered into a credit agreement with a unit of
Wells Fargo Bank. The new credit agreement provides for a $4 million working
capital line of credit, subject to a borrowing base, and a $1.95 million term
loan to be amortized over 5 years. Laser Power utilized the proceeds of the
term loan and an initial draw on the working capital line to retire its debt to
Wells Fargo Bank under a prior credit agreement. The new credit agreement also
provides for a capital equipment financing facility, and for a reduction in
interest rates in the event that the net proceeds of the sale of its
discontinued operations exceeds $2,000,000. The credit agreement expires in
November 2002. The amount due under the working capital line is classified as
long-term debt in the Consolidated Balance Sheet at September 30, 1999, and is
secured by substantially all of the assets of Laser Power.
Cash provided by operating activities of continuing operations was $2.7
million in fiscal 1999 compared to cash used of $454,000 in fiscal 1998 and
cash provided of $2.8 million in 1997. The primary reasons for the use of cash
in 1998 were expenses related to the merger with EMI and subsequent integration
activities, and the restriction of $1 million in cash in connection with
renewal of a bank credit agreement. Laser Power's new credit agreement does not
provide for a restriction on cash.
Cash used in investing activities of continuing operations was $2.2 million
in fiscal 1999 compared to $2.9 million and $3.0 million in fiscal 1998 and
1997, respectively. The decrease in 1999 is due to reduced requirements for
plant expansion and process automation investments. Laser Power expects capital
equipment investment to be lower in the near term.
Cash used in financing activities of continuing operations was $391,000 in
fiscal 1999 compared to cash provided of $1.9 million and $8.6 million for
fiscal 1998 and 1997, respectively. Cash usage in 1999 was
66
<PAGE>
primarily the net reduction of debt. For fiscal 1998, the primary sources of
financing were bank borrowings and exercise of stock options. For fiscal 1997,
the primary source of financing was the public offering. Laser Power had $1.7
million outstanding on its line of credit under its new credit agreement at
December 1, 1999.
Laser Power believes that its current cash balance together with other
sources of liquidity will satisfy its cash requirements for at least the next
twelve months.
Year 2000
Many older computer software programs refer to years in terms of their last
two digits only. Such programs may interpret the year 2000 to mean the year
1900 instead. If not corrected, these programs could cause date-related
transaction failures. This problem is often referred to as the "Year 2000"
issue.
Laser Power recognizes the need to ensure that the Year 2000 issue will not
impact its operations. Laser Power does not believe that it has an exposure to
the Year 2000 issue with respect to its own products. As of December 1, 1999,
Laser Power determined that all of its 215 critical systems are Year 2000
ready. Laser Power also contacted critical suppliers and customers to determine
the status of their Year 2000 readiness programs. Laser Power has requested
that each critical supplier and customer provide information with respect to
their efforts to address the Year 2000 issue. Based primarily on reliance on
representations and certifications provided by these vendors and customers,
Laser Power has not identified any material customer or vendor exposure to the
Y2K issue.
To date, Laser Power's expenditures on such corrective actions and surveys
have not been material and Laser Power does not expect to incur material costs
in the future related to addressing the Year 2000 issue. Laser Power does not
have the financial resources to maintain higher than normal levels of inventory
and to take other actions to insulate itself from disruption to its suppliers
and customers caused by their failure to achieve Year 2000 compliance. Although
Laser Power does not believe that it has an exposure to the Year 2000 issue
with respect to its own products, there can be no assurance that failure of
software upgrades and fixes provided to it by third parties for microprocessor
software which supports critical operations, or that failure of its critical
suppliers and customers to adequately address the Year 2000 issue in a timely
fashion, will not result in a material adverse effect on Laser Power's
business, financial condition or operating results.
Quantitative and Qualitative Disclosures About Market Risk
Laser Power's market risk disclosures are not material and are therefore not
required.
Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure
Laser Power has not experienced any changes in or disagreements with
accountants on accounting or financial disclosure that are required to be
reported.
INTERESTS OF CERTAIN PERSONS
The information contained in the Information Statement attached as Exhibit 3
to the Schedule 14D-9 of Laser Power dated July 13, 2000, as amended, is
incorporated herein by reference. Each material agreement, arrangement or
understanding and any actual or potential conflict of interest between Laser
Power and its affiliates, or between Laser Power or its affiliates and II-VI or
II-VI Acquisition or their respective executive officers, directors or
affiliates, is either incorporated herein by reference or set forth below.
Stock Options
The merger agreement provides that each option that either has an exercise
price greater than the merger consideration or is not vested and exercisable as
of the time the merger becomes effective will be canceled. The
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<PAGE>
merger agreement provides that immediately prior to the time the merger becomes
effective, all other outstanding options that are vested and exercisable will
be canceled and the holders will receive a cash payment from Laser Power. The
cash payment will be equal to the product of: (i) the total number of shares
previously subject to such option; and (ii) the excess of (A) the merger
consideration that would be paid with respect to each share of company common
stock subject to such option over (B) the exercise price per share of company
common stock subject to such option.
SUPPLEMENTARY FINANCIAL INFORMATION
Supplementary financial information for Laser Power for each full quarter
within the two most recent fiscal years is contained in the notes to the Laser
Power Corporation Consolidated Financial Statements attached to this
information statement/prospectus.
COMPARATIVE STOCK PRICES AND DIVIDENDS
Market Price and Dividend History
II-VI common stock is listed and traded on the Nasdaq National Market and is
quoted under the symbol "IIVI". On June 30, 2000, there were approximately 800
holders of record of II-VI common stock.
Laser Power common stock, including the associated preferred stock purchase
rights, is listed and traded on the Nasdaq National Market and is quoted under
the symbol "LPWR." Laser Power common stock was first traded on June 19, 1997
on the Nasdaq National Market under the symbol LPWR. On July 11, 2000, there
were approximately 3,000 beneficial holders of record of Laser Power common
stock. This number does not reflect the number of beneficial holders of Laser
Power's common stock, which Laser Power believes to be in excess of 800
holders.
On June 18, 1997, Laser Power's Form SB-2 registration statement (File no.
333-24421) was declared effective by the Securities and Exchange Commission.
The registration statement, as amended, covered the offering of 1,650,000
shares of Laser Power's common stock, $.001 par value. The offering commenced
on June 19, 1997 and the sale to the public of 1,650,000 shares of common stock
at $5.50 per share was completed on June 24, 1997 for an aggregate price of
$9,075,000. The registration statement covered an additional 247,500 shares of
common stock that the underwriters had the option to purchase solely to cover
over-allotments. The managing underwriters for the offering were Cruttenden
Roth Incorporated and L.H. Friend, Weinress, Frankson & Presson, Inc. On August
6, 1997, the underwriters exercised their option to purchase all 247,500
additional shares of common stock. A total of 1,897,500 shares of common stock
were sold in the offering at an aggregate price of $10,436,250. All of the
shares sold in the offering were sold by Laser Power.
Expenses incurred by Laser Power through September 30, 1999 in connection
with the issuance and distribution of common stock in the offering included
underwriting discounts, commissions and allowances of $965,353 and other
expenses of $1,365,566. Total offering expenses of $2,330,919 resulted in net
offering proceeds to Laser Power of $8,105,331. No expenses were paid to
directors, officers or affiliates of Laser Power or 10% owners of any class of
equity securities of Laser Power.
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<PAGE>
The following table sets forth, for the periods indicated, the high and low
sale prices of II-VI common stock as reported on the Nasdaq National Market,
along with the quarterly cash dividends per share.
<TABLE>
<CAPTION>
II-VI Common
Sales Price
--------------------------
High Low Dividends
------- -------- ---------
<S> <C> <C> <C>
Fiscal Year Ended June 30, 1998
First Quarter...................................... 28 21 3/8 0
Second Quarter..................................... 28 1/2 21 0
Third Quarter...................................... 23 3/4 17 15/16 0
Fourth Quarter..................................... 20 1/2 12 5/8 0
Fiscal Year Ended June 30, 1999
First Quarter...................................... 14 1/4 7 1/4 0
Second Quarter..................................... 9 5 7/8 0
Third Quarter...................................... 10 3/16 7 1/4 0
Fourth Quarter..................................... 9 1/2 7 1/4 0
Fiscal Year Ended June 30, 2000
First Quarter...................................... 14 3/4 9 11/16 0
Second Quarter..................................... 22 10 3/4 0
Third Quarter...................................... 71 1/2 18 5/8 0
Fourth Quarter..................................... 53 1/2 29 7/8 0
Fiscal Year Ended June 30, 2001
First Quarter (through August 24, 2000)............ 51 1/2 26 5/8 0
</TABLE>
The following table sets forth, for the periods indicated, the high and low
sale prices of Laser Power common stock as reported on the Nasdaq National
Market, along with the quarterly cash dividends per share.
<TABLE>
<CAPTION>
Laser Power Common
Sales Price
--------------------------
High Low Dividends
-------- ------- ---------
<S> <C> <C> <C>
Fiscal Year Ended September 30, 1998
First Quarter...................................... 9 3/4 5 3/8 0
Second Quarter..................................... 8 7/8 4 5/16 0
Third Quarter...................................... 5 5/32 3 1/8 0
Fourth Quarter..................................... 4 1/2 1 1/8 0
Fiscal Year Ended September 30, 1999
First Quarter...................................... 2 5/8 1 0
Second Quarter..................................... 1 17/32 1/2 0
Third Quarter...................................... 1 1/16 17/32 0
Fourth Quarter..................................... 3 1/8 3/4 0
Fiscal Year Ended September 30, 2000
First Quarter...................................... 3 2 1/8 0
Second Quarter..................................... 11 13/16 2 3/4 0
Third Quarter...................................... 6 3/4 1 13/16 0
Fourth Quarter
(through August 24, 2000)......................... 5 3/8 4 1/4 0
</TABLE>
The information set forth in the table above presents the closing sale
prices of II-VI common stock and Laser Power common stock as quoted on the
Nasdaq National Market. On June 27, 2000, the last trading day prior to the
announcement of the execution of the merger agreement, the last sales price of
Laser Power common stock was $4.9375 per share and the last sales price of II-
VI common stock was $47.625 per share as quoted on the Nasdaq National Market.
On August 24, 2000, the most recent practicable trading day prior to the
printing of this information statement/prospectus, the last sales price of
Laser Power common stock was
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<PAGE>
$5.28125 per share and the last sales price of II-VI common stock was $45.125
per share. The market prices of Laser Power common stock and II-VI common stock
are subject to fluctuation. As a result, Laser Power and II-VI shareholders are
urged to obtain current market quotations.
On the date you receive a stock certificate of II-VI in exchange for your
Laser Power certificate(s), the price of a share of II-VI common stock may
differ from those set forth above. Laser Power stockholders should obtain
current price quotations. No assurance can be given concerning dividends to be
declared and paid on II-VI common stock and Laser Power common stock. The
timing and amount of future dividends declared on II-VI common stock will be
set at the discretion of II-VI's board of directors and will depend on various
factors, including, without limitation, the earnings and financial condition of
II-VI and its subsidiaries.
Dividend Limitations
II-VI's current credit facility restricts the payment of cash dividends. II-
VI deems the use of corporate funds for day-to-day needs to be in the best
interest of II-VI. There is no present intention to make any cash dividend
payments.
Laser Power has never paid any cash dividends on its common stock and does
not anticipate paying cash dividends in the foreseeable future. Laser Power's
credit agreements restrict the payment of cash dividends.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial information presented
herein gives effect to the merger of II-VI and Laser Power. The Unaudited Pro
Forma Condensed Combined Balance Sheet combines the historical balance sheets
of II-VI and Laser Power as if the merger occurred as of March 31, 2000, after
giving effect to the purchase accounting and the other adjustments described in
the notes thereto. The Unaudited Pro Forma Condensed Combined Statements of
Earnings for the nine months ended March 31, 2000, and the year ended June 30,
1999, assume that the merger occurred on July 1, 1998.
Since the fiscal years of II-VI and Laser Power differ, the periods combined
for purposes of the unaudited pro forma combined financial data are as follows:
<TABLE>
<CAPTION>
II-VI Laser Power
----- -----------
<S> <C>
Fiscal year ended June 30, 1999 Fiscal year ended September 30, 1999
Nine-months ended March 31, 2000 Nine-months ended July 2, 2000
</TABLE>
The unaudited pro forma combined financial data for the nine months to March
31, 2000 includes the financial data for Laser Power for the nine months ended
July 2, 2000. This is a change from the prospectus dated August 7, 2000 which
included the financial data of Laser Power for the nine months ended March 26,
2000 and reflects the filing of more recent data reported by Laser Power on
Form 10-Q filed with the SEC on August 15, 2000. The effect of this change is
to reduce the unaudited pro forma combined net earnings for the nine months to
March 31, 2000 from $3,929,000 to $2,041,000, a reduction of $1,888,000.
The unaudited pro forma information has been prepared based upon the terms
of the merger in which II-VI will exchange $3.08 in cash and .052 shares of II-
VI common stock for each outstanding Laser Power common share. For purposes of
the pro forma presentation, it has been assumed that the II-VI share price will
be equal to $39.80, which was the 12 day volume weighted average trading price
as of August 8, 2000.
The unaudited pro forma combined financial statements and accompanying notes
reflect the application of the purchase method of accounting. Under this method
of accounting, the purchase price will be allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the effective time
of the merger. As described in the accompanying notes, estimates of the fair
values of Laser Power's assets and liabilities have been combined with the
recorded values of the assets and liabilities of II-VI. However, changes to the
adjustments included in the unaudited pro forma condensed combined financial
statements are expected as evaluations of assets and liabilities are completed
and as additional information becomes available. In addition, the results of
operations of Laser Power subsequent to July 2, 2000, will affect the
allocation of the purchase price. Accordingly, the final combined amounts will
differ from those set forth in the unaudited pro forma condensed combined
financial statements.
The Unaudited Pro Forma Condensed Combined Statements of Earnings exclude
any non-recurring costs of II-VI acquiring Laser Power, such as integration
costs. These amounts cannot be determined until the merger is completed. II-VI
expects to achieve certain reductions in costs subsequent to the merger as a
result of the combination and consolidation of the operations of II-VI and
Laser Power. Cost reductions, including the reduction and elimination of
certain raw material costs and professional services costs that are expected to
occur after the merger have not been included in the accompanying Unaudited Pro
Forma Condensed Combined Statements of Earnings in accordance with the SEC's
pro forma reporting rules.
The unaudited pro forma condensed combined financial statements are intended
for informational purposes only and are not necessarily indicative of the
future financial position or future results of operations of the combined
company, or of the financial position or results of operations of the combined
company that would have actually occurred had the merger been in effect as of
the date or for the periods presented. These unaudited pro forma condensed
combined financial statements and the accompanying notes should be read in
conjunction with the consolidated financial statements, including accompanying
notes, of II-VI and Laser Power included in the documents described under
"Where You Can Find More Information."
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE NINE-MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Laser Pro
II-VI Power Pro Forma Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Net Revenues............... $52,853 $24,420 $ -- $77,273
------- ------- ------- -------
Costs, Expenses & Other
Income
Cost of goods sold....... 29,609 16,976 -- 46,585
Contract research and
development............. 636 1,111 -- 1,747
Internal research and
development............. 1,969 839 -- 2,808
Selling, general and
administrative.......... 12,947 3,628 1,813 (a) 18,388
Interest expense......... 258 330 1,818 (b) 2,406
Other (income) expense,
net..................... (46) 2,221 -- 2,175
------- ------- ------- -------
Total Costs and Expenses... 45,373 25,105 3,631 74,109
------- ------- ------- -------
Net Earnings Before Income
Taxes..................... 7,480 (685) (3,631) 3,164
Income taxes provision
(benefit)............... 2,020 (261) (636)(c) 1,123
------- ------- ------- -------
Net Earnings (Loss)........ $ 5,460 $ (424) $(2,995) $ 2,041
======= ======= ======= =======
Basic Earnings Per Common
Share..................... $ 0.86 $ 0.30(d)
======= =======
Diluted Earnings Per Common
Share..................... $ 0.83 $ 0.29(d)
======= =======
Weighted Average Shares
Outstanding............... 6,361 6,800
======= =======
Diluted Weighted Average
Shares Outstanding........ 6,560 6,999
======= =======
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Condensed Combined Financial Statements.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Laser Pro
II-VI Power Pro Forma Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Net Revenues............... $61,750 $34,010 $ -- $95,760
------- ------- ------- -------
Costs, Expenses & Other
Income
Cost of goods sold....... 36,590 23,059 -- 59,649
Contract research and
development............. 1,041 1,820 -- 2,861
Internal research and
development............. 2,317 620 -- 2,937
Selling, general and
administrative.......... 13,563 6,520 2,417 (a) 22,500
Interest expense......... 415 342 2,424 (b) 3,181
Other (income), net...... (214) -- -- (214)
------- ------- ------- -------
Total Costs and
Expenses.............. 53,712 32,361 4,841 90,914
------- ------- ------- -------
Net Earnings Before Income
Taxes..................... 8,038 1,649 (4,841) 4,846
Income taxes............. 2,575 10 (848)(c) 1,737
------- ------- ------- -------
Net Earnings............... $ 5,463 $ 1,639 $(3,993) $ 3,109
======= ======= ======= =======
Basic Earnings Per Common
Share..................... $ 0.86 $ 0.46(d)
======= =======
Diluted Earnings Per Common
Share..................... $ 0.84 $ 0.45(d)
======= =======
Weighted Average Shares
Outstanding............... 6,360 6,799
======= =======
Diluted Weighted Average
Shares Outstanding........ 6,490 6,929
======= =======
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Condensed Combined Financial Statements.
73
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT MARCH 31, 2000
<TABLE>
<CAPTION>
Laser Pro
II-VI Power Pro Forma Forma
(Historical) (Historical) Adjustments Combined
------------ ------------ ----------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents.. $ 5,221 $ 312 $ -- $ 5,533
Accounts receivable, net... 14,461 4,742 -- 19,203
Inventories................ 11,881 5,524 -- 17,405
Other current assets....... 1,911 189 -- 2,100
------- -------- -------- --------
Total Current Assets......... 33,474 10,767 -- 44,241
------- -------- -------- --------
Plants, Properties and
Equipment, Net.............. 38,744 7,603 -- 46,347
Other Assets................. 11,424 764 29,067 (e) 41,255
------- -------- -------- --------
Total Assets................. $83,642 $ 19,134 $ 29,067 $131,843
======= ======== ======== ========
Liabilities and Shareholders'
Equity
Current Liabilities
Notes payable and current
maturities of long-term
debt...................... $ 4,044 $ 743 $ (4,743)(f) $ 44
Accounts payable, accrued
liabilities and other
current liabilities....... 9,128 4,555 -- 13,683
------- -------- -------- --------
Total Current Liabilities.... 13,172 5,298 (4,743) 13,727
------- -------- -------- --------
Long-Term Debt............... 2,788 1,050 33,263 (g) 37,101
Other Liabilities, primarily
deferred taxes.............. 3,951 269 (1,543)(h) 2,677
Shareholders' Equity
Common stock............... 19,723 10 17,462 (i) 37,195
Paid-in capital............ -- 22,641 (22,641)(j) --
Retained earnings
(accumulated deficit)..... 42,845 (10,063) 10,063 (j) 42,845
Accumulated other
comprehensive income
(loss).................... 3,073 (71) (2,794)(k) 208
Less: Common stock held in
treasury, at cost......... (1,910) -- -- (1,910)
------- -------- -------- --------
Total Shareholders' Equity... 63,731 12,517 2,090 78,338
------- -------- -------- --------
Total Liabilities and
Shareholders' Equity........ $83,642 $ 19,134 $ 29,067 $131,843
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these Unaudited Pro Forma
Condensed Combined Financial Statements.
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<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Statements of Earnings for the
nine months ended March 31, 2000 and year ended June 30, 1999 have been
prepared as if the merger had occurred on July 1, 1998. The Unaudited Pro Forma
Condensed Combined Balance Sheet has been prepared as if the merger had
occurred on March 31, 2000. The merger has been accounted for under the
purchase method of accounting. The excess of the purchase price over the fair
value of the net assets acquired is being amortized on a straight-line basis
over 15 years.
Preliminary allocation of the purchase price of Laser Power is summarized as
follows (in thousands):
<TABLE>
<S> <C>
Purchase Price
Cost of Laser Power shares already owned by II-VI..................... $ 2,793
Cash consideration (including transaction expenses)................... 27,520
Value of II-VI common stock exchanged for Laser Power common stock
outstanding, not currently owned by II-VI............................ 17,472
Cash consideration for options on Laser Power common stock............ 1,000
-------
$48,785
=======
Allocation of Purchase Price
Fair value of net assets of Laser Power at July 2, 2000............... $12,517
Excess of the purchase price over the fair value of the net assets
acquired............................................................. 36,268
-------
Total purchase price................................................ $48,785
=======
</TABLE>
The following is a summary of reclassifications and adjustments (in
thousands except for per share data) reflected in the Unaudited Pro Forma
Condensed Combined Statements of Earnings:
(a) Represents amortization of excess purchase price over net assets acquired
over 15 years.
(b) Represents additional acquisition interest expense related to the
acquisition debt at an assumed rate of 8.50%. The interest rate on the
acquisition debt is preliminary and is subject to change based on various
factors, including the prevailing market interest rates, the form of the
ultimate financing, and II-VI's credit rating. A change in the assumed
interest rate of 0.25% would change the interest expense related to the
acquisition debt by $54 and $72 for the nine months ended March 31, 2000
and the year ended June 30, 1999, respectively.
(c) Represents the tax effect of the Unaudited Pro Forma Condensed Combined
Statements of Earnings adjustments, excluding amortization of excess cost
over net assets acquired, based upon the statutory tax rate.
(d) Pro forma combined earnings per share amounts, as presented in the
accompanying Unaudited Pro Forma Condensed Combined Statements of
Earnings, are based on the weighted average and diluted weighted average
pro forma number of shares of II-VI outstanding for each period presented.
The following is a summary of reclassifications and adjustments reflected in
the Unaudited Pro Forma Condensed Combined Balance Sheet (in thousands):
(e) Represents the preliminary estimate of excess purchase price over the fair
value of Laser Power net assets acquired. The estimated purchase price of
Laser Power (estimated at $48,785) includes the cost of Laser Power shares
already owned by II-VI, acquisition related expenses and the value of
options on Laser Power common stock, less the fair value of Laser Power
common stock owned by II-VI.
(f) Represents reclassification of $4,000 as long-term debt in connection with
the restructuring of II-VI's credit facility to finance a portion of the
merger, and the payoff of existing Laser Power long-term debt of $743.
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<PAGE>
(g) Represents the issuance of approximately $29,263 of long-term debt to
finance the remainder of the cash consideration of the merger and the
settlement of existing Laser Power debt and the reclassification of $4,000
as long-term debt as described in (f) above.
(h) Represents $1,543 of deferred taxes of II-VI as of March 31, 2000 which
was attributable to the tax difference between market value and cost basis
of the Laser Power shares owned by II-VI.
(i) Represents the issuance of approximately 439,000 shares of II-VI common
stock at $39.80 per share and the elimination of Laser Power historical
common stock of $10.
(j) Represents the elimination of Laser Power's historical paid-in capital and
accumulated deficit.
(k) Represents the elimination of $2,865 of accumulated other comprehensive
income of II-VI as of March 31, 2000 which was attributable to the
difference between market value and cost basis of the Laser Power shares
owned by II-VI, net of tax and the elimination of Laser Power historical
accumulated other comprehensive loss of $71.
76
<PAGE>
COMPARISON OF STOCKHOLDERS' RIGHTS
<TABLE>
<CAPTION>
LASER POWER STOCKHOLDER RIGHTS II-VI SHAREHOLDER RIGHTS
---------------------------------- ----------------------------------
<C> <S> <C>
CLASSIFIED Number of Members on Laser Power's Number of Members on II-VI's Board
BOARD AND Board of Directors of Directors
RELATED Laser Power's bylaws, as amended, II-VI's Bylaws provide that the
PROVISIONS provide that the authorized number board of directors shall consist
of directors shall be fixed in of at least five and not more than
accordance with the certificate of nine directors, with the exact
incorporation; however the number to be set from time to time
certificate of incorporation says by resolution of the board of
nothing in this regard. directors. Until such resolution,
the board will consist of six
directors.
Classes of Directors Classes of Directors
Neither Laser Power's certificate II-VI's bylaws state that the
of incorporation nor its bylaws board of directors shall be
provides for classes of directors. divided into three classes. One
class is elected each year for a
three year term.
Vacancies on Laser Power's Board Vacancies on II-VI's Board of
of Directors Directors
Laser Power's bylaws specify that II-VI's bylaws provide that a
a vacancy exists in the case of vacancy, including those resulting
death, removal, or resignation. from an increase in the number of
Vacancies and new directorships directors will be filled by a
are filled by affirmative vote of majority of the remaining members,
a majority of the directors in even though less than a quorum, or
office, even if less than a quorum by the sole remaining director. A
is present. The board of directors person elected to fill a vacancy
may resolve to allow the will serve the remainder of the
stockholders to fill the vacancy. unexpired term of his/her
Directors filling vacancies will predecessor. A person filling a
serve for the remainder of the vacancy resulting from an increase
term of the position they are in the number of directors will
filling, or the position that was serve a term designated by the
created, and until a successor is board, not to exceed three (3)
elected and qualified. years. Any vacancy in any class
may be filled by any incumbent
member of any other class of
directors.
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
LASER POWER STOCKHOLDER RIGHTS II-VI SHAREHOLDER RIGHTS
---------------------------------- ----------------------------------
<S> <C> <C>
Removal Removal
Any individual director may be The shareholders may vote to
removed at any time with or remove the entire board of
without cause following the date directors, a class of directors,
on which Laser Power is no longer or an individual director at any
subject to the qualifying record time with or without cause with at
date and subject to the rights of least two-thirds of the votes of
the series of preferred stock. all shareholders who would be
Removal with cause requires an entitled to vote at an annual
affirmative vote of the majority election of directors. No
of the outstanding shares of individual director will be
voting stock entitled to vote at removed if the votes cast against
any election of directors. Removal such removal would be sufficient,
without cause requires an if voted cumulatively for such
affirmative vote of at least 66 director, to elect him or her to
2/3% of the outstanding shares of the class of directors of which he
voting stock. or she is a member. Unless the
entire board of directors or a
After the qualifying record date, class of directors are to be
and subject to the rights of the removed, not more than one
series of preferred stock and director at a time may be removed
limitations imposed by law, no by any one vote of the
director may be removed without shareholders.
cause. Removal with cause still
requires an affirmative vote of a
majority of the voting stock.
STOCKHOLDERS Meetings Meetings
MEETINGS, Laser Power's bylaws provide that II-VI's bylaws provide that
NOTICE, written notice of each meeting of written notice of the annual
QUORUM, AND stockholders will be given no less meetings of the stockholders will
VOTING than ten days and not more than be given at least five days prior
CONSENT sixty days before the date of the to the meeting to each voting
meeting. The same notice stockholder. At least ten days
provisions are applicable to notice is required when the
special meetings. The notice meeting will consider a
requirement is waivable in writing fundamental change such as a
by the stockholder or by virtue of merger. The same notice provisions
attendance at the meeting in are applicable to special
person or by proxy, so long as meetings. A waiver signed by the
such stockholder is not present person entitled to such notice,
solely for the purpose of whether before or after the time
objecting to any transaction of stated for the notice, is deemed
business. Such waiver is binding, the equivalent of having given
as though notice had been given. notice. Attendance in person or by
proxy, except with the express
purpose of objecting to the
proceedings, also constitutes a
waiver of notice.
Quorum Quorum
Laser Power's bylaws state that II-VI's bylaws state that presence
presence in person or by duly in person or by proxy of
authorized proxy of a majority of stockholders entitled to cast at
the holders of the outstanding least a majority of the votes of
shares entitled to vote all shareholders constitutes a
constitutes a quorum for quorum.
transacting business.
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
LASER POWER STOCKHOLDER RIGHTS II-VI SHAREHOLDER RIGHTS
---------------------------------- ----------------------------------
<S> <C> <C>
Written Consent Written Consent
The Laser Power bylaws state that II-VI bylaws state that any action
any action that is required by that may be taken at a meeting of
statute or that may be taken at a the stockholders or a class of
meeting of the stockholders may be stockholders may be taken without
taken without a meeting if there a meeting if there is written
is written consent of a number of consent of all the stockholders
stockholders no less than the who would be entitled to vote at
minimum number that would such a meeting.
otherwise be required by vote.
STOCKHOLDER Laser Power's stockholder rights II-VI currently does not maintain
RIGHTS PLANS plan does not apply to the offer a shareholder rights plan.
and the merger or any other tender
or exchange offer for all
outstanding shares of Laser Power
common stock or to any merger or
similar transaction approved by
the Laser Power board of
directors.
VOTE Laser Power's Certificate of II-VI's Articles of Incorporation
REQUIRED FOR Incorporation
CHARTER AND Laser Power has the right to In the articles of incorporation,
BYLAW amend, alter, change, or repeal II-VI provides that an affirmative
AMENDMENTS provisions in the certificate of vote of the stockholders entitled
incorporation in the manner to cast at least two-thirds of the
prescribed by statute. An votes all stockholders would be
amendment requires a majority of entitled to cast at an annual
the outstanding shares entitled to election of directors, may be
vote and a majority of the effective to amend, alter, or
outstanding stock of each class repeal or to adopt a provision
entitled to vote. However, certain inconsistent with the articles of
provisions may not be repealed or incorporation or any provision of
amended in any respect unless the bylaws relating to the number,
approved by an affirmative vote of classification, and/or filling of
66 2/3% of the total voting power vacancies of the board of
of all outstanding shares of directors. The two-thirds vote is
voting stock. not required for such amendment,
repeal, or adoption unanimously
approved by all the directors.
Laser Power's Bylaws II-VI's Bylaws
Laser Power's bylaws provide that II-VI's bylaws provide that the
the bylaws may be altered or bylaws may be altered, amended,
amended or new bylaws adopted by and repealed, and new bylaws
an affirmative vote of at least 66 adopted by a vote of stockholders
2/3% of the voting power of the entitled to cast at least a
outstanding shares of voting majority of the votes which all
stock. The board of directors also shareholders are entitled to cast
has the power to alter, amend, or or by a vote of a majority of the
repeal the bylaws. Repeals and full board of directors. The board
modifications of the bylaws are of directors does not have the
only prospective. power to adopt or change a bylaw
on any subject committed expressly
to the shareholders by any
provisions of the Pennsylvania
Business Corporation Law.
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
LASER POWER STOCKHOLDER RIGHTS II-VI SHAREHOLDER RIGHTS
---------------------------------- ----------------------------------
<S> <C> <C>
BUSINESS Business Combination Business Combination
COMBINATION AND Laser Power's certificate of There are no provisions requiring
ANTITAKEOVER incorporation provides that an supermajority vote in the
PROVISIONS affirmative vote of 66 2/3% of the Pennsylvania Business Corporation
outstanding common shares is Law or in II-VI's articles of
required for the approval, incorporation or bylaws.
adoption, or authorization of a
business combination. 66 2/3% II-VI is subject to certain
approval of common shares is not antitakeover provisions of
required if the board of directors Pennsylvania law, including:
has approved a memorandum of . a provision which prohibits
understanding with such other business combinations, such as a
corporation or entity or as to any merger, and an "interested
corporation or entity with 5% of shareholder," generally, a 20% or
the outstanding shares of common more shareholder, unless a number
stock at the time the certificate of conditions are satisfied or an
of incorporation was adopted. exemption is applicable;
. a provision regarding "control-
An amendment of all or any part of share acquisitions" in which the
the business combination voting rights of a shareholder
provisions outlined above requires who acquires 20%, 33 1/3% or 50%
an affirmative vote of 66 2/3% of or more of the voting power of
the outstanding shares of common the corporation are conditioned
stock. upon the consent of a majority
vote of the independent
Laser Power is subject to Section shareholders;
203 of the Delaware General . a provision pursuant to which
Corporation Law which prohibits any shareholder who objects to a
business combinations, such as "control transaction," that is,
mergers, between a Delaware the acquisition by any person or
corporation and an interested group of 20% or more of the
stockholder (generally, a 15% or corporation's shares, is entitled
more stockholder). Section 203 is to make a written demand on the
not triggered if prior to the time controlling person or group for
a person becomes an interested payment of the fair value of the
stockholder, the board approves shares held by the shareholder
either the business combination or making the demand;
the transaction in which the . a set of interrelated provisions
person became an interested which are designed to support the
stockholder. In addition, a validity of actions taken by the
business combination with an board of directors in response to
interested stockholder can proceed takeover bids; and
if it is approved by the board and . a provision which permits, but
by a two-thirds vote of voting does not require, the directors
shares not owned by the interested broad discretion in considering
stockholder. Finally, if a person any corporate action, to consider
acquires at least 85% of a various corporate interests in
company's stock in a single addition to the interests of
transaction, then Section 203 does shareholders.
not apply.
AUTHORIZED General Stock Information General Stock Information
SHARES --15,000,000 authorized common --30,000,000 shares of common
stock stock, no par value per share
--2,000,000 authorized Series A --5,000,000 shares of preferred
Preferred Shares stock, no par value per share
--1,000,000 authorized Preferred
Shares, with the designation of
any such series of those stocks
to be made by the Board of
Directors
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
LASER POWER STOCKHOLDER RIGHTS II-VI STOCKHOLDER RIGHTS
---------------------------------- ----------------------------------
<S> <C> <C>
Series A Preferred Stock ("Series Preferred Stock
A")
Holders of Series A stock are The board of directors is
entitled to receive annual expressly authorized at any time
dividends prior and in preference to divide any or all of the shares
to any dividends on common stock of preferred stock into one or
at a rate equal to $0.32/share more series and to fix and
when and if declared by the board determine the number of shares and
of directors. This is providing the designation of such series so
that any offering of shares of as to distinguish it from the
common stock to all of the shares of all other series and
existing stockholders will not be classes. The board of directors
deemed to be a dividend for may also determine the annual
purposes of this provision. dividend rates for such series and
Dividends are not cumulative. the date from which those
dividends shall commence to
In the event of a liquidation, accrue. The articles of
dissolution, or winding up of incorporation do not specify a per
Laser Power, and assuming a share rate for annual dividends.
conversion of all Series A The dates from which dividends
preferred stock, distribution will commence to accrue distinguish
be made among the stockholders of each series of preferred stock.
Series A and common stock pro rata
based upon the number of share of The aggregate number of authorized
common stock held by each. If the preferred stock may be increased
liquidation, dissolution, or by amendment of the articles of
winding up arises out of a incorporation approved by a
petition for bankruptcy, majority of the outstanding shares
arrangement, reorganization, of common stock. The board of
liquidation, or other protection directors may in its discretion
under the federal bankruptcy laws, issue or cause to be issued all or
Series A stockholders are entitled any part of the authorized and
to receive prior and in preference unissued shares of preferred
to any holders of common stock, an stock.
amount equal to $4.00/share plus
any declared but unpaid dividends The board of directors may fix and
for each share of Series A determine the preferential amount
preferred stock then held. If the or amounts payable upon shares of
assets and funds thus distributed such series in the event of
are insufficient to cover the full liquidation, dissolution, or
preferential amounts, then the winding up of the corporation. No
entire assets of the corporation specific provisions for the
available for distribution will be distribution of assets and funds
distributed pro rata among the have been made in the articles of
holders of Series A preferred incorporation.
stock, with the remaining assets
to be distributed among the
holders of Series A preferred
stock and common stock pro rata
based upon the number of shares of
common stock held by each
(assuming a conversion of Series A
preferred stock).
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
LASER POWER STOCKHOLDER RIGHTS II-VI STOCKHOLDER RIGHTS
---------------------------------- ----------------------------------
<S> <C> <C>
INDEMNITY; Indemnification Indemnification
LIMITATION OF Laser Power's bylaws provide that II-VI's bylaws provide that a
LIABILITY Laser Power will indemnify its director will not be personally
directors and executive officers liable for monetary damages for
to the fullest extent not any action taken or failed to be
prohibited by the Delaware General taken unless the director has
Corporation Law. Laser Power's breached or failed to perform the
bylaws provide indemnification for duties of his office and such
directors and executive officers, breach or failure to perform
as well as persons serving at the constitutes self-dealing, willful
request of the corporation as a misconduct or recklessness,
director or executive officer of provided that a director's
another corporation, partnership, criminal tax liability is not
joint venture, trust, or other limited by this provision.
enterprise prior to the final
disposition of the proceeding. II-VI will indemnify any person
who is or was a director, officer,
Laser Power may modify the extent employee, or agent of the
of such indemnification by corporation, or who is or was
individual contracts with its serving at the request of the
directors and executive officers. corporation as the director,
officer, employee, or agent of
Under its bylaws, Laser Power is another corporation, joint
not required to indemnify any enterprise, partnership, trust, or
directors or executive officers in other enterprise against expenses,
connection with any proceeding judgments, fines, and amounts paid
unless: 1) the indemnification is in settlement actually and
expressly required by law; 2) the reasonably incurred in connection
proceeding was authorized by the with a civil, criminal,
board of directors; 3) the administrative, or investigative
indemnification is provided by action, if the person acted in
virtue of Laser Power's sole good faith, in a manner he/she
discretion consistent with the reasonably believed to be in the
Delaware General Corporation Law; best interest of the corporation,
or 4) the indemnification is or with reasonable cause to
otherwise necessary under other believe his/her conduct was
provisions of the bylaws. lawful. A person who has been
successful on the merits will be
Under Laser Power's bylaws, a indemnified against expenses
director or executive officer's actually and reasonably incurred.
right to indemnification is
enforceable by or on behalf of the No indemnification will be made in
person holding such right if: 1) respect of any claim in which such
the claim for indemnification or person was held liable for
advances is denied in whole or in negligence or misconduct in the
part; or 2) no disposition of such performance of his/her duty to the
claim is made within ninety (90) corporation. There may be an
days of such request. If the exception to such non-indemnity
claimant is successful in an where the court hearing such
enforcement action, he is entitled action in view of all the
to the expense of prosecuting that circumstances and despite the
claim. judgment of liability, decides
that the person is fairly and
Laser Power's bylaws allow reasonably entitled to indemnity
indemnification for all expenses for expenses the court deems
incurred. With respect to proper. No indemnification will be
executive officers (excepting made wherein the court decides the
actions brought by reason of the person's conduct constituted
fact that such officer is or was a willful misconduct or
director of the corporation) in recklessness.
any action, suit, or proceeding,
whether civil, Any indemnification will be made
on a determination that
indemnification is proper and that
such person has met the
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
LASER POWER STOCKHOLDER RIGHTS II-VI STOCKHOLDER RIGHTS
---------------------------------- ----------------------------------
<S> <C> <C>
criminal, administrative, or applicable standard of conduct.
investigative, if the This determination will be made
determination is made that such by: 1) a majority vote of a quorum
person acted in bad faith or in a of directors who were not party to
manner that person did not believe the subject action or proceeding;
to be in the best interest of the 2) a majority vote of a quorum of
corporation, no advance for disinterested directors (by
expenses will be made. independent legal counsel in
written opinion); or 3) the
shareholders.
Insurance Insurance
Under the Laser Power bylaws, upon The II-VI bylaws do not refer to
approval by the board of purchasing insurance for purposes
directors, Laser Power may, to the of indemnity.
fullest extent permitted by the
Delaware General Corporation Law,
purchase insurance on behalf of
any person required or permitted
to be indemnified pursuant to the
bylaws.
DISSENTERS The Delaware General Corporation The Pennsylvania Business
RIGHTS Law provides for appraisal rights Corporation Law provides that if a
RELATING TO in the event of a merger or stockholder objects to a plan of
DISPOSITION OF consolidation of the company asset transfer or division, he/she
ASSETS unless the shares of the company will be entitled to the rights and
are: 1) listed on a national remedies of dissenting
securities exchange; or 2) held of stockholders set forth in
record by more than 2,000 holders. subchapter D of chapter 15,
Appraisal rights will be chiefly, a right to dissent from,
available, even if the shares are and to obtain fair value of the
listed on a national securities payment of his shares in the event
exchange or held of record by more of any corporate action. By way of
than 2000 holders, provided exception, stockholders are not
however, that appraisal rights entitled to dissenters rights,
will be restored if the including the right to obtain
stockholders are required to payment of the fair value of his
exchange their stock for shares, where the shares of the
consideration other than shares company are either 1) listed on a
listed on a national securities national securities exchange; or
exchange. 2) held of record by more than
2,000 stockholders.
Under the Pennsylvania Business
Corporation Law, a dissenter, if
he/she believes that the amount
stated or remitted for the fair
value of the shares is less than
the fair value of the shares, may
send to the corporation his own
estimate of the fair value of the
shares. The estimate will serve as
a demand for payment of the amount
or the deficiency.
</TABLE>
83
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby, the description of the
material federal income tax consequences of the offer and the merger under the
caption "Material Federal Income Tax Consequences" and certain other legal
matters in connection with this offering will be passed upon for us by Buchanan
Ingersoll Professional Corporation, One Oxford Centre, 301 Grant Street, 20th
Floor, Pittsburgh, Pennsylvania 15219. Certain legal matters also may be passed
upon for us by Sherrard, German & Kelly, P.C., 35th Floor, One Oliver Plaza,
Pittsburgh, Pennsylvania 15222.
EXPERTS
The consolidated financial statements and the related consolidated financial
statement schedule incorporated in this information statement/prospectus by
reference from the II-VI Incorporated Annual Report on Form 10-K for the year
ended June 30, 1999 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports which are incorporated by reference, and
have been so incorporated in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Laser Power
Corporation's consolidated financial statements at September 30, 1999 and 1998,
and for each of the two years in the period ended September 30, 1999 and for
the year ended August 31, 1997, as set forth in their report. Laser Power
Corporation's financial statements have been included in this information
statement/prospectus and elsewhere in this registration statement in reliance
on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
FORWARD-LOOKING INFORMATION
We make forward-looking statements in this information statement/prospectus,
and in the public documents to which we refer, that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of our operations and the performance of
Laser Power after we acquire a controlling interest in Laser Power. Also, when
we use any of the words "believes," "expects," "anticipates," "estimates" or
similar expressions we are making forward-looking statements.
While we believe that our forward-looking statements are reasonable, you
should not place undue reliance on any forward-looking statements, which speak
only as of the date made. You should understand that the factors discussed
under "Risk Factors," in addition to those discussed elsewhere in this
information statement/prospectus and in the public documents to which we refer,
could affect the future results and performance of II-VI and the performance of
Laser Power after we acquire a controlling interest in Laser Power. Many of
these risks and uncertainties relate to factors that are beyond our ability to
control or estimate precisely, such as future market conditions, the actions of
governmental regulators and the behavior of other market participants. These
risks and uncertainties could cause those results to differ materially from
those expressed in our forward-looking statements. This could cause those
results to differ materially from those expressed in our forward-looking
statements.
84
<PAGE>
INDEX TO LASER POWER CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets at September 30, 1999 and September 30,
1998.................................................................... F-3
Consolidated Statements of Operations for the years ended September 30,
1999, September 30, 1998 and August 31, 1997 and the one month ended
September 30, 1997...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1999, September 30, 1998 and August 31, 1997 and the one
month ended September 30, 1997.......................................... F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1999, September 30, 1998 and August 31, 1997 and the one month ended
September 30, 1997...................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Unaudited Financial Statements
Condensed Consolidated Balance Sheets as of July 2, 2000 (unaudited) and
September 30, 1999...................................................... F-22
Condensed Consolidated Statements of Operations (unaudited) for the
three-months ended June 2000 and 1999 and the nine-months ended June
2000 and 1999........................................................... F-23
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine-
months ended June 2000 and 1999......................................... F-24
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-25
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Laser Power Corporation
We have audited the accompanying consolidated balance sheets of Laser Power
Corporation at September 30, 1999 and September 30, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years ended September 30, 1999, September 30, 1998 and August 31,
1997 and the one month ended September 30, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Laser Power
Corporation at September 30, 1999 and September 30, 1998, and the consolidated
results of its operations and its cash flows for the years ended September 30,
1999, September 30, 1998 and August 31, 1997 and the one month ended September
30, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
ERNST & YOUNG LLP
San Diego, California
December 4, 1999
except for Note 10, as to which the date is July 12, 2000
F-2
<PAGE>
LASER POWER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September September
30, 30,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 859,927 $ 2,412,327
Restricted cash.................................... -- 1,000,000
Accounts receivable, net........................... 4,488,460 4,760,828
Inventories, net................................... 6,499,710 6,134,525
Other current assets............................... 329,709 521,254
Net current assets of discontinued operations...... 570,027 880,610
----------- -----------
Total current assets............................. 12,747,833 15,709,544
Property and equipment, net.......................... 7,094,233 6,096,847
Intangibles and other assets, net.................... 418,907 442,354
Net non-current assets of discontinued operations.... 1,647,208 2,369,468
----------- -----------
Total assets..................................... $21,908,181 $24,618,213
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 2,023,763 $ 1,939,636
Accrued compensation and related expenses.......... 1,529,649 1,106,641
Other current liabilities.......................... 1,732,680 2,931,470
Allowance for operating losses of discontinued
operations........................................ 450,000 --
Current portion of long-term debt.................. 1,083,778 4,427,811
----------- -----------
Total current liabilities........................ 6,819,870 10,405,558
Long-term liabilities................................ 420,120 1,032,472
Long-term debt....................................... 3,082,809 286,838
Subordinated convertible debentures.................. 1,660,000 1,660,000
Stockholders' equity:
Common stock, par value $.001:
Authorized--15,000,000 shares
Issued and outstanding 8,579,987 shares in 1999,
and 8,398,455 shares in 1998.................... 8,580 8,398
Additional paid-in capital......................... 19,573,531 19,416,298
Accumulated deficit................................ (9,638,986) (8,152,304)
Accumulated other comprehensive loss............... (17,743) (39,047)
----------- -----------
Total stockholders' equity......................... 9,925,382 11,233,345
----------- -----------
Total liabilities and stockholders' equity....... $21,908,181 $24,618,213
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
LASER POWER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Year Ended One Month
September September Ended Year Ended
30, 30, September 30, August 31,
1999 1998 1997 1997
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues:
Product sales........... $31,278,196 $30,034,601 $2,531,442 $29,117,915
Contract research and
development............ 2,731,981 81,274 36,240 622,514
----------- ----------- ---------- -----------
Total revenues........ 34,010,177 30,115,875 2,567,682 29,740,429
Costs and expenses:
Cost of product sales... 23,059,310 22,176,606 1,517,015 19,372,937
Contract research and
development............ 1,820,026 239,402 36,488 418,076
Internal research and
development............ 619,752 869,518 48,561 915,926
Selling, general and
administrative......... 6,519,791 6,479,216 725,298 5,814,390
Merger and integration.. -- 3,778,000 -- --
----------- ----------- ---------- -----------
Total costs and
expenses............. 32,018,879 33,542,742 2,327,362 26,521,329
----------- ----------- ---------- -----------
Income (loss) from
operations............... 1,991,298 (3,426,867) 240,320 3,219,100
Interest expense, net... 341,798 186,893 5,962 254,077
----------- ----------- ---------- -----------
Income (loss) before
income taxes............. 1,649,500 (3,613,760) 234,358 2,965,023
Income taxes............ 10,547 248,642 129,800 184,758
----------- ----------- ---------- -----------
Income (loss) continuing
operations............... 1,638,953 (3,862,402) 104,558 2,780,265
Loss from discontinued
operations............... (2,475,635) (3,169,210) (178,116) (505,049)
Loss on disposal,
including estimated
loss during disposal
period of $450,000..... (650,000) -- -- --
----------- ----------- ---------- -----------
Net income (loss)..... $(1,486,682) $(7,031,612) $ (73,558) $ 2,275,216
=========== =========== ========== ===========
Basic earnings (loss) per
share:
Income (loss) from
continuing operations.. $ .19 $ (.47) $ .01 $ .50
Loss from discontinued
operations............. (.37) (.38) (.02) (.09)
----------- ----------- ---------- -----------
Net income (loss)..... $ (.18) $ (.85) $ (.01) $ .41
=========== =========== ========== ===========
Diluted earnings (loss)
per share:
Income (loss) from
continuing operations.. $ .19 $ (.47) $ .01 $ .39
Loss from discontinued
operations............. (.37) (.38) (.02) (.07)
----------- ----------- ---------- -----------
Net income (loss)..... $ (.18) $ (.85) $ (.01) $ .32
=========== =========== ========== ===========
Average common shares
outstanding:
Basic................... 8,454,000 8,263,000 8,099,000 5,592,000
=========== =========== ========== ===========
Diluted................. 8,454,000 8,263,000 8,099,000 7,196,000
=========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
LASER POWER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1999, September 30, 1998 and August 31, 1997
and One Month Ended September 30, 1997
<TABLE>
<CAPTION>
Convertible Accumulated
Preferred Stock Common Stock Additional Other
--------------------- ----------------- Paid-In Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit Income/(Loss) Total
---------- --------- --------- ------ ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
August 31, 1996........ 1,610,891 $ 201,361 5,049,259 $5,049 $10,290,004 $(3,093,617) $ 123,222 $ 7,526,019
Issuance of common
stock................. -- -- 95,373 95 117,405 -- -- 117,500
Issuance of common
stock in initial
public offering....... -- -- 1,897,500 1,898 8,121,868 -- -- 8,123,766
Conversion of preferred
stock................. (1,610,891) (201,361) 1,193,252 1,193 200,168 -- -- --
Repurchase of common
stock................. -- -- (161,642) (161) (186,672) -- -- (186,833)
Comprehensive income
(loss):
Net income............. -- -- -- -- -- 2,275,216 -- 2,275,216
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (173,798) (173,798)
Comprehensive
income.............. -- -- -- -- -- -- -- 2,101,418
---------- --------- --------- ------ ----------- ----------- --------- -----------
Balance at
August 31, 1997........ -- -- 8,073,742 8,074 18,542,773 (818,401) (50,576) 17,681,870
Transition period (Note
1).................... -- -- -- -- (13,216) (302,291) 13,385 (302,122)
---------- --------- --------- ------ ----------- ----------- --------- -----------
Balance at
September 30, 1997..... -- -- 8,073,742 8,074 18,529,557 (1,120,692) (37,191) 17,379,748
Issuance of common
stock for exercised
options............... -- -- 291,142 291 718,213 -- -- 718,504
Employee stock purchase
plan.................. -- -- 33,571 33 111,528 -- -- 111,561
Issuance of warrants
for services.......... -- -- -- -- 57,000 -- -- 57,000
Comprehensive loss:
Net loss............... -- -- -- -- -- (7,031,612) -- (7,031,612)
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (1,856) (1,856)
Comprehensive loss... -- -- -- -- -- -- -- (7,033,468)
---------- --------- --------- ------ ----------- ----------- --------- -----------
Balance at
September 30, 1998..... -- -- 8,398,455 8,398 19,416,298 (8,152,304) (39,047) 11,233,345
Employee stock purchase
plan.................. -- -- 181,532 182 157,233 -- -- 157,415
Comprehensive income
(loss):
Net loss............... -- -- -- -- -- (1,486,682) -- (1,486,682)
Foreign currency
translation
adjustment............ -- -- -- -- -- -- 21,304 21,304
Comprehensive loss... -- -- -- -- -- -- -- (1,465,378)
---------- --------- --------- ------ ----------- ----------- --------- -----------
Balance at
September 30, 1999..... $ -- $ -- 8,579,987 $8,580 $19,573,531 $(9,638,986) $ (17,743) $ 9,925,382
========== ========= ========= ====== =========== =========== ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
LASER POWER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
One Month
Year Ended Year Ended Ended Year Ended
September 30, September 30, September 30, August 31,
1999 1998 1997 1997
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from
continuing operations.. $ 1,638,953 $(3,862,402) $ 104,558 $ 2,780,265
Adjustment to income
(loss) to account for
overlapping periods
(Note 1)............... -- -- (228,733) --
Adjustments to reconcile
income (loss) to net
cash provided by (used
in) operating
activities:
Depreciation and
amortization......... 1,276,779 1,582,785 93,038 1,053,211
Loss on disposal of
property and
equipment and
impairment of long-
lived assets......... -- 1,250,505 -- --
Long-term
liabilities.......... (612,352) 803,548 (5,871) (70,452)
Warrants issued for
services............. -- 57,000 -- --
Changes in operating
assets and
liabilities:
Restricted cash...... 1,000,000 (1,000,000) -- --
Accounts receivable.. 272,368 408,122 355,289 (613,503)
Inventories.......... (365,185) (637,568) (181,632) (1,061,258)
Other current
assets.............. 191,545 (13,595) (41,439) (153,761)
Accounts payable..... 84,127 (471,499) 77,104 418,245
Accrued compensation
and related
expenses............ 423,008 (403,841) 47,006 414,404
Other current
liabilities......... (1,198,790) 1,832,686 30,778 56,285
----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities of
continuing operations.. 2,710,453 (454,259) 250,098 2,823,436
Net cash used in
operating activities of
discontinued
operations............. (1,871,621) (4,055,785) (77,935) (599,317)
----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities........... 838,832 (4,510,044) 172,163 2,224,119
INVESTING ACTIVITIES
Additions to property
and equipment.......... (2,226,006) (2,852,776) (92,341) (3,144,787)
Changes in intangibles
and other assets....... (3,408) (7,202) 500 4,923
----------- ----------- ---------- -----------
Net cash used in
investing activities of
continuing operations.. (2,229,414) (2,859,978) (91,841) (3,139,864)
Net cash provided by
(used in) investing
activities of
discontinued
operations............. 228,829 (316,097) (89,411) (417,797)
----------- ----------- ---------- -----------
Net cash used in
investing
activities........... (2,000,585) (3,176,075) (181,252) (3,557,661)
FINANCING ACTIVITIES
Proceeds from
borrowings............. 1,349,097 3,504,476 -- 1,354,835
Payments on borrowings.. (1,897,159) (2,435,446) (30,845) (801,623)
Net proceeds from
issuance of stock in
conjunction with
initial public
offering............... -- -- -- 8,123,766
Net proceeds from
issuance and repurchase
of stock............... 157,415 830,065 (13,216) (69,333)
----------- ----------- ---------- -----------
Net cash provided by
(used in) financing
activities of
continuing
operations........... (390,647) 1,899,095 (44,061) 8,607,645
----------- ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (1,552,400) (5,787,024) (53,150) 7,274,103
Cash and cash
equivalents at
beginning of the
period................. 2,412,327 8,199,351 8,252,501 978,398
----------- ----------- ---------- -----------
Cash and cash
equivalents at end of
the period............. $ 859,927 $ 2,412,327 $8,199,351 $ 8,252,501
=========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid during the
period for interest.... $ 574,000 $ 619,000 $ 17,000 $ 548,000
=========== =========== ========== ===========
Cash paid during period
for income taxes....... $ 9,000 $ 241,000 $ -- $ 48,000
=========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
Laser Power Corporation ("Laser Power" or the "Company") designs,
manufactures and markets high performance optics for industrial, medical and
military applications. The Company's laser optics products are sold to laser
system OEMs and end users as original and replacement components in high power
CO\\2\\ and other lasers. The Company's infrared optics products are sold to
various government agencies and to prime contractors of these agencies, and are
used primarily in infrared imaging systems. The company also provides thin film
design and coating services for industrial and military applications.
The accompanying consolidated financial statements present the financial
position, results of operations and cash flows of Laser Power Corporation (the
"Company") and its subsidiaries, EMI Acquisition Corp. ("EMI"), Laser Power
Optics de Mexico S.A. de C.V. ("Laser Power Mexico") and Laser Power Europe
N.V. ("LPE"). EMI operates through its subsidiary Exotic Materials, Inc. (doing
business as Exotic Electro-Optics--"Exotic"). Exotic manufactures infrared
optic products principally for the aerospace and defense markets in the United
States. LPE operates primarily as the European sales and distribution center
for the Company. Laser Power Mexico performs a portion of the laser optic
manufacturing and does not sell products to unaffiliated customers. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Discontinued Operations
During fiscal 1999, the Company's Board of Directors adopted a plan to sell
its microlaser operations and to phase out certain contract research
operations. Operations to be sold or phased out are reported as discontinued
operations. The Company expects to conclude a transaction for the sale of a
majority of the assets of discontinued operations by December 31, 1999.
The results of discontinued operations were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, September 30, August 31,
1999 1998 1997
------------- ------------- ----------
<S> <C> <C> <C>
Revenues:
Product sales........................ $ 2,217,204 $ 1,034,830 $ 277,796
Contract research and development.... 1,821,431 3,411,997 5,533,280
----------- ----------- ----------
Total revenues..................... 4,038,635 4,446,827 5,811,076
Costs and expenses:
Cost of product sales................ 2,117,178 1,189,054 705,013
Contract research and development.... 1,466,620 3,088,957 4,431,107
Internal research and development.... 1,319,457 1,930,230 461,250
Selling, general and
administrative...................... 1,392,489 1,288,307 556,313
----------- ----------- ----------
Total costs and expenses........... 6,295,744 7,496,548 6,153,683
----------- ----------- ----------
Loss from operations................... (2,257,109) (3,049,721) (342,607)
Interest expense, net................ 218,526 119,489 162,442
----------- ----------- ----------
Income (loss) before income taxes...... (2,475,635) (3,169,210) (505,049)
Income taxes......................... -- -- --
----------- ----------- ----------
Net loss from discontinued
operations............................ (2,475,635) (3,169,210) (505,049)
Loss on disposal, including estimated
loss during disposal period of
$450,000............................ (650,000) -- --
----------- ----------- ----------
Net loss............................... $(3,125,635) $(3,169,210) $ (505,049)
=========== =========== ==========
</TABLE>
F-7
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporate overhead expenses, historically allocated and charged to
discontinued operations, were reversed and allocated back to continuing
operations because those expenses were not considered to be directly
attributable to discontinued operations. Expenses allocated back to continuing
operations totaled $219,000, $119,000 and $162,000 in fiscal 1999, 1998 and
1997, respectively.
Interest expense attributable to discontinued operations includes an
allocation of interest on general corporate credit facilities. Interest is
allocated to discontinued operations based on the expected reduction in
interest expense that should occur upon the sale of any of the discontinued
operations and the use of proceeds from such sale to repay debt, and is
representative of projected future interest expense. The Company believes this
approach is substantially the same as if the buyer assumed this debt.
Assets and liabilities of discontinued operations have been reflected in the
consolidated balance sheets as current or non-current assets based on the
original classification of the accounts, except that current liabilities are
netted against current assets and non-current liabilities are netted against
non-current assets. Net non-current assets also reflect a valuation allowance
of $200,000 to recognize the estimated loss on disposal. The summary of assets
and liabilities of discontinued operations are presented in the "Selected
Balance Sheet Detail" footnote.
The accrual for the estimated pre-tax losses to be incurred during the
expected disposal period of $450,000 is presented separately in the
accompanying consolidated balance sheet for fiscal 1999. Such amount excludes
corporate overhead and interest allocation.
Change in Fiscal Year
The Company changed its fiscal year end from August 31 to September 30
effective for the fiscal year ended September 30, 1998.
Acquisition of EMI
In February 1998, the Company merged with EMI. The Company issued 2,021,178
shares of its common stock based on a 1.8511 ratio of exchange. The Company has
accounted for the merger as a pooling-of-interests; accordingly, the
consolidated financial statements for the periods prior to the merger have been
retroactively restated as if the combining companies had been combined for all
periods presented. The Company's August 31, 1997 financial statements include
the EMI financial statements for the year ended September 30, 1997.
The consolidated results of operations of EMI for the three months ended
December 31, 1996 were utilized in the 1997 fiscal period. Summarized
information for the three months ended December 31, 1996 is as follows
(unaudited, in thousands):
<TABLE>
<S> <C>
Total revenues....................................................... $3,122
Operating expenses................................................... $2,697
Income before extraordinary item..................................... $ 384
</TABLE>
The consolidated financial statements for the year ended August 31, 1997
include the year ended September 30, 1997 for EMI. The consolidated financial
statements for the one month ended September 30, 1997 include EMI's net income
as follows:
<TABLE>
<S> <C>
Laser Power....................................................... $(302,291)
EMI............................................................... 228,733
---------
Net loss.......................................................... $ (73,558)
=========
</TABLE>
F-8
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total revenues and income (loss) of Laser Power and EMI from continuing
operations for the periods preceding the acquisition were as follows (in
thousands):
<TABLE>
<CAPTION>
Laser
Power EMI Combined
------- ------- --------
<S> <C> <C> <C>
Five months ended February 28, 1998 (unaudited):
Total revenues.................................... $ 6,969 $ 5,474 $12,443
Income (loss) from continuing operations.......... $(1,225) $ 469 $ (756)
Year ended August 31, 1997:
Total revenues.................................... $17,541 $12,199 $29,740
Income from continuing operations................. $ 1,233 $ 1,521 $ 2,754
</TABLE>
Merger and Integration Charge
During 1998, the Company recorded a merger and integration charge of
approximately $3.8 million related to the Company's merger with EMI and plan to
move its laser optics operations from San Diego, California to Temecula,
California. This charge included approximately $1.0 million related to an
abandonment of a portion of the San Diego facilities lease, $1.3 million
related to impairment of long-lived assets, $800,000 for acquisition costs and
$700,000 related to severance for 26 employees, including three senior
officers. The remaining merger and integration accrual balance at September 30,
1999 amounts to $1.0 million, which is for remaining employee severance and
abandonment of a portion of the San Diego facilities lease.
Revenues
Product sales are recorded upon shipment. Revenue on long-term (generally
spanning more than twelve months) fixed price contracts is recognized utilizing
the units-of-delivery method of accounting. Under such method, revenues are
recognized as units are shipped. The costs attributable to units shipped are
based upon the actual cost of those units. Losses expected to be incurred on
long-term contracts in progress are charged to operations when identified.
Revenues from research and development contracts are recognized using the
percentage-of-completion method based on the ratio of costs incurred to date to
total estimated costs. Provisions are made to recognize any anticipated losses
on contracts when losses become evident.
Total product revenues from continuing operations from government contracts
and subcontracts were $16,905,000, $14,491,000, and $12,485,000 in 1999, 1998
and 1997, respectively. Total contract revenues from continuing operations from
government contracts and subcontracts were $2,638,000, $8,000, and $401,000 in
1999, 1998 and 1997, respectively.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash and highly liquid investments with
maturities of three months or less when purchased.
Inventories
Inventories are stated at lower of cost (first-in, first-out) or market.
Market is based upon estimated net realizable value.
Depreciation and Amortization
Machinery, equipment and office furniture are depreciated over their
estimated useful lives (3 to 15 years) on the straight-line method and
leasehold improvements are amortized over the useful life of the asset or the
lease term, whichever is less.
F-9
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible assets consist primarily of goodwill and patents. Goodwill is
amortized over 20 years and patents are amortized over the shorter of the
estimated useful life or the legal life. Amortization of patents is initiated
when the related technology is ready for commercial release.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company sells its products primarily to industrial and medical equipment
companies, and to U.S. government agencies and their prime contractors.
Financial instruments that potentially subject the Company to credit risk
consist principally of cash equivalents and trade receivables. The Company
invests in a variety of financial instruments and limits exposure with any one
issuer. The Company performs periodic credit evaluations of its customers and
has not experienced significant losses with respect to its accounts receivable.
As of September 30, 1999, the carrying value of cash equivalents and trade
receivables approximated estimated fair value.
Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Accounting for Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has
elected the current intrinsic value-based method and the pro forma effect of
using the fair value-based method to account for stock-based compensation in
its financial statements.
Net Income (Loss) Per Share
Net income (loss) per share is computed using "Basic EPS" and "Diluted EPS"
as required by Statement of Financial Accounting Standards No. 128, Earnings
per Share ("SFAS 128"), which supersedes APB Opinion 15. Basic EPS includes no
dilution and is based on weighted-average common shares outstanding for the
period. Diluted EPS reflects the potential dilution of stock options,
convertible preferred stock and warrants to purchase common stock. For loss
periods, these common equivalent shares are excluded from the Diluted EPS
computation as their effect would be antidilutive.
Fair Value of Financial Instruments
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, are carried at cost,
which management believes approximate fair value because of the short-term
maturity of these instruments. Long term debt bears interest at a variable
rate, and therefor is carried at fair value.
F-10
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income
As of January 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 establishes rules for the reporting and
display of comprehensive income and its components; the company has disclosed
its comprehensive income as a component of its statement of stockholders'
equity.
Segment Reporting
As of January 1, 1998, the Company adopted SFAS No. 131, DISCLOSURE ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes
annual and interim reporting standards for an enterprise's operating segments
and related disclosures about its products, services, geographic areas, and
major customers. The Company has determined that its continuing operations are
only in one segment and has disclosed information related to its discontinued
operations elsewhere in these Notes to Consolidated Financial Statements.
Accordingly, the adoption of this statement has no impact on the Company's
financial statements.
Effect of New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which will be
effective January 1, 2001. This statement establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. The Company
believes the adoption of SFAS No. 133 will not have a material effect on the
financial statements.
F-11
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SELECTED BALANCE SHEET DETAILS
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Accounts receivable:
Trade............................................ $ 4,895,642 $ 5,159,103
Reserves......................................... (407,182) (398,275)
----------- -----------
$ 4,488,460 $ 4,760,828
=========== ===========
Inventories:
Raw materials.................................... $ 3,404,834 $ 2,231,389
Work in progress................................. 3,008,989 3,257,916
Finished goods................................... 1,483,003 1,260,040
----------- -----------
7,896,826 6,749,345
Reserves......................................... (1,397,116) (614,820)
----------- -----------
$ 6,499,710 $ 6,134,525
=========== ===========
Property and equipment, at cost:
Machinery and equipment.......................... $10,647,510 $10,541,369
Leasehold improvements........................... 2,040,634 683,348
Office furniture and equipment................... 497,629 929,481
----------- -----------
13,185,773 12,154,198
Less accumulated depreciation and amortization... (6,091,540) (6,057,351)
----------- -----------
$ 7,094,233 $ 6,096,847
=========== ===========
Intangibles and other assets:
Goodwill in foreign subsidiary................... $ 549,100 $ 549,100
Other............................................ 365,379 361,967
----------- -----------
914,479 911,067
Less accumulated amortization.................... (495,572) (468,713)
----------- -----------
$ 418,907 $ 442,354
=========== ===========
Net current assets of discontinued operations:
Accounts receivable, net......................... $ 922,586 $ 898,891
Inventories, net................................. 484,739 738,953
Other current assets............................. 24,197 25,842
Accounts payable................................. (306,279) (294,122)
Accrued compensation and related expenses........ (327,243) (198,436)
Other current liabilities........................ (227,973) (290,518)
----------- -----------
$ 570,027 $ 880,610
=========== ===========
Net non-current assets of discontinued operations:
Property and equipment, net...................... $ 1,452,263 $ 1,991,451
Patents and licenses............................. 394,945 378,017
Reserve for valuation............................ (200,000) --
----------- -----------
$ 1,647,208 $ 2,369,468
=========== ===========
</TABLE>
F-12
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. LONG-TERM DEBT AND OTHER FINANCING AGREEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Promissory note.................................. $ 39,015 $ 57,058
Term note payable to bank........................ 2,846,134 2,814,877
Note payable to bank............................. 840,743 --
Equipment line of credit from bank............... -- 1,504,466
Other equipment financing........................ 436,115 330,328
Other............................................ 4,580 7,920
----------- -----------
4,166,587 4,714,649
Less current portion............................. (1,083,778) (4,427,811)
----------- -----------
$ 3,082,809 $ 286,838
=========== ===========
</TABLE>
In November 1999, the Company entered into a new credit agreement with a
unit of Wells Fargo Bank. The credit agreement provides for a revolving line of
credit of $4,000,000, subject to a borrowing base limitation, with an annual
interest rate of 1.5% above the bank's prime rate. The credit agreement
includes a term loan of $1,950,000 amortized over 60 months commencing October
31, 1999 with interest at 1.5% above the bank's prime rate, and a $750,000
equipment financing facility with interest at 2% above the bank's prime rate.
The credit agreement expires on October 31, 2002 unless renewed. In connection
with the new agreement, the Company paid in full the existing term note payable
and note payable with the bank amounting to approximately $3,642,000. The
agreement includes a .25% facility fee. The agreement provides for a reduction
in the interest rate applied to amounts outstanding under the line of credit
and the term loan of 0.5% in the event that the net proceeds from the sale of
discontinued operations received prior to June 30, 2000 is at least $2,000,000.
All borrowings under the new credit agreement are secured by accounts
receivable, inventory, and property and equipment. The agreement contains
restrictive covenants, which include limitations on losses, maintenance of
minimum tangible net worth, debt equity and cash flow ratios, as well as
restrictions on capital and lease expenditures, additional borrowings and
payments of dividends. In addition, penalties are due on a declining scale in
the event that the Company terminates the agreement prior to the expiration of
its term.
Other equipment financing agreements are payable in monthly installments of
principal and interest through April 2004. Borrowings under these financing
agreements are secured by specific equipment, with interest at rates ranging
from 9.75% to 12.00% at September 30, 1999.
In November 1987, the Company obtained debt and equity financing from Union
Miniere ("Union"). The Company issued 483,333 shares of common stock for
$1,053,000 cash (net of stock issuance costs of $107,000) and subordinated
convertible debentures amounting to $1,340,000. In December 1988, the Company
issued an additional $320,000 of subordinated convertible debentures to Union.
In March 1997, the maturity date of the debentures was extended to November 2,
2000 and the conversion rate for which the debentures are convertible into
common stock was set at $4.625 per share (358,918 shares). The debentures are
subordinated to all bank borrowings and interest is payable semi-annually at an
annual rate equal to 1% above a bank's prime rate (9.25% at September 30, 1999)
subject to a minimum rate of 5 1/2% and a maximum rate of the lesser of 11.5%
or the maximum rate permitted by law. The debentures provide for restrictive
covenants similar to those of the bank borrowings. At September 30, 1999, the
Company was not in compliance with one of these covenants; however, a waiver
has been obtained from Union.
F-13
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All subordinated convertible debentures and long-term debt of the Company
bear an adjustable interest rate and are carried at the principal value of the
liability, which approximates fair value. Principal maturities on the
subordinated convertible debentures and long-term debt, for each of the years
ending subsequent to September 30, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................................. $1,084,000
2001.............................................................. 2,723,000
2002.............................................................. 906,000
2003.............................................................. 1,087,000
2004.............................................................. 27,000
Thereafter........................................................ --
----------
$5,827,000
==========
</TABLE>
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Valuation allowances are
established when the realization of deferred tax assets is uncertain. The
components of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
Year Ended September
30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Tax basis operating loss and credit
carryforwards................................. $ 4,693,000 $ 4,817,000
Impairment loss................................ 1,141,000 --
Accrued expenses and reserves.................. 1,004,000 --
Other.......................................... -- 518,000
----------- -----------
Total deferred tax assets........................ 6,838,000 5,335,000
----------- -----------
Deferred tax liability:
Depreciation................................... (866,000) (55,000)
Intangibles.................................... (181,000) (243,000)
----------- -----------
Total deferred tax liabilities................... (1,047,000) (298,000)
----------- -----------
Net deferred tax assets.......................... 5,791,000 5,037,000
Valuation allowance.............................. (5,791,000) (5,037,000)
----------- -----------
Net deferred tax accounts........................ $ -- $ --
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended September
30, Year Ended
------------------------ August 31,
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Pretax income (loss):
United States......................... $(1,557,457) $(6,983,277) $2,289,323
Foreign............................... 81,322 200,307 170,651
----------- ----------- ----------
$(1,476,135) $(6,782,970) $2,459,974
=========== =========== ==========
</TABLE>
F-14
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended
---------------- August 31,
1999 1998 1997
------- -------- ----------
<S> <C> <C> <C>
Current:
Federal........................................ $ -- $177,000 $139,500
Foreign........................................ -- -- 12,836
State.......................................... 10,547 71,642 32,422
------- -------- --------
Total income tax provision....................... $10,547 $248,642 $184,758
======= ======== ========
</TABLE>
A reconciliation of the effective tax rates and the statutory federal income
tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended
September
30, Year Ended
------------- August 31,
1999 1998 1997
----- ----- ----------
<S> <C> <C> <C>
Tax at U.S. statutory rate...................... (35.0%) (35.0%) 35.0%
State income taxes, net of federal benefit...... .5% .7% .9%
Higher effective income taxes of other
countries...................................... -- -- (.5%)
Change in valuation allowance................... 35.0% 38.0% (30.0%)
Other, net...................................... -- -- 1.1%
----- ----- -----
0.5% 3.9% 6.5%
===== ===== =====
</TABLE>
At September 30, 1999, the Company has net operating loss carryforwards for
federal and California income tax purposes of approximately $11,442,000 and
$3,066,000, respectively, which may be applied against future taxable income.
The federal carryforwards will begin to expire in 2001 unless previously
utilized. The California carryforwards begin to expire in 2000.
The Company also has investment tax credit, research and development credit,
targeted jobs tax credit, alternative minimum tax credit and California
manufacturers investment credit carryforwards at September 30, 1999 aggregating
approximately $648,000 These tax credit carryforwards will begin to expire in
2000.
Due to the Tax Reform Act of 1986, the Company's ability to use the net
operating loss and tax credit carryforwards could be limited in the event of a
cumulative change in ownership of more than 50% occurring within a three year
period.
5. STOCKHOLDERS' EQUITY
Common Stock Warrants
Periodically, the Company will issue warrants to purchase common stock to
outside directors and consultants in lieu of stock options. During the three
years ended September 30, 1999, 46,664 warrants at an exercise price of $4.50
per share were issued to outside directors, which are fully exercisable.
Warrants to purchase 324,996 shares of common stock at $3.00 to $7.33 per share
are outstanding at September 30, 1999 including 185,000 warrants at a price
range of $7.15 to $7.33 per share issued to representatives of the underwriters
in conjunction with the initial public offering and for periodic advisory
services. During 1999, 23,332 warrants were cancelled. The outstanding warrants
expire from June 2002 to December 2006.
F-15
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Option Plans
The Company's 1981 Stock Option Plan was approved by the Board of Directors
and stockholders in 1981, as amended (the "1981 Plan"). The Company's 1993
Stock Option Plan (the "1993 Plan") was approved by the Board of Directors and
stockholders in September 1993. The exercise prices of options granted were not
less than fair market value of the stock on the date of grant. The options vest
over a five-year period commencing on the date of grant in annual increments of
twenty percent and are exercisable for a period of ten years after the date of
grant. The Board of Directors has terminated the 1981 and 1993 Plans and no
additional shares will be granted thereunder, but outstanding options remain
exercisable and continue to vest in accordance with their terms until they
terminate.
On March 25, 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan"). The 1997 Plan provides for incentive stock options and stock
appreciation rights appurtenant thereto for employees (including officers and
employee directors), and nonstatutory stock options, stock appreciation rights
appurtenant thereto, stock bonuses and rights to purchase restricted stock for
employees (including officers and employee directors) and non-employee
directors and consultants. The 1997 Plan is administered by the Board of
Directors, or a Committee appointed by the Board, which determines the option
awards to be granted, including exercise prices, number of shares subject to
the awards and the exercisability thereof, provided that such terms comply with
the provisions of the plan.
The term of stock options granted under the 1997 Plan may not exceed 10
years. The exercise price of options granted under the 1997 Plan is determined
by the Board of Directors, but in the case of an incentive stock option, cannot
be less than 100% of the fair market value of the common stock on the date of
grant and in the case of a non-statutory stock option, cannot be less than 85%
of the fair market value of the common stock on the date of grant. Options
granted under the plans vest at the rate specified in the option agreement. The
Board has authorized and reserved an aggregate of 1,000,000 shares of common
stock for issuance under the Plan.
On December 5, 1998 the Company repriced to $3.00 per share, which price was
above the closing market price per share on the date of the repricing, 267,329
options that had original exercise prices ranging from $3.50 to $7.00 per
share.
F-16
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes stock option and warrant activity:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Number of Price Per Price Per
Shares Share Share
--------- ---------- ---------
<S> <C> <C> <C>
Outstanding at August 31, 1996............... 1,278,497 $ .22-4.50 $3.40
Granted.................................... 666,776 1.05-3.00 5.02
Exercised.................................. -- -- --
Canceled................................... (35,329) 3.00-4.50 3.37
--------- ---------- -----
Outstanding at August 31, 1997............... 1,909,944 .22-7.15 3.97
Granted.................................... 502,000 3.25-7.33 4.39
Exercised.................................. (243,880) .22-3.00 2.67
Canceled................................... (275,524) 1.22-6.50 4.50
--------- ---------- -----
Outstanding at September 30, 1998............ 1,892,540 .56-7.33 4.17
Granted.................................... 180,250 .75-2.00 1.65
Canceled................................... (261,537) 1.55-4.94 3.03
--------- ---------- -----
Outstanding at September 30, 1999............ 1,811,253 $ .56-7.33 $3.61
========= ========== =====
</TABLE>
At September 30, 1999, the weighted-average exercise price of outstanding
stock options and warrants is $3.18 and $5.56, respectively, and 1,351,026
options and warrants are exercisable.
Adjusted pro forma information regarding net income (loss) is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using the Black-
Scholes method for option pricing with the following weighted-average
assumptions: volatility of 0.559; risk-free interest rate range from 5.4% to
6.2%; dividend yield of 0%; and a weighted average expected life of the options
of 6 years. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
September 30, September 30, August 31,
1999 1998 1997
------------- ------------- ----------
<S> <C> <C> <C>
Adjusted pro forma net income
(loss)............................. $(2,109,000) $(7,683,000) $2,025,000
Adjusted pro forma diluted net
income (loss) per share............ $ (.25) $ (.92) $ .28
</TABLE>
Employee Stock Purchase Plan
On March 25, 1997 the Company adopted the Employee Stock Purchase Plan (the
"Purchase Plan") covering an aggregate of 250,000 shares of common stock. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the IRS Code. Under the Purchase Plan, the Board
has authorized participation by eligible employees, including officers, in
periodic offerings following the commencement of the Purchase Plan. The initial
offering under the Purchase Plan commenced on the closing of the Company's
initial public offering and terminated on February 28, 1998. Sequential six-
month offerings have occurred since that date. The Purchase Plan permits the
purchase of shares of common stock at the end of each offering period at 85% of
the lesser of the price of the common stock on the first day of the offering
period and the last day of the offering period. During 1999, 181,532 shares
were issued to employees under this Plan at an average price of $.87 per share.
F-17
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company does not have sufficient shares reserved to satisfy the expected
requirement for the offering period ending February 29, 2000. The Board of
Directors has authorized an increase in the number of shares reserved for
issuance under the Purchase Plan of 100,000 shares, subject to stockholder
approval at the next annual meeting of stockholders. In the event the increase
in shares authorized is not approved, or approval occurs after the end of the
offering period, the Company will allocate shares to the participants. The
Purchase Plan would then become inactive until such time as stockholders
approve an increase in shares reserved for issuance.
Effective October 15, 1999, the Company designated 150,000 shares of
Preferred Stock as Series A Junior Participating Preferred Stock and declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of common stock. Each Right entitles a Stockholder to purchase one one-
hundredth of a share of Series A Junior Participating Preferred Stock at an
exercise price of $10.00, subject to adjustment. The Rights are only
exercisable when a person or group of affiliated or associated persons (an
Acquiring Person) acquires or obtains the right to acquire 15% or more of the
Company's outstanding Common Stock or announces a tender or exchange offer that
would result in an Acquiring Person beneficially owning more than 15% or more
of the Company's outstanding shares. In the event any person becomes an
Acquiring Person, each holder of a Right, other than Rights beneficially owned
by the Acquiring Person, will thereafter have the right to receive on exercise
that number of shares of common stock of the Company, or, in certain business
combinations, of the acquiring company, having a market value of two times the
exercise price of the Right. The Rights expire on October 15, 2009 unless
extended prior thereto by the Board, or earlier redeemed or exchanged by the
Company.
Shares Reserved for Future Issuance
The following shares of common stock are reserved for future issuance at
September 30, 1999:
<TABLE>
<S> <C>
Subordinated convertible debentures................................ 358,918
Stock options:
Granted and outstanding.......................................... 1,486,257
Reserved for future grants....................................... 543,852
Warrants........................................................... 324,996
Stock Purchase Plan................................................ 34,897
---------
2,748,920
=========
</TABLE>
F-18
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands):
<TABLE>
<CAPTION>
Year Ended
--------------------------------------
September 30, September 30, August 31,
1999 1998 1997
------------- ------------- ----------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share--income (loss)
available to common stockholders.. $(1,487) $(7,032) $2,275
======= ======= ======
Denominator:
Denominator for basic earnings per
share--weighted-average shares.... 8,454 8,263 5,592
Effect of dilutive securities:
Stock options and warrants....... -- -- 634
Convertible preferred stock...... -- -- 970
------- ------- ------
Dilutive potential common shares... -- -- 1,604
Denominator for diluted earnings
per share--adjusted weighted-
average shares and
assumed conversions............... 8,454 8,263 7,196
======= ======= ======
Basic earnings per share............. $ (.18) $ (.85) $ .41
======= ======= ======
Diluted earnings per share........... $ (.18) $ (.85) $ .32
======= ======= ======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases its operating, office and other facilities as well as
certain vehicles and equipment under non-cancellable operating leases. The
operating and office facilities leases contain escalation clauses and options
for renewal and extend through June 2007.
Future minimum rental payments (excluding common area maintenance charges)
required under the operating leases for each of the remaining fiscal years
ending subsequent to September 30, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................................. $ 857,000
2001.............................................................. 632,000
2002.............................................................. 452,000
2003.............................................................. 391,000
2004.............................................................. 357,000
Thereafter........................................................ 977,000
----------
$3,666,000
==========
</TABLE>
Rent expense was $1,191,000, $1,528,000, and $1,063,000 for the years ended
September 30, 1999, September 3, 1997 and August 31, 1997, respectively.
F-19
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. GEOGRAPHIC INFORMATION
The Company designs, manufactures and markets high performance optics for
industrial, processing, medical, aerospace and defense markets. Export sales
from U.S. continuing operations to unaffiliated customers located principally
in Europe and the Asia Pacific region amounted to 13%, 30%, and 33% of total
revenue in 1999, 1998 and 1997, respectively.
Information with respect to the Company's continuing operations by
significant geographic area is set forth below. Transfers between geographic
areas have been shown at the agreed upon transfer price. All transactions
denominated in foreign currency have been translated at the average exchange
rates during the period.
The identifiable assets located in the United States include assets located
in Mexico, which are not considered significant.
<TABLE>
<CAPTION>
Year Ended September 30, 1999
-------------------------------------------------
United Consolidated
States Europe Eliminations Total
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers.................. $29,270,046 $4,740,131 $ -- $34,010,177
Transfers between geographic
areas...................... 2,037,483 -- (2,037,483) --
----------- ---------- ----------- -----------
Total revenue............... $31,307,529 $4,740,131 $(2,037,483) $34,010,177
=========== ========== =========== ===========
Income (loss) before income
taxes...................... $ 1,586,605 $ 81,322 $ (18,427) $ 1,649,500
=========== ========== =========== ===========
Identifiable assets......... $26,556,347 $2,146,119 $(6,794,285) $21,908,181
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30, 1998
--------------------------------------------------
United Consolidated
States Europe Eliminations Total
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers................. $25,759,723 $4,356,152 $ -- $30,115,875
Transfers between
geographic areas.......... 2,192,342 -- (2,192,342) --
----------- ---------- ----------- -----------
Total revenue.............. $27,952,065 $4,356,152 $(2,192,342) $30,115,875
=========== ========== =========== ===========
Income (loss) before income
taxes..................... $(3,762,730) $ 200,307 $ (51,337) $(3,613,760)
=========== ========== =========== ===========
Identifiable assets........ $23,965,886 $2,387,980 $(1,735,653) $24,618,213
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31, 1997
-------------------------------------------------
United Consolidated
States Europe Eliminations Total
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers.................. $26,020,906 $3,719,523 $ -- $29,740,429
Transfers between geographic
areas.. 1,391,125 -- (1,391,125) --
----------- ---------- ----------- -----------
Total revenue............... $27,412,031 $3,719,523 $(1,391,125) $29,740,429
=========== ========== =========== ===========
Income before income taxes.. $ 2,780,753 $ 170,651 $ 13,619 $ 2,965,023
=========== ========== =========== ===========
Identifiable assets......... $27,763,976 $2,009,946 $(1,655,280) $28,118,642
=========== ========== =========== ===========
</TABLE>
9. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan (the "Plan") covering
substantially all employees that have been employed for at least 90 days and
meet certain age requirements. Employees may contribute up to 16% of
F-20
<PAGE>
LASER POWER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
their compensation per year (subject to a maximum limit by federal tax law).
The Company is obligated to make matching contributions equal to 50% of the
employee's contribution up to a maximum of 6% of the employee's compensation.
At the discretion of the Board of Directors, the Company may make additional
contributions. Prior to its merger with the Company, EMI had a defined
contribution plan with contributions based on a profit-sharing formula.
Subsequent to the merger, the EMI plan was terminated and participant balances
rolled over into the Company's plan. The Company's contributions charged to
continuing operations, which include contributions to the EMI plan prior to its
termination, were $197,000, $381,000 and $275,000 for the years ended September
30, 1999, September 30, 1998 and August 31, 1997, respectively.
10. SUBSEQUENT EVENT
In June 2000, the Company and certain current and former directors of the
Company were named in a lawsuit. The complaint seeks to assert a breach of
fiduciary duty claim, and requests class action relief. This litigation is in
its early stages and no trial date has been scheduled. Management believes such
claims are without merit and intends to vigorously defend its position if
required.
F-21
<PAGE>
LASER POWER CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 2, September 30,
2000 1999
----------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 312 $ 860
Accounts receivable, net........................... 4,742 4,488
Inventories, net................................... 5,524 6,500
Other current assets............................... 189 330
Net current assets of discontinued operations...... -- 570
------- -------
Total current assets............................. 10,767 12,748
Property and equipment, net.......................... 7,603 7,094
Intangibles and other assets, net.................... 764 419
Net non-current assets of discontinued operations.... -- 1,647
------- -------
Total assets..................................... $19,134 $21,908
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 2,295 $ 2,024
Accrued compensation and related expenses.......... 1,212 1,529
Other current liabilities.......................... 1,048 1,733
Allowance for operating losses of discontinued
operations........................................ -- 450
Current portion of long-term debt.................. 743 1,084
------- -------
Total current liabilities........................ 5,298 6,820
Long-term liabilities................................ 269 420
Long-term debt, less current portion................. 1,050 3,083
Subordinated convertible debentures.................. -- 1,660
Stockholders' equity:
Common stock, par value $.001:
Authorized--15,000,000 shares
Issued and outstanding 8,579,987 shares at
September 30, 1999 and 9,701,421 shares at July
2, 2000......................................... 10 8
Additional paid-in capital......................... 22,641 19,574
Accumulated deficit................................ (10,063) (9,639)
Accumulated other comprehensive loss............... (71) (18)
------- -------
Total stockholders' equity......................... 12,517 9,925
------- -------
Total liabilities and stockholders' equity....... $19,134 $21,908
======= =======
</TABLE>
See accompanying notes.
F-22
<PAGE>
LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended June Ended June
--------------- ----------------
2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales............................. $ 7,071 $7,847 $22,814 $22,885
Contract research and development......... 572 812 1,606 2,068
------- ------ ------- -------
Total revenues.......................... 7,643 8,659 24,420 24,953
Costs and expenses:
Cost of product sales..................... 5,254 5,770 16,976 16,791
Contract research and development......... 497 614 1,111 1,432
Internal research and development......... 387 139 839 373
Selling, general and administrative....... 915 1,630 3,628 5,011
------- ------ ------- -------
Total costs and expenses................ 7,053 8,153 22,554 23,607
------- ------ ------- -------
Income from operations...................... 590 506 1,866 1,346
Termination fee and related transaction
costs.................................... 2,221 -- 2,221 --
Interest expense and other, net........... 107 87 330 241
------- ------ ------- -------
Income (loss) before income taxes........... (1,738) 419 (685) 1,105
Income taxes.............................. (361) -- (261) 9
------- ------ ------- -------
Net income (loss) from continuing
operations................................. (1,377) 419 (424) 1,096
Loss from discontinued operations......... -- (481) -- (1,898)
------- ------ ------- -------
Net loss................................ $(1,377) $ (62) $ (424) $ (802)
======= ====== ======= =======
Basic earnings (loss) per share:
Income (loss) from continuing operations.. $ (.14) $ .05 $ (.05) $ .13
Loss from discontinued operations......... -- (.06) -- (.23)
------- ------ ------- -------
Net loss................................ $ (.14) $ (.01) $ (.05) $ (.10)
======= ====== ======= =======
Diluted earnings (loss) per share:
Income (loss) from continuing operations.. $ (.14) $ (.04)
Loss from discontinued operations......... -- --
------- -------
Net income (loss)....................... $ (.14) $ (.04)
======= =======
Average common shares outstanding--basic.... 9,681 8,477 9,168 8,433
======= ====== ======= =======
Average common shares outstanding--diluted.. 9,954 8,477 9,441 8,433
======= ====== ======= =======
</TABLE>
See accompanying notes.
F-23
<PAGE>
LASER POWER CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended June
----------------
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss from continuing operations......................... $ (424) $ (802)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................. 876 1,091
Other current assets and current liabilities.............. 676 (1,374)
Changes in other assets and liabilities................... (749) (413)
------- -------
Net cash provided by (used in) operating activities of
Continuing operations...................................... 379 (1,498)
Net cash provided by (used in) operating activities of
Discontinued operations.................................... (439) 298
------- -------
Net cash provided by (used in) operating activities....... (60) (1,200)
INVESTING ACTIVITIES
Additions to property and equipment......................... (1,730) (1,832)
------- -------
Net cash used in investing activities of continuing
operations................................................. (1,730) (1,832)
Net cash provided by (used in) investing activities of
discontinued operations.................................... 2,207 (141)
------- -------
Net cash provided by (used in) investing activities....... 477 (1,973)
FINANCING ACTIVITIES
Payments on borrowings...................................... (4,033) (1,635)
Proceeds from borrowings.................................... -- 2,374
Net proceeds from issuance of stock......................... 3,069 67
------- -------
Net cash provided by (used in) financing activities....... (964) 806
------- -------
Net decrease in cash and cash equivalents................... (548) (2,367)
Cash at beginning of the period............................. 860 3,412
------- -------
Cash at end of the period................................... $ 312 $ 1,045
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................... $ 362 $ 422
======= =======
</TABLE>
See accompanying notes.
F-24
<PAGE>
LASER POWER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by Laser Power Corporation (the "Company") in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X, and in the
opinion of management, contain all adjustments necessary to present fairly the
consolidated financial position as of July 2, 2000 and the consolidated results
of operations for the three and nine fiscal months ended July 2, 2000 and June
27, 1999.
Certain information and footnote disclosures normally included in financial
statements have been omitted or condensed. These condensed consolidated
financial statements should be read in conjunction with the financial
information included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations for the period
ended July 2, 2000 are not necessarily indicative of the results that may be
attained for the entire fiscal year.
The Company's general policy is to report thirteen week quarters. The
quarter ended July 2, 2000, includes a 14 week period to adjust the end of the
quarter to conform to the calendar quarter.
The Company has determined that its continuing operations are only one
segment and has disclosed information related to its discontinued operations in
the Notes to the Condensed Consolidated Financial Statements.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using "Basic EPS" and "Diluted EPS"
as required by Statement of Financial Accounting Standards No. 128, Earnings
per Share ("SFAS 128"), which supersedes APB Opinion 15. Basic EPS includes no
dilution and is based on weighted-average common shares outstanding for the
period. Diluted EPS reflects the potential dilution of stock options,
convertible preferred stock and warrants to purchase common stock. For loss
periods, these common equivalent shares are excluded from the Diluted EPS
computation as their effect would be antidilutive.
3. FINANCING AGREEMENTS
In November 1999, the Company entered into a credit agreement with Wells
Fargo Bank. The credit agreement provides a $4,000,000 revolving line of
credit, subject to a borrowing base limitation, and a $1,950,000 term loan,
amortized over 60 months commencing October 31, 1999. The annual interest rate
on these loans is 1.5% above the lender's prime rate until net proceeds from
the sale of discontinued operations exceeds $2,000,000. The credit agreement
also provides a $750,000 equipment financing facility with interest at 2% above
the lender's prime rate. The agreement expires October 31, 2002 unless renewed.
On April 1, 2000, the interest rate on the revolving line and the term loan was
reduced to 1% over the lender's prime rate after net proceeds from the sale of
discontinued operations exceeded $2,000,000. On April 6, 2000, the Company
redeemed $1,660,000 of its convertible subordinated debentures held by Union
Miniere.
Borrowings under the credit agreement are secured by accounts receivable,
inventory, and property and equipment. The agreement contains restrictive
covenants that include limitations on losses, maintenance of minimum tangible
net worth, debt, equity and cash flow ratios, as well as restrictions on
capital and lease expenditures, additional borrowings and payments of
dividends. On July 2, 2000, the Company was not in compliance with certain loan
covenants and secured waivers from Wells Fargo Bank.
F-25
<PAGE>
LASER POWER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. INVENTORIES (in thousands)
The components of inventory at July 2, 2000 and September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
July 2, September 30,
2000 1999
----------- -------------
(unaudited)
<S> <C> <C>
Raw materials......................................... $ 3,070 $ 3,405
Work in progress...................................... 1,656 1,483
Finished goods........................................ 3,023 3,009
------- -------
Subtotal............................................ 7,749 7,897
Reserves.............................................. (2,225) (1,397)
------- -------
Inventories, net...................................... $ 5,524 $ 6,500
======= =======
</TABLE>
5. DISCONTINUED OPERATIONS (in thousands)
During fiscal 1999, the Board of Directors adopted a plan to sell the
Company's microlaser operations and to phase out certain contract research
operations. Operations to be sold or phased out are reported as discontinued
operations. The Company sold the majority of the assets of discontinued
operations in December, 1999, and concluded a transaction for the remaining
discontinued operations in February 2000.
The results of discontinued operations were as follows:
<TABLE>
<CAPTION>
Three
Months Nine Months
Ended June Ended June
---------- ---------------
2000 1999 2000 1999
---- ----- ------ -------
<S> <C> <C> <C> <C>
Revenues:
Product sales.................................... $-- $ 598 $ 602 $ 1,713
Contract research and development................ -- 443 467 1,365
--- ----- ------ -------
Total revenues................................. -- 1,041 1,069 3,078
Costs and expenses:
Cost of product sales............................ -- 617 584 1,719
Contract research and development................ -- 331 414 1,069
Internal research and development................ -- 276 123 1,039
Selling, general and administrative.............. -- 243 387 996
--- ----- ------ -------
Total costs and expenses....................... -- 1,467 1,508 4,824
--- ----- ------ -------
Loss from discontinued operations.................. -- (426) (439) (1,745)
Interest expense, net............................ -- 55 -- 153
--- ----- ------ -------
Loss before income taxes........................... -- (481) (439) (1,898)
Income taxes..................................... -- -- -- --
--- ----- ------ -------
Net loss from discontinued operations.............. $-- $(481) $ (439) $(1,898)
=== ===== ====== =======
</TABLE>
Corporate overhead expenses, historically allocated and charged to
discontinued operations, were reversed and allocated back to continuing
operations because those expenses were not considered to be directly
attributable to discontinued operations. Expenses allocated back to continuing
operations totaled $243,000 for the three months ending June 1999, and $387,000
and $1,342,000 for the nine months ending June 2000 and 1999 respectively.
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LASER POWER CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest expense attributable to discontinued operations includes an
allocation of interest on general corporate credit facilities. Interest is
allocated to discontinued operations based on the expected reduction in
interest expense that should occur upon the sale of any of the discontinued
operations and the use of proceeds from such sale to repay debt, and is
representative of projected future interest expense. The Company believes this
approach is substantially the same as if this debt was assumed by the buyer.
All interest expense for the three and nine month periods ending July 2, 2000
was allocated to continuing operations.
The consolidated balance sheets reflect the assets and liabilities of
discontinued operations as current or non-current assets based on the original
classification of the accounts, except that current liabilities are netted
against current assets and non-current liabilities are netted against non-
current.
The accrual for the estimated pre-tax losses of $450,000 to be incurred
during the expected disposal period is presented separately in the accompanying
consolidated balance sheet for September 30, 1999, and excludes corporate
overhead and interest allocation. The pre-tax loss for the nine month period
ended July 2, 2000 amounting to $439,000 has been charged to this accrual.
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of June 28,
2000 by and between LASER POWER CORPORATION, a Delaware corporation (the
"Company"), II-VI INCORPORATED, a Pennsylvania corporation ("II-VI"), and II-
VI ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of
II-VI ("MergerSub").
RECITALS
A. The respective Boards of Directors of the Company, II-VI and MergerSub
each have determined that it is fair to, and in the best interests of their
respective companies and stockholders for MergerSub to acquire the Company
upon the terms and subject to the conditions set forth herein.
B. In furtherance of such acquisition, it is proposed that MergerSub will
make an exchange offer (the "Offer") to purchase, subject to the terms and
conditions of this Agreement, up to 100% of all the issued and outstanding
shares of common stock, $.001 par value per share (the "Company Common Stock")
of the Company (the "Shares"), the consideration for such purchase to consist
of shares of common stock, no par value, of II-VI (the "II-VI Common Stock")
and cash.
C. The Board of Directors of the Company has approved the making of the
Offer and resolved to recommend that the holders of the Shares tender their
Shares pursuant to the Offer.
D. The respective Boards of Directors of the Company, II-VI and MergerSub
each have approved in accordance with the Delaware General Corporation Law, as
amended ("Delaware Corporate Law"), this Agreement and the merger of the
MergerSub with and into the Company following the consummation of the Offer
(the "Merger") and upon the terms and subject to the conditions set forth
herein.
E. The Company, II-VI and MergerSub desire to make certain representations,
warranties, covenants and agreements in connection with the Offer and the
Merger and also to prescribe certain conditions to the Offer and the Merger.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Definitions.
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Balance Sheet" shall mean the consolidated balance sheet of the Company as
of September 30, 1999 (and the notes thereto) set forth in the Company's
annual report on Form 10-K for the fiscal year ended September 30, 1999.
"Balance Sheet Date" shall mean September 30, 1999.
"Benefit Arrangements" shall have the meaning set forth in Section 5.13(a).
"Certificate" shall have the meaning set forth in Section 3.2(b).
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"Certificate of Merger" shall have the meaning set forth in Section 3.1(b).
"Claims" shall mean all demands, claims, actions or causes of action,
assessments, losses, damages (including, without limitation, diminution in
value), liabilities, sanctions, costs and expenses, including, without
limitation, interest, penalties and attorneys' fees and disbursements.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commencement Date" shall mean the date of the filing of the Offer
Registration Statement, as defined in Section 2.1(b).
"Common Share Exchange Ratio" shall have the meaning set forth in Section
2.1(a).
"Company" shall mean Laser Power Corporation, a Delaware corporation.
"Company Intellectual Property Rights" shall have the meaning set forth in
Section 5.24.
"Company SEC Reports" shall have the meaning set forth in Section 5.7(a).
"Company Securities" shall have the meaning set forth in Section 5.5(b).
"Confidentiality Agreement" shall mean the Confidentiality Agreement dated
as of January 5, 2000, by and between the Company and II-VI.
"Continuing Directors" shall have the meaning set forth in Section 2.3(b).
"Contracts" shall have the meaning set forth in Section 5.22.
"Control" shall mean possession, directly or indirectly, or power to direct
or cause the direction of management or policies (whether through ownership of
voting securities, by agreement or otherwise).
"Current Policies" shall have the meaning set forth in Section 8.2(a).
"Delaware Corporate Law" shall mean the Delaware General Corporation Law, as
amended.
"Director Options" shall mean the outstanding options to acquire Shares
granted to directors of the Company.
"Disbursing Agent" shall have the meaning set forth in Section 3.3(a).
"Disclosure Letter" shall have the meaning set forth in the preamble to
ARTICLE V.
"Dissenting Shares" shall have the meaning set forth in Section 3.4.
"DOD" shall mean the United States Department of Defense.
"Effective Time" shall have the meaning set forth in Section 3.1(b).
"Employee Benefit Plan" shall have the meaning set forth in Section 3(3) of
ERISA.
"Employee Options" shall mean the outstanding options to acquire shares of
Company Common Stock granted to employees of the Company.
"Employee Plans" shall have the meaning set forth in Section 5.13(a).
"Environmental Laws" shall mean any Laws (including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act),
including any plans, other criteria, or guidelines
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promulgated pursuant to such Laws, now or hereafter in effect relating to the
manufacture, importation, distribution, generation, production, installation,
use, storage, treatment, transportation, Release, threatened Release, or
disposal of Hazardous Materials, noise control, or the protection of human
health or safety, natural resources, or the environment.
"Environmental Permits" shall mean any permits, licenses, certificates and
approvals required under any Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Expenses" shall have the meaning set forth in Section 12.4.
"Financing" shall have the meaning set forth in Section 6.8.
"Furnished" shall mean supplied, delivered or provided in any way.
"GAAP" shall mean generally accepted accounting principles, as in effect in
the United States, from time to time.
"Governmental Authority" shall mean any agency, public or regulatory
authority, instrumentality, department, commission, court, ministry, tribunal
or board of any government, whether foreign or domestic and whether national,
federal, tribal, provincial, state, regional, local or municipal, including
without limitation the SEC and DOD.
"Hazardous Materials" shall mean any wastes, substances, radiation, or
materials (whether solids, liquids or gases): (i) which are hazardous, toxic,
infectious, explosive, radioactive, carcinogenic, or mutagenic; (ii) which are
or become defined as "pollutants," "contaminants," "hazardous materials,"
"hazardous wastes," "hazardous substances," "toxic substances," "radioactive
materials," "solid wastes," or other similar designations in, or otherwise
subject to regulation under, any Environmental Laws; (iii) the presence of
which on the Real Property cause or threaten to cause a nuisance pursuant to
applicable statutory or common law upon the Real Property or to adjacent
properties; (iv) without limitation, which contain polychlorinated biphenyls
(PCBs), asbestos and asbestos-containing materials, lead-based paints, urea-
formaldehyde foam insulation, or petroleum or petroleum products (including,
without limitation, crude oil or any fraction thereof) or (v) which pose a
hazard to human health, safety, natural resources, industrial hygiene, or the
environment, or an impediment to working conditions.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"II-VI Banker" shall mean PNC Capital Markets, Inc.
"II-VI Designees" shall have the meaning set forth in Section 2.3(a).
"II-VI Information" shall have the meaning set forth in Section 6.5.
"II-VI Share Value" means the weighted-average trading price of the II-VI
Common Stock for the 12 trading days ending on the trading day before the date
in question.
"Insurance Policies" shall have the meaning set forth in Section 5.19.
"International Trade in Arms Regulations" shall mean 22 CFR Part 120.
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"Laws" shall mean all foreign, federal, state and local statutes, laws,
ordinances, regulations, rules, resolutions, orders, determinations, writs,
injunctions, common law rulings, awards (including, without limitation, awards
of any arbitrator), judgments and decrees applicable to the specified persons
or entities and to the businesses and assets thereof (including, without
limitation, Laws relating to securities registration and regulation; the sale,
leasing, ownership or management of real property; employment practices, terms
and conditions, and wages and hours; building standards, land use and zoning;
safety, health and fire prevention; and environmental protection, including
Environmental Laws).
"Letter of Transmittal" shall have the meaning set forth in Section 2.1(c).
"Lien" shall mean, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
"Material Adverse Effect" shall mean with respect to the same or any similar
events, acts, conditions or occurrences, whether individually or in the
aggregate, a material adverse effect on: (i) the business, prospects, condition
(financial or otherwise), results of operations, assets or liabilities of such
party; (ii) the legality or enforceability against a party to this Agreement;
or (iii) the ability of a party to perform its obligations and to consummate
the transactions under this Agreement. An adverse change in the market price or
trading volume of the Shares shall not be deemed, by itself, to constitute a
Material Adverse Effect.
"Merger" shall have the meaning set forth in the Recitals hereto.
"Merger Consideration" shall have the meaning set forth in Section 3.2(a).
"Merger Registration Statement" shall have the meaning set forth in Section
6.5.
"MergerSub" shall have the meaning set forth in the Recitals hereto.
"MergerSub Securities" shall have the meaning set forth in Section 6.9.
"National Industrial Security Program Regulations" shall mean implementing
regulations under the National Industrial Security Program, Executive Order
12829, January 6, 1993; DOD 5220.22-M.
"Notice of Superior Proposal" shall have the meaning set forth in Section
7.5(b).
"Offer Documents" shall have the meaning set forth in Section 2.1(c).
"Offer Price" shall mean, per issued and outstanding share of Company Common
Stock: (i) .052 shares of II-VI Common Stock provided, however, that in the
event that the II-VI Share Value on the date of the closing of the Offer
exceeds $53.08, then the shares of II-VI Common Stock shall be reduced to the
fraction whose numerator is $2.76 and whose denominator is the II-VI Share
Value on the date of the closing of the Offer; plus (ii) $2.89 net to the
seller in cash; provided, however, if the II-VI Share Value on the date of the
closing of the Offer is less than $43.46, then II-VI shall increase the number
of shares of II-VI Common Stock or increase the amount of cash, at the election
of II-VI, so that the Offer Price equals an amount of cash plus a fraction of a
share of II-VI Common Stock (based on the II-VI Share Value on the date of the
closing of the Offer) that equals $5.15.
"Offer Registration Statement" shall have the meaning set forth in Section
2.1(b).
"Offer to Purchase" shall have the meaning set forth in Section 2.1(c).
"Options" shall mean Employee Options and Director Options.
"Pension Plans" shall have the meaning set forth in Section 5.13(a).
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"Permits" shall mean any licenses, franchises, permits, certificates,
consents, approvals or other similar authorizations affecting, or relating in
any way to, the assets or business of the Company.
"Person" shall mean any individual, corporation, limited liability company,
partnership, association, trust or any other entity or organization, including
any government or political subdivision or any agency or instrumentality
thereof.
"Preferred Stock" shall mean the capital stock of the Company designated as
Series A Preferred Stock, $.001 par value per share.
"Proceeding" shall have the meaning set forth in Section 5.11.
"Proxy Statement" shall have the meaning set forth in Section 5.8.
"Real Property" shall mean the real property owned, leased, operated, or
used by the Company or the Subsidiaries as of the date of this Agreement.
"Related Parties" shall have the meaning set forth in Section 5.25.
"Release" shall mean any emission, spill, seepage, leak, escape, leaching,
discharge, injection, pumping, pouring, emptying, dumping, disposal, or release
of Hazardous Materials from any source (including, without limitation, the Real
Property and property adjacent to the Real Property) into or upon the
environment, including the air, soil, improvements, surface water, groundwater,
the sewer, septic system, storm drain, publicly owned treatment works, or waste
treatment, storage, or disposal systems at, on, from, above, or under the Real
Property or any other property at which Hazardous Materials originating on or
from the Real Property or the businesses or Assets of the Company or any
Subsidiary have been stored, treated or disposed.
"Replacement Policies" shall have the meaning set forth in Section 8.2(a).
"Rights Agreement" shall mean the Rights Agreement, dated October 15, 1999,
as amended, between the Company and American Securities Transfer & Trust, Inc.
"Roth" shall mean Roth Capital Partners, Inc.
"Schedule TO" shall have the meaning set forth in Section 2.1(c).
"Schedule 14D-9" shall have the meaning set forth in Section 2.2(c).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Stockholders' Meeting" shall have the meaning set forth in Section 5.8.
"Subsidiary" shall mean any corporation or other entity of which securities
or other ownership interests having ordinary voting power to elect a majority
of the board of directors or other persons performing similar functions are at
the time directly or indirectly owned by such Person.
"Superior Proposal" shall have the meaning set forth in Section 7.5(c).
"Surviving Corporation Shares" shall mean the common stock of the Surviving
Corporation.
"Surviving Corporation" shall have the meaning set forth in Section 3.1(a).
"System" has the meaning set forth in Section 5.18(a).
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"Tax" or "Taxes" shall mean (A) all taxes, charges, fees, duties, levies,
penalties or other assessments, including, without limitation, income, gross
receipts, excise, real and personal property, sales, use, transfer, license,
payroll, withholding, social security, franchise, unemployment insurance,
workers' compensation, employer health tax or other taxes, fees, assessments or
charges of any kind whatsoever, imposed by any Governmental Authority and shall
include any interest, penalties or additions to tax attributable to any of the
foregoing, (B) any liability for payment of amounts described in clause (A)
whether as a result of transferee liability, of being a member of an
affiliated, consolidated, combined or unitary group for any period, or
otherwise through operation of law, and (C) any liability for the payment of
amounts described in clauses (A) or (B) as a result of any tax sharing
agreement, tax allocation agreement, tax indemnity agreement, or other
agreement that includes indemnification for any tax liability.
"Tax Return" shall mean all returns, declarations, reports, forms,
estimates, information returns, statements or other documents (including any
related or supporting information) filed or required to be filed with or
supplied to any Governmental Authority in connection with any Taxes.
"Tender Offer Conditions" shall have the meaning set forth in Section
2.1(a).
"Termination Date" shall have the meaning set forth in Section 11.1(b).
"Third Party" shall have the meaning set forth in Section 7.5(c).
"Third Party-Acquisition" shall have the meaning set forth in Section
7.5(c).
"Year 2000 Compliant" shall have the meaning set forth in Section 5.18(b).
Section 1.2 Terms Generally.
The definitions in Section 1.1 shall apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include," "includes" and "including" shall be deemed to be followed
by the phrase "without limitation" even if not followed actually by such phrase
unless the context expressly provides otherwise. All references herein to
Sections, paragraphs and Exhibits and Schedules shall be deemed references to
Sections or paragraphs of or Exhibits or Schedules to this Agreement unless the
context shall otherwise require. Unless otherwise expressly defined, terms
defined in this Agreement shall have the same meanings when used in any Exhibit
or Schedule and terms defined in any Exhibit or Schedule shall have the same
meanings when used in this Agreement or in any other Exhibit or Schedule. The
words "herein," "hereof," "hereto" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular provision
of this Agreement.
ARTICLE II
THE OFFER
Section 2.1 The Offer.
(a) Provided that this Agreement shall not have been terminated in
accordance with ARTICLE XI hereof and so long as none of the events set forth
on Annex A hereto (the "Tender Offer Conditions") shall have occurred and are
continuing, MergerSub shall, and II-VI shall cause MergerSub to, commence
(within the meaning of Rule 14d-2 promulgated under the Exchange Act) the Offer
at the Offer Price as promptly as reasonably practicable, but in no event later
than ten (10) business days after the date of this Agreement. The obligation of
MergerSub to accept for payment and to pay for any Shares tendered pursuant to
the Offer shall be subject only to the satisfaction of the Tender Offer
Conditions. Subject to the terms of this Agreement, II-VI and MergerSub
expressly reserve the right to modify the terms of the Offer, including,
without limitation, to extend the Offer beyond any scheduled expiration date or
waive any Tender Offer Condition; provided,
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however, that neither II-VI nor MergerSub shall, without the prior written
consent of the Company: (i) reduce the number of Shares to be purchased
pursuant to the Offer; (ii) reduce the Offer Price; (iii) impose any additional
conditions to the Offer; (iv) change the form of consideration payable in the
Offer; (v) make any change to the terms of the Offer which is adverse in any
manner to the holders of the Shares; (vi) extend the expiration date of the
Offer beyond the twentieth (20th) business day after commencement of the Offer,
except (A) as required by applicable law and (B) that if any condition to the
Offer has not been satisfied or waived, MergerSub may, in its sole discretion,
extend the expiration date of the Offer for one or more periods not exceeding,
in each case, twenty (20) business days, but in no event later than the
Termination Date; (vii) waive the Minimum Condition (as defined in ANNEX A); or
(viii) waive the Tender Offer Condition relating to the expiration of the
waiting period under the HSR Act or the Tender Offer Conditions set forth in
clauses (iii), (iv), (v)(A), (v)(B) or (v)(F) of ANNEX A; provided, however,
that the Offer may be extended in connection with an increase in the
consideration to be paid pursuant to the Offer so as to comply with applicable
rules and regulations of the SEC. Assuming prior satisfaction or waiver of the
Tender Offer Conditions, II-VI shall provide funds to MergerSub and MergerSub
shall, as soon as practicable after the expiration of the Offer, and in any
event in compliance with the obligations respecting prompt payment pursuant to
Rule 14e-1(c) under the Exchange Act, accept for payment and pay for, in
accordance with the terms of the Offer, the Shares which have been validly
tendered and not withdrawn pursuant to the Offer. If, on any scheduled
expiration date of the Offer, the Offer would have expired without MergerSub
being able to purchase the Shares pursuant to the Offer due to the failure to
satisfy (x) any of the Tender Offer Conditions set forth in clauses (iii),
(iv), (v)(A), (v)(B) or (v)(C) of ANNEX A, (y) the Tender Offer Condition
relating to the expiration of the waiting period under the HSR Act or (z) the
Minimum Condition, then II-VI shall, at the request of the Company, cause
MergerSub to extend the expiration date of the Offer for one or more periods
not exceeding, in each case, twenty (20) business days, but in no event later
than the Termination Date. In addition, notwithstanding anything in this
Section 2.1(a) to the contrary, if the Company shall have affirmatively
announced to the stockholders of the Company a neutral position with respect to
any Third-Party Acquisition proposal, II-VI shall, at the request of the
Company, cause MergerSub to extend the expiration date of the Offer to ten (10)
business days after the date of initial announcement of such neutral position.
(b) II-VI and MergerSub shall file with the SEC a registration statement on
Form S-4 (the "Offer Registration Statement") with respect to the Offer as soon
as reasonably practicable following the date of this Agreement.
(c) As soon as reasonably practicable on the Commencement Date, II-VI and
MergerSub shall file with the SEC a Tender Offer Statement on Schedule TO
(together with all amendments and supplements thereto, the "Schedule TO") with
respect to the Offer. The Schedule TO shall contain (included as an exhibit) or
shall incorporate by reference an offer to purchase (the "Offer to Purchase")
and the related letter of transmittal (the "Letter of Transmittal"), as well as
all other information and exhibits required by law (which Schedule TO, Offer to
Purchase, Letter of Transmittal, and such other information and exhibits,
together with any supplements or amendments thereto, are referred to herein
collectively as the "Offer Documents"). II-VI and MergerSub shall cause to be
disseminated the Offer to Purchase and related Letter of Transmittal to holders
of Shares promptly upon commencement of the Offer. The Company and its counsel
shall be given reasonable opportunity to review and comment upon the Schedule
TO prior to its filing with the SEC. The Schedule TO shall comply in all
material respects with the provisions of applicable federal securities laws
and, on the date filed with the SEC and the date first published, sent or given
to the holders of the Shares, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by II-VI or MergerSub with respect to any information
supplied by the Company in writing for inclusion in the Schedule TO. Each of
II-VI and MergerSub, on the one hand, and the Company, on the other hand,
agrees to promptly correct any information provided by it for use in the Offer
Documents that shall be, or have become, false or misleading in any material
respect, and II-VI and MergerSub further agree to take all steps necessary to
cause the Schedule TO as so corrected to be filed with the SEC and the other
Offer Documents as so corrected to be disseminated to holders of the Shares, in
each case as and to the extent required by applicable federal securities laws.
Each of II-VI and MergerSub
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agrees to provide the Company and its counsel with information with respect to
any oral comments and copies of any written comments or other correspondence
II-VI and MergerSub or their counsel may receive from the SEC or its staff with
respect to the Offer Documents promptly after the receipt of such comments and
shall provide the Company and its counsel an opportunity to participate in the
response of II-VI or MergerSub to such comments, including by participating
with II-VI and MergerSub or their counsel in any discussions with the SEC or
its staff.
Section 2.2 Company Actions.
The Company hereby consents to the Offer and the Merger and represents and
warrants that:
(a) Its Board of Directors (at a meeting duly called and held) has, based on
the recommendation of a special committee of two (2) independent directors: (i)
determined that each of the Offer and the Merger is fair to, and in the best
interest of, the holders of Company Common Stock; (ii) approved the Offer and
the Merger and adopted this Agreement in accordance with the provisions of
Delaware Corporate Law; (iii) recommended that the stockholders of the Company
accept the Offer, tender their Shares pursuant to the Offer and approve this
Agreement and transaction contemplated hereby, including the Merger; and (iv)
taken all other actions necessary to render Section 203 of Delaware Corporate
Law and the Rights Agreement inapplicable to the Offer and the Merger.
(b) Roth has delivered to the Board of Directors of the Company its opinion
that the consideration to be received by the holders of Company Common Stock,
other than II-VI and any direct or indirect Subsidiary of II-VI (including
MergerSub), pursuant to the Offer and the Merger is fair to such holders of
Company Common Stock from a financial point of view, subject to the assumptions
and qualifications contained in such opinion.
(c) The Company shall file with the SEC, as soon as practicable on the
Commencement Date, a Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto, the "Schedule 14D-9"),
containing the recommendations referred to in Section 2.2(a)(iii) (unless the
Board of Directors of the Company determines in good faith that such action
would be inconsistent with its fiduciary duties to the stockholders of the
Company under Delaware Corporate Law) and shall disseminate the Schedule 14D-9
as required by Rule 14d-9 under the Exchange Act. II-VI and MergerSub and their
counsel shall be given reasonable opportunity to review and comment upon the
Schedule l4D-9 prior to its filing with the SEC. The Schedule 14D-9 will comply
in all material respects with the provisions of applicable federal securities
laws and, on the date filed with the SEC and on the date first published, sent
or given to the holders of the Company Common Stock, shall not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading, except
that no representation is made by the Company with respect to information
supplied by II-VI or MergerSub in writing for inclusion in the Schedule 14D-9.
Each of II-VI and MergerSub shall promptly supply to the Company in writing,
for inclusion in the Schedule 14D-9, all information concerning the II-VI
Designees (as defined in Section 2.3(a)), as required by Section 14(f) of the
Exchange Act and Rule 14f-1 thereunder, and the Company shall include such
information in the Schedule 14D-9. Each of the Company, on the one hand, and
II-VI and MergerSub, on the other hand, agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that the Schedule 14D-9 shall be, or have become false or misleading in any
material respect; and the Company further agrees to take all steps necessary to
cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required
by applicable federal securities laws. The Company agrees to provide II-VI and
its counsel with information with respect to any oral comments and copies of
any written comments or other correspondence the Company or its counsel may
receive from the SEC or its staff with respect to the Schedule 14D-9 promptly
after the receipt of such comments and shall provide II-VI and its counsel an
opportunity to participate in the response of the Company to such comments,
including by participating with the Company and its counsel in any discussions
with the SEC or its staff.
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(d) In connection with the Offer, the Company shall promptly furnish
MergerSub with mailing labels, security position listings and any available
listing or computer list containing the names and addresses of the record
holders of Company Common Stock as of the most recent practicable date and
shall furnish MergerSub with such additional information (including, but not
limited to, updated lists of holders of Company Common Stock and their
addresses, mailing labels and lists of security positions) and such other
assistance as MergerSub or its agents may reasonably request in communicating
the Offer to the holders of Company Common Stock. Subject to the requirements
of applicable law, and except for such steps as are necessary to disseminate
the Offer Documents and any other documents necessary to consummate the Merger,
MergerSub shall hold in confidence the information contained in any such
labels, listings and files, will use such information only in connection with
the Offer and the Merger and, if this Agreement is terminated, shall deliver to
the Company all copies of such information in their possession.
Section 2.3 Composition of the Board of Directors.
(a) Promptly upon the acceptance for payment of, and payment by MergerSub
for, Shares equal to at least a majority of the outstanding shares of Company
Common Stock pursuant to the terms of the Offer, MergerSub shall be entitled to
designate three directors ("II-VI Designees") on the Board of Directors of the
Company, one of whom shall be an outside director who is completely
disinterested, i.e. having had no prior relationship with the Company, II-VI,
MergerSub, or any of their respective affiliates, and the Company shall, at
such time, use commercially reasonable efforts to take any and all such action
necessary to cause such II-VI Designees, which II-VI Designees shall be
reasonably satisfactory to the Company, to be appointed to the Board of
Directors of the Company (including using its commercially reasonable efforts
to cause relevant directors to resign and/or increasing the size of the Board
of Directors of the Company (subject to the limitations set forth in the
Company's certificate of incorporation and the Company's bylaws)). At the
Effective Time, the Company, if so requested, shall use its commercially
reasonable efforts to cause each II-VI Designee to be a member of each
committee of its Board of Directors, each Board of Directors of each Subsidiary
of the Company and each committee of each such Board of Directors (in each case
to the extent of the Company's ability to elect such persons).
(b) Notwithstanding the provisions of this Section 2.3, the parties hereto
shall use their respective commercially reasonable efforts to ensure that at
least two (2) of the members of the Board of Directors shall, at all times
prior to the Effective Time, be persons who are directors of the Company on the
date hereof and who are U.S. citizens eligible to have a Department of Defense
personnel security clearance at the level of the Company's security clearance
(the "Continuing Directors"); provided that, if there shall be in office less
than two (2) Continuing Directors, the Board of Directors may cause the person
designated by the remaining Continuing Director or Continuing Directors to fill
such vacancy and such person shall be deemed to be a Continuing Director for
all purposes of this Agreement, or if no Continuing Directors then remain, the
other directors of the Company then in office shall designate two (2) persons
to fill such vacancies who will not be officers, employees or Affiliates of the
Company or II-VI and such persons shall be deemed to be Continuing Directors
for all purposes of this Agreement; provided, further, that II-VI, MergerSub
and the II-VI Designees shall take no action prior to the Effective Time to
remove any Continuing Director. Following the election or appointment of the
II-VI Designees pursuant to this Section 2.3 and prior to the Effective Time,
any amendment or modification of this Agreement, the Company's certificate of
incorporation or the Company's bylaws, any termination of this Agreement by the
Company, any extension by the Company of the time for the performance of any of
the obligations or other acts of II-VI and MergerSub or waiver of any of the
Company's rights hereunder, and any other consent or action by the Company
hereunder, shall be effected only if there are in office one or more Continuing
Directors and such action is approved by a majority of the Continuing
Directors.
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ARTICLE II
THE MERGER
Section 3.1 The Merger.
(a) Upon the terms and subject to the satisfaction or waiver of the
conditions contained herein, at the Effective Time, the MergerSub shall be
merged with and into the Company in accordance with Delaware Corporate Law.
Upon consummation of the Merger, the separate existence of MergerSub shall
cease and the Company shall be the surviving corporation to the Merger (the
"Surviving Corporation").
(b) As soon as practicable after satisfaction of (or, to the extent
permitted hereunder, waiver of) all conditions to the Merger, the Company and
MergerSub will file a certificate of merger (the "Certificate of Merger") with
the Secretary of State of the State of Delaware in accordance with Delaware
Corporate Law and make all other filings or recordings required by Law in
connection with the Merger. The Merger shall become effective at such time as
the Certificate of Merger is certified by the Secretary of State of the State
of Delaware or at such later time as is specified in the Certificate of Merger
(the "Effective Time").
(c) The Merger shall have the effects set forth in Sections 251, 259 and
261 of Delaware Corporate Law.
Section 3.2 Conversion of Shares.
At the Effective Time, pursuant to this Agreement and by virtue of the
Merger and without any action on the part of MergerSub, the Company or the
holders of any of the following securities:
(a) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time other than: (i) Dissenting Shares; and (ii) any
shares of Company Common Stock to be canceled pursuant to Section 3.2(c),
shall be canceled and shall be converted automatically into the right to
receive the same amount of cash, without interest, and the same fraction of a
share of II-VI Common Stock paid in the Offer (the "Merger Consideration"),
upon surrender of the certificate formerly representing such share of common
stock in the manner provided in Section 3.3.
(b) All of the shares of Company Common Stock converted into II-VI Common
Stock and cash pursuant to this Section 3.2 shall no longer be outstanding and
shall automatically be canceled and shall cease to exist, and each certificate
(each a "Certificate") previously representing any such shares of Company
Common Stock shall thereafter represent the right to receive the Merger
Consideration. Certificates previously representing shares of Company Common
Stock shall be exchanged for the Merger Consideration upon the surrender of
such Certificates in accordance with Section 3.3 hereof, without any interest
thereon. If prior to the Effective Time the Company should split or combine
its common stock, or pay a dividend or other distribution in such common
stock, then the Merger Consideration shall be appropriately adjusted to
reflect such split, combination, dividend or distribution.
(c) At the Effective Time, all shares of Company Common Stock that are
owned by the Company as treasury stock shall be canceled and shall cease to
exist and no Merger Consideration shall be delivered in exchange therefor
(d) Each share of common stock of MergerSub issued and outstanding on the
Effective Date of the Merger shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and exchanged for
one (1) share of Company Common Stock.
Section 3.3 Payment of Merger Consideration for Company Common Stock.
(a) At the Effective Time, II-VI shall cause the Surviving Corporation to
irrevocably deposit or cause to be deposited with a bank or trust company to
be designated by the Surviving Corporation which is organized and doing
business under the laws of the United States or any state thereof and has a
combined capital and
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surplus of at least $100,000,000 (the "Disbursing Agent"), as agent for the
holders of Company Common Stock, II-VI Common Stock and cash in the aggregate
amount required to pay the Merger Consideration in respect of the shares of
Company Common Stock outstanding immediately prior to the Effective Time.
Pending distribution pursuant to Section 3.3(b) hereof of the II-VI Common
Stock and cash deposited with the Disbursing Agent, such II-VI Common Stock and
cash shall be held in trust for the benefit of the holders of Company Common
Stock and such II-VI Common Stock and cash shall not be used for any other
purposes; provided; however, that the Surviving Corporation may direct the
Disbursing Agent to invest such cash, provided that such investments: (i) shall
be obligations of or guaranteed by the United States of America, in commercial
paper obligations receiving the highest rating from either Moody's Investors
Services, Inc. or Standard & Poor's Corporation, or in certificates of deposit,
bank repurchase agreements or bankers acceptances of domestic commercial banks
with capital exceeding $250,000,000 (collectively "Permitted Investments") or
in money market funds which are invested solely in Permitted Investments; and
(ii) shall have maturities that will not prevent or delay payments to be made
pursuant to Section 3.3(b) hereof. Each holder of a Certificate or Certificates
canceled and extinguished at the Effective Time pursuant to Section 3.2(a)
hereof may thereafter surrender such Certificate or Certificates to the
Disbursing Agent, as agent for such holder of Company Common Stock, to effect
the exchange of such Certificate or Certificates on such holder's behalf for a
period ending six months after the Effective Time.
(b) After surrender to the Disbursing Agent of any Certificate which prior
to the Effective Time shall have represented any shares of Company Common
Stock, the Disbursing Agent shall promptly distribute to the person in whose
name such Certificate shall have been registered, the Merger Consideration into
which such shares of Common Stock shall have been converted at the Effective
Time pursuant to Section 3.2(a) hereof. Until so surrendered and exchanged,
each such Certificate shall, after the Effective Time, be deemed to represent
only the right to receive the Merger Consideration, and until such surrender
and exchange, no shares of II-VI Common Stock shall be issued and no cash shall
be paid to the holder of such outstanding Certificate in respect thereof. The
Surviving Corporation shall promptly after the Effective Time cause to be
distributed to such holders appropriate materials to facilitate such surrender.
(c) If payment is to be made to a Person other than the registered holder of
the Company Common Stock represented by the Certificate or Certificates
surrendered in exchange therefor, it shall be a condition to such payment that
the Certificate or Certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to the Disbursing Agent any transfer or other taxes required
as a result of such payment to a Person other than the registered holder of
such shares of Company Common Stock or establish to the satisfaction of the
Disbursing Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing shares of Company Common
Stock are presented to the Surviving Corporation for transfer, they shall be
canceled and exchanged for the consideration provided for, and in accordance
with the procedures set forth, in this ARTICLE III.
(e) If any cash or shares of II-VI Common Stock deposited with the
Disbursing Agent for purposes of payment in exchange for shares of Company
Common Stock remains unclaimed six months after the Effective Time, such cash
and II-VI Common Stock shall be returned to the Surviving Corporation, upon
demand, whereupon the Disbursing Agent's duties shall terminate and any such
holder who has not converted his, her or its shares of Company Common Stock
into the Merger Consideration prior to that time shall thereafter look only to
the Surviving Corporation for payment of the Merger Consideration.
Notwithstanding the foregoing, the Surviving Corporation shall not be liable to
any holder of shares of Company Common Stock for any amount paid to a public
official pursuant to applicable unclaimed property laws. Any amounts remaining
unclaimed by holders of shares of Company Common Stock seven (7) years after
the Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any
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Governmental Authority) shall, to the extent permitted by applicable Law,
become the property of the Surviving Corporation free and clear of any claims
or interest of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the Disbursing
Agent pursuant to Section 3.3(a) to pay for shares of Company Common Stock for
which dissenter's rights have been perfected shall be returned to the Surviving
Corporation, upon demand.
(g) No dividends or other distributions with respect to capital stock of the
Surviving Corporation with a record date after the Effective Time shall be paid
to the holder of any unsurrendered Certificate for shares of Company Common
Stock.
(h) From and after the Effective Time, the holders of shares of Company
Common Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such shares of Company Common Stock, other than
the right to receive the Merger Consideration as provided in this Agreement.
(i) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Company, the posting by such holder of a bond in such reasonable amount as the
Company may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Disbursing Agent will issue in exchange
for such lost, stolen or destroyed Certificate the Merger Consideration
deliverable in respect thereof pursuant to this Agreement and the Merger.
Section 3.4 Dissenting Shares.
Notwithstanding Section 3.2, shares of Company Common Stock which are issued
and outstanding immediately prior to the Effective Time and which are held by a
holder who has not tendered such shares of Company Common Stock in the Offer
and who has delivered a written demand for relief as a dissenting stockholder
in the manner provided by Delaware Corporate Law and who, as of the Effective
Time, shall not have effectively withdrawn or lost such right to relief as a
dissenting stockholder ("Dissenting Shares") shall not be converted into a
right to receive the Merger Consideration. The holders thereof shall be
entitled only to such rights as are granted by Section 262 of Delaware
Corporate Law. Each holder of Dissenting Shares who becomes entitled to payment
for such Dissenting Shares pursuant to Section 262 of Delaware Corporate Law
shall receive payment therefor from the Surviving Corporation in accordance
with Delaware Corporate Law; provided, however, that if any such holder of
Dissenting Shares: (i) shall have failed to establish his, her or its
entitlement to relief as a dissenting stockholder as provided in Section 262 of
Delaware Corporate Law; (ii) shall have effectively withdrawn his, her or its
demand for relief as a dissenting stockholder with respect to such shares or
lost his, her or its right to relief as a dissenting stockholder and payment
for his, her or its Dissenting Shares under Section 262 of Delaware Corporate
Law; or (iii) shall have failed to file a complaint with the appropriate court
seeking relief as to determination of the value of all Dissenting Shares within
the time provided in Section 262 of Delaware Corporate Law, such holder shall
forfeit the right to relief as a dissenting stockholder with respect to such
Dissenting Shares and each such Dissenting Share shall be converted into the
right to receive the appropriate Merger Consideration without interest thereon,
from the Surviving Corporation as provided in Section 3.2. The Company shall
give II-VI and MergerSub prompt notice of any demands received by the Company
for relief as a dissenting stockholder and II-VI and MergerSub shall have the
right to participate in all negotiations and proceedings with respect to such
demands. The Company shall not, except with the prior written consent of II-VI
and MergerSub, make any payment with respect to, or settle or offer to settle,
any such demands.
Section 3.5 Stock Options.
(a) Each Option that either: (i) has an exercise price equal to or greater
than the Merger Consideration (with II-VI Common Stock being valued for this
purpose using the II-VI Share Value as of the date of the closing of the
Offer); or (ii) is not vested and exercisable as of the Effective Time shall be
canceled at the Effective Time.
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(b) Immediately prior to the Effective Time, all other outstanding Options
that are vested and exercisable as of the Effective Time shall be canceled and,
in lieu thereof, as soon as reasonably practicable as of or after the Effective
Time, the holders of such Options shall receive a cash payment from the Company
equal to the product of: (i) the total number of Shares previously subject to
such Option; and (ii) the excess of (A) the Merger Consideration that would be
paid with respect to each shares of Company Common Stock subject to such Option
if the Option were exercised over (B) the exercise price per share of Company
Common Stock subject to such Option, as reduced by any required withholding of
taxes.
(c) Prior to the Effective Time, the Company shall: (i) take all steps
necessary to cause the Company's stock option plans to be terminated on or
prior to the Effective Time and to otherwise make any amendments to the terms
of such stock option plans that are necessary to give effect to the
transactions contemplated by this Agreement; and (ii) use all necessary efforts
to obtain at the earliest practicable date all written consents from holders of
Options to the cancellation of such holder's Options to take effect at the
Effective Time. Notwithstanding any other provision of this Section 3.5(c),
payment may be withheld in respect of any vested and exercisable Director
Option or Employee Option until necessary or appropriate consents are obtained
with respect to such Director Option or Employee Option.
Section 3.6 Fractional Shares.
Notwithstanding anything in this Agreement to the contrary, no certificates
representing fractional shares of II-VI Common Stock shall be issued upon the
surrender for exchange in the Offer or the Merger of Certificates representing
Company Common Stock, and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a shareholder of II-VI.
Notwithstanding any other provision of this Agreement, each holder of shares of
Company Common Stock exchanged in the Offer or converted into shares of II-VI
Common Stock in the Merger who would otherwise be entitled to receive a
fraction of a share of II-VI Common Stock (after taking into account all
Certificates delivered for exchange by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of
a share of Company Common Stock multiplied by the II-VI Share Value on the date
of the Closing of the Offer.
ARTICLE IV
THE SURVIVING CORPORATION
Section 4.1 Certificate of Incorporation.
The certificate of incorporation of MergerSub in effect immediately prior to
the Effective Time shall be the certificate of incorporation of the Surviving
Corporation until amended in accordance therewith and with applicable Law.
Section 4.2 Bylaws.
The bylaws of MergerSub in effect at the Effective Time shall be the bylaws
of the Surviving Corporation until amended in accordance therewith and in
accordance with applicable law.
Section 4.3 Directors and Officers.
From and after the Effective Time, until successors are duly elected or
appointed and qualified in accordance with applicable Law: (i) the directors of
the Surviving Corporation at the Effective Time shall be (A) the three II-VI
Designees, including one outside director, (B) two officers of MergerSub and
(C) one additional outside director to be appointed by II-VI and MergerSub, who
shall be a completely disinterested person having had no prior relationship
with the Company, II-VI, MergerSub or any of their respective affiliates; and
(ii) the officers of MergerSub at the Effective Time shall be the officers of
the Surviving Corporation.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to II-VI and MergerSub that except as
set forth in the corresponding sections or subsections of the Disclosure Letter
delivered to II-VI and MergerSub by the Company concurrently with entering into
this Agreement (the "Disclosure Letter"):
Section 5.1 Corporate Existence and Power.
Each of the Company and its Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers required to carry on its business
as now conducted. Each of the Company and its Subsidiaries is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by it or the
nature of its activities makes such qualification necessary, except for those
jurisdictions where the failure to be so qualified would not, individually or
in the aggregate, be reasonably likely to have a Material Adverse Effect on the
Company. Without limiting the generality of the foregoing, the Company and its
Subsidiaries are qualified to do business in the states shown on Section 5.1 of
the Disclosure Letter. The Company has heretofore made available to II-VI and
MergerSub true and complete copies of the currently effective certificate of
incorporation and bylaws or similar organizational documents of the Company and
its Subsidiaries (as the same may be amended and restated as of the date
hereof).
Section 5.2 Corporate Authorization.
The execution, delivery and performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated hereby: (i)
are within the Company's corporate powers; and (ii) except for the adoption of
this Agreement by the affirmative vote of a majority in voting interests of the
shares of Company Common Stock, have been duly authorized by all necessary
corporate and stockholder action. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a valid, legal and
binding agreement of the Company enforceable against the Company in accordance
with its terms, except: (i) as rights to indemnity hereunder may be limited by
federal or state securities laws or the public policies embodied therein; (ii)
as such enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally; and (iii) as the remedy of specific performance and other forms of
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 5.3 Governmental Authorization.
The execution, delivery and performance by the Company of this Agreement and
the consummation of the Merger by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or
authority other than: (i) the filing of a certificate of merger in accordance
with Delaware Corporate Law; (ii) compliance with any applicable requirements
of the HSR Act; (iii) compliance with the applicable requirements of the
Exchange Act; (iv) compliance with the applicable requirements of the
Securities Act; (v) compliance with any applicable foreign or state securities
or Blue Sky laws; (vi) any applicable requirements of the National Industrial
Security Program Regulations; (vii) the filing of appropriate documents with
the relevant authorities of the jurisdictions in which the Company is qualified
to do business; (viii) compliance with the requirements of the International
Trade in Arms Regulations; and (ix) such other items (A) required solely by
reason of the participation of II-VI and MergerSub in the Merger or (B) that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Company.
Section 5.4 Non-Contravention.
Other than as set forth in Section 5.4 of the Disclosure Letter, the
execution, delivery and performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated hereby do not and
will not: (i) contravene or conflict with the organizational documents of the
Company or any
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of its Subsidiaries; (ii) contravene or conflict with or constitute a violation
of any provision of any Law, regulation, judgment, writ, injunction, order or
decree of any court or Governmental Authority binding upon or applicable to the
Company or any of its Subsidiaries or any of their respective properties or
assets; (iii) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any of its Subsidiaries or to a loss of any benefit to which the
Company or any of its Subsidiaries is entitled under any provision of any
agreement, contract or other instrument binding upon the Company or any of its
Subsidiaries; or (iv) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries. Without limiting the
foregoing, the Company shall have terminated that certain Agreement and Plan of
Merger dated June 1, 2000 by and among the Company, Union Minere S.A. and ACEC,
Inc. (the "UM Merger Agreement").
Section 5.5 Capitalization.
(a) The authorized capital stock of the Company consists of: (i) 15,000,000
shares of Company Common Stock of which as of May 31, 2000 there were 9,679,001
shares issued and outstanding; and (ii) 3,000,000 shares of Preferred Stock of
which as of the date hereof there are no shares issued and outstanding. As of
May 31, 2000 there were outstanding Options to purchase an aggregate of 367,977
shares of Company Common Stock (all of which Options were vested and
exercisable). All outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable.
(b) Except for the Rights Agreement, except as set forth in this Section 5.5
and except for changes since May 31, 2000 resulting from the exercise of
Options outstanding on such date, there are no outstanding: (i) shares of
capital stock or other voting securities of the Company; (ii) securities of the
Company convertible into or exchangeable for shares of capital stock or voting
securities of the Company or its Subsidiaries; (iii) options or other rights to
acquire from the Company or its Subsidiaries, or obligations of the Company or
its Subsidiaries to issue, any shares of capital stock, voting securities or
securities convertible into or exchangeable for shares of capital stock or
voting securities of the Company or any Subsidiary; and (iv) no equity
equivalent interests in the ownership or earnings of the Company or its
Subsidiaries or other similar rights (the items in clauses (b)(i), (ii), (iii)
and (iv) being referred to collectively as the "Company Securities"). Except as
set forth on Section 5.5 of the Disclosure Letter, there are no outstanding
obligations of the Company or any Subsidiary to repurchase, redeem or otherwise
acquire any Company Securities. There are no stockholder agreements, voting
trusts or other agreements or understandings to which the Company or any of its
Subsidiaries is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of the Company or any of its
Subsidiaries or any preemptive rights with respect thereto.
Section 5.6 Subsidiaries.
Section 5.6 of the Disclosure Letter lists each Subsidiary of the Company
together with the jurisdiction of incorporation of each Subsidiary and the
percentage of each Subsidiary's outstanding capital stock or other equity
interests owned by the Company or another Subsidiary of the Company. Except as
disclosed on Section 5.6 of the Disclosure Letter, all the outstanding shares
of capital stock of each Subsidiary have been validly issued, are fully paid
and nonassessable and are owned by the Company, by another Subsidiary or by the
Company and another such Subsidiary, free and clear of all Liens or any other
limitation or restriction. Except for the capital stock of the Subsidiaries and
except as set forth on Section 5.6 of the Disclosure Letter, the Company does
not own directly or indirectly, any capital stock or other ownership interest
in any other Person.
Section 5.7 Reports and Financial Statements.
(a) The Company has timely filed with the SEC all forms, reports, schedules,
statements and other documents required to be filed by it since April 2, 1997
under the Securities Act or the Exchange Act (such documents, as supplemented
or amended since the time of filing, the "Company SEC Reports"). As of their
respective dates, the Company SEC Reports, including without limitation, any
financial statements or schedules included or incorporated by reference
therein, at the time filed (and, in the case of registration statements and
proxy statements, on the dates of effectiveness and the dates of mailing,
respectively): (i) complied in all
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material respects with the applicable requirements of the Securities Act and
the Exchange Act; and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited consolidated interim financial statements included or
incorporated by reference in the Company SEC Reports (including any related
notes and schedules) fairly present, in all material respects, the financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the results of their operations and their cash flows for the
periods set forth therein, in each case in accordance with past practice and
GAAP consistently applied during the periods involved (except as otherwise
disclosed in the notes thereto and subject, where appropriate, to normal year-
end adjustments that would not be material in amount or effect).
(b) The Company has heretofore made available to II-VI and MergerSub a
complete and correct copy of any amendments or modifications to any Company SEC
Reports filed prior to the date hereof which are required to be filed with the
SEC but have not yet been filed with the SEC.
Section 5.8 Offer Documents; Proxy Statement.
The Schedule 14D-9, when filed with the SEC and first published, sent or
given to stockholders of the Company, will comply in all material respects with
the Exchange Act and the rules and regulations thereunder. Neither the Schedule
14D-9 nor any of the information provided by or on behalf of the Company
specifically for inclusion in the Schedule TO or the Offer Documents will, at
the respective times the Schedule 14D-9, the Schedule TO and the Offer
Documents or any amendments or supplements thereto are filed with the SEC or
first published, sent or given to stockholders of the Company, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. No
representation is made by the Company with respect to written information
supplied by II-VI or MergerSub specifically for inclusion in the Schedule 14D-
9. Any proxy statement to be sent to the stockholders of the Company in
connection with a meeting of the Company's stockholders to consider the Merger
(the "Stockholders' Meeting") (such proxy statement, as amended or
supplemented, is herein referred to as the "Proxy Statement"), will comply in
all material respects with the applicable requirements of the Exchange Act and
the rules and regulations thereunder, except that no representation or warranty
is being made by the Company with respect to II-VI Information contained
therein. The Proxy Statement will not, at the time the Proxy Statement is filed
with the SEC or first sent to stockholders, at the time of the Stockholders'
Meeting or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 5.9 Absence of Certain Changes or Events.
(a) Since the Balance Sheet Date, and except as discussed in the Company SEC
Reports, the business of the Company and its Subsidiaries has been conducted in
all material respects in the ordinary course consistent with past practice,
neither the Company nor any of its Subsidiaries has engaged in any transaction
or series of related transactions material to the Company and its Subsidiaries
taken as a whole other than in the ordinary course consistent with past
practice, and there has not been any event, occurrence or development, alone or
taken together with all other existing facts, that, individually or in the
aggregate, has had, or would reasonably be expected to have, a Material Adverse
Effect on the Company.
(b) Without limiting the generality of the foregoing Section 5.9(a), since
the Balance Sheet Date and except as disclosed in Section 5.9 of the Disclosure
Letter, there has not been:
(i) any damage, destruction or loss to any of the assets or properties
of the Company or any of its Subsidiaries that, individually or in the
aggregate, has a Material Adverse Effect on the Company;
(ii) any declaration, setting aside or payment of any dividend or
distribution or capital return in respect of any shares of the Company's
capital stock or any redemption, purchase or other acquisition by
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the Company or any of its Subsidiaries of any shares of the Company's
capital stock or any repurchase, redemption or other purchase by the
Company or any of its Subsidiaries of any outstanding shares of capital
stock or other securities of, or other ownership interests in, the Company
or any of its Subsidiaries, or any amendment of any material term of any
outstanding security of the Company or any of its Subsidiaries;
(iii) any sale, assignment, transfer, lease or other disposition or
agreement to sell, assign, transfer, lease or otherwise dispose of any of
the assets of the Company or any of its Subsidiaries for consideration in
the aggregate in excess of One Hundred Thousand Dollars ($100,000) or other
than in the ordinary course of business consistent with past practices;
(iv) any acquisition (by merger, consolidation, or acquisition of stock
or assets) by the Company or any of its Subsidiaries of any corporation,
partnership or other business organization or division thereof or any
equity interest therein for consideration, or any loans or advances to any
Person in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate;
(v) any incurrence of or guarantee with respect to any indebtedness for
borrowed money by the Company or any of its Subsidiaries other than
pursuant to the Company's existing credit facilities in the ordinary course
of business or any creation or assumption by the Company or any of its
Subsidiaries of any material Lien on any material asset;
(vi) any material change in any method of accounting or accounting
practice used by the Company or any of its Subsidiaries, other than such
changes required by a change in law or generally accepted accounting
principles;
(vii) (A) any employment, deferred compensation, severance or similar
agreement entered into or amended by the Company or any of its Subsidiaries
and any employee, in each case other than sales commission agreements
entered into in the ordinary course of business consistent with past
practice, (B) any increase in the compensation payable or to become payable
by it to any of its directors or officers or generally applicable to all or
any category of the Company's employees, (C) any increase in the coverage
or benefits available under any vacation pay, company awards, salary
continuation or disability, sick leave, deferred compensation, bonus or
other incentive compensation, insurance, pension or other employee benefit
plan, payment or arrangement made to, for or with any of the directors or
officers of the Company or generally applicable to all or any category of
the Company's employees, or (D) severance pay arrangements made to, for or
with such directors, officers or employees other than, in the case of (B)
and (C) above, increases in the ordinary course of business consistent with
past practice and that in the aggregate have not resulted in a material
increase in the benefits or compensation expense of the Company or any of
its Subsidiaries;
(viii) any revaluing in any material respect of any of the assets of the
Company or any of its Subsidiaries, including without limitation writing
down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business;
(ix) any loan, advance or capital contribution made by the Company or
any of its Subsidiaries to, or investment in, any person other than loans,
advances or capital contributions, or investments of the Company made in
the ordinary course of business consistent with past practices; or
(x) any agreement to take any actions specified in this Section 5.9(b),
except for this Agreement.
Section 5.10 No Undisclosed Material Liabilities.
Except as disclosed in the Company's Annual Report on Form 10-K for the
year ended September 30, 1999 and the Company's Quarterly Reports on Form 10-Q
for each of the periods ended December 31, 1999 and March 31, 2000, there are
no liabilities of the Company or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, which would be required by GAAP to be reflected on a consolidated
balance sheet of the Company (including the notes thereto), other than
liabilities and obligations which, individual or in the aggregate, will not
have a Material Adverse Effect on the Company, and other than:
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(i) actual trade payables incurred in the ordinary course of business
consistent with past practices;
(ii) liabilities incurred to perform this Agreement; and
(iii) those set forth in Section 5.10 of the Disclosure Letter.
Section 5.11 Litigation.
Except as set forth on Section 5.11 to the Disclosure Letter: (i) there is
no action, suit, investigation or proceeding pending against, or to the
knowledge of the Company threatened against or affecting, the Company or any
of its Subsidiaries or their respective businesses or properties before any
court or arbitrator or any Governmental Authority which, if determined
adversely, would reasonably be expected to have a Material Adverse Effect on
the Company (a "Proceeding"); and (ii) to the knowledge of the Company, there
is no basis for any such Proceeding.
Section 5.12 Taxes.
(a) Except as set forth on Section 5.12 to the Disclosure Letter, the
Company:
(i) has timely paid or caused to be paid all Taxes required to be paid
by it (including, but not limited to, any such Taxes shown due on any Tax
Return). The accrual for current Taxes payable in the latest financial
statements included or incorporated by reference in the Company SEC Reports
is adequate to cover all Taxes attributable to periods or portions thereof
ending on the date of such financial statements, and no Taxes attributable
to periods following the date of such financial statements have been
incurred other than in the ordinary course of business;
(ii) has filed or caused to be filed in a timely and proper manner
(within any applicable extension periods) all Tax Returns required to be
filed by it with the appropriate taxing authority in all jurisdictions in
which such Tax Returns are required to be filed, and all Tax Returns filed
by the Company are true, correct and complete and accurately set forth all
items to the extent required to be included therein; and
(iii) has not requested or caused to be requested any extension of time
within which to file any material Tax Return, which Tax Return has not
since been filed.
(b) The Company has made available to II-VI and MergerSub true, correct and
complete copies of all federal Tax Returns filed by or on behalf of the
Company or any of its Subsidiaries through the date hereof for all periods
open to audit.
(c) Except as set forth in Section 5.12 to the Disclosure Letter:
(i) the Company has not been notified by the Internal Revenue Service or
any other taxing authority that any issues have been raised by the Internal
Revenue Service or any other taxing authority in connection with any Tax
Return filed by or on behalf of the Company;
(ii) there are no pending Tax audits and no waivers of statutes of
limitations have been given or requested;
(iii) no Liens have been filed against the Company, except for Liens for
current Taxes not yet due and payable for which adequate reserves have been
provided for in the latest balance sheet of the Company;
(iv) no unresolved deficiencies or additions to Taxes have been
proposed, asserted, or assessed against the Company;
(v) the Company has not received notice within the last three years from
any taxing authority in a jurisdiction in which the Company does not file
Tax Returns that the Company is or may be subject to taxation by that
jurisdiction;
(vi) the Company has withheld and paid all Taxes required to be withheld
and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party;
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(vii) the Company is not a party to a Tax sharing, Tax allocation or
similar agreement and is not bound by any closing agreement, offer in
compromise or other agreement with any Tax authority; and
(viii) except in accordance with past practice, the Company has not
taken any action that would have the effect of deferring any taxable income
of the Company from any taxable period or portion thereof ending before the
Effective Time to any period following the Effective Time. The Company is
not required to include in its income any adjustment pursuant to Section
481 of the Code following the Effective Time.
Section 5.13 ERISA.
(a) Section 5.13(a) of the Disclosure Letter sets forth a list identifying
each "Employee Benefit Plan" (as defined in Section 3(3) of ERISA), material
benefit arrangement, plan, or policy, including without limitation: (i) each
deferred compensation plan, (ii) each equity compensation plan; and (iii) each
plan or arrangement providing severance benefits ("Benefit Arrangements")
which: (A) is subject to any provision of ERISA or (B) is maintained,
administered or contributed to by the Company or any affiliate (as defined
below) within the last three (3) years, under which the Company has any
liability. The most recent copies of such plans (and, if applicable, related
trust agreements) and all amendments thereto have been made available to
MergerSub together with: (i) the most recent annual reports (Form 5500
including applicable schedules and financial reports) or ERISA alternative
compliance statements prepared in connection with any such plan; and (ii) the
most recent actuarial valuation report prepared in connection with any such
plan. Such plans are referred to collectively herein as the "Employee Plans."
For purposes of this Section 5.13, "Affiliate" of any Person means any other
Person which, together with such Person, would be treated as a single employer
under Section 414 of the Code. Employee Plans which individually or
collectively would constitute an "employee pension benefit plan" as defined in
Section 3(2) of ERISA (the "Pension Plans") are identified as such in the list
referred to above.
(b) Neither the Company nor any of its affiliates maintains or contributes
to or has maintained or contributed to within the last five (5) years a Pension
Plan subject to Title IV of ERISA or Section 412 of the Code. Nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any Employee Plan has or will make the Company or any
Subsidiary, any officer or director of the Company or any Subsidiary subject to
any liability under Title I of ERISA or liable for any tax pursuant to Section
4975 of the Code that could have a Material Adverse Effect.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a determination letter from the Internal
Revenue Service to the effect that such Employee Plan is so qualified and no
amendments have been adopted since the receipt of such determination letter
that would result in the revocation of such letter. The Company has made
available to MergerSub copies of the most recent Internal Revenue Service
determination letters with respect to each such Employee Plan. Nothing has
occurred since the date of the most recent Internal Revenue Service
determination letters that would adversely affect the tax-qualified status of
any Employee Plan. Each Employee Plan has been maintained in compliance with
its terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations, including but not limited to ERISA and the Code, which
are applicable to such Employee Plan other than any non-compliance which could
not have a Material Adverse Effect.
(d) Except as set forth on Section 5.13(d) of the Disclosure Letter, there
is no contract, agreement, plan or arrangement covering any employee or former
employee of the Company or any of its affiliates that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code or that could
obligate the Company to make any payments that will not be fully deductible by
virtue of Section 162(m) of the Code.
(e) Except as set forth on Section 5.13(e) of the Disclosure Letter, there
has been no amendment to, written interpretation or announcement (whether or
not written) by the Company or any of its affiliates relating to, or change in
employee participation or coverage under, any Employee Plan or Benefit
Arrangement which
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would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
for the fiscal year ended on the Balance Sheet Date.
(f) Except as disclosed on Section 5.13(f) of the Disclosure Letter, the
Company or any Subsidiary is not a party to or subject to: (i) any employment
contract or arrangement providing for annual future compensation of $75,000 or
more with any officer, consultant, director or employee, or that have a
remaining term in excess of one year or are not cancelable (without material
penalty, cost or other liability) within one year; (ii) any severance
agreements, programs and policies with or relating to its employees except
programs and policies required to be maintained by law; or (iii) any plans,
programs, agreements and other arrangements with or relating to its employees
which contain change in control provisions. The Company has made available to
II-VI and MergerSub copies (or descriptions in detail reasonably satisfactory
to II-VI and MergerSub) of all such agreements, plans, programs and other
arrangements.
(g) Except as disclosed in Section 5.13(g) of the Disclosure Letter, there
will be no payment, accrual of additional benefits, acceleration of payments or
vesting in any benefit under any Employee Plan or similar agreement or
arrangement disclosed in this Agreement solely by reason of the Company's
entering into this Agreement or in connection with the transactions
contemplated by this Agreement.
Section 5.14 Labor Matters.
There are no strikes, slowdowns, work stoppages, lockouts, union
organizational campaigns or other protected concerted activity under the
National Labor Relations Act or, to the knowledge of Company, threats thereof,
by or with respect to any employees of the Company or any of its Subsidiaries
which could have a Material Adverse Effect on the Company. There are no
controversies pending or, to the knowledge of the Company, threatened between
the Company or any of its Subsidiaries and any of their respective employees,
which controversies have or would reasonably be expected to have a Material
Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries
is a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by the Company or its Subsidiaries except as
disclosed in Section 5.14 of the Disclosure Letter. There are no pending or, to
the knowledge of the Company, threatened charges or complaints against the
Company or its Subsidiaries by the National Labor Relations Board or any
comparable state agency which, if adversely determined, would have a Material
Adverse Effect on the Company.
Section 5.15 Compliance With Laws and Court Orders.
Neither the Company nor its Subsidiaries is in violation of, nor has it
since January 1, 1997 violated, and to the knowledge of the Company nothing is
under investigation with respect to or has been threatened to be charged with
or given notice of any violation of, any applicable Law, except for possible
violations that have not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
This Section does not relate to matters with respect to Taxes or Environmental
Laws which are exclusively the subject of Sections 5.12 and 5.17, respectively.
Section 5.16 Finders' Fees.
With the exception of fees payable to Roth, there is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf, of the Company or any of its Subsidiaries who
might be entitled to any fee or commission from the Company or any of its
affiliates upon consummation of the transactions contemplated by this
Agreement.
Section 5.17 Environmental Matters.
(a) The Company and each Subsidiary have complied and are in compliance
with, and the Real Property and all improvements thereon are in compliance
with, all Environmental Laws.
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(b) Neither the Company nor any Subsidiary have any liability (known or
unknown, contingent or non-contingent) under any Environmental Law, nor is the
Company or any Subsidiary responsible for any liability of any other person
under Environmental Law, either by contract or by operation of law. There are
no pending or, to the knowledge of the Company, threatened actions, suits,
orders, claims, legal proceedings or other proceedings based on, and neither
the Company nor any Subsidiary, nor any officer, director or stockholder
thereof has directly or indirectly received any formal or informal notice of
any complaint, order, directive, citation, notice of responsibility, notice of
potential responsibility, or information request from any governmental
authority or any other person or entity or knows or suspects any fact(s) which
might reasonably form the basis for any such actions or notices arising out of
or attributable to: (i) the current or past presence, Release, or threatened
Release of Hazardous Materials at or from any part of the Real Property or any
real property formerly owned, operated, leased or used by the Company or any
Subsidiary; (ii) the off-site disposal or treatment of Hazardous Materials
originating on or from the Real Property or the businesses or Assets of the
Company or any Subsidiary; or (iii) any violation of Environmental Laws at any
part of the Real Property or arising from the Company's or any Subsidiary's
activities (or the activities of the Company's or any Subsidiary's predecessors
in title) involving Hazardous Materials.
(c) The Company and the Subsidiaries have been duly issued, and currently
have and will maintain through the Closing Date, all Environmental Permits
necessary to operate the business or assets of the Company as currently
operated. A true and complete list of all such Environmental Permits, all of
which are valid and in full force and effect, is set out in Section 5.17(c) of
the Disclosure Letter. The Company and the Subsidiaries have timely filed
applications for all Environmental Permits. Except in accordance with
Environmental Permits, there has been no Release of Hazardous Materials at, on,
under, or from: (i) the Real Property; or (ii) any real property formerly
owned, operated or leased by the Company or the Subsidiaries, during the period
of such ownership, operation, or tenancy. All of the Environmental Permits
listed on the Disclosure Schedule are transferable and none require consent,
notification, or other action to remain in full force and effect following
consummation of the transaction contemplated hereby.
(d) The Real Property contains no underground improvements, including but
not limited to treatment or storage tanks, or underground piping associated
with such tanks, used currently or in the past for the management of Hazardous
Materials, and no portion of the Real Property is or has been used as a dump or
landfill or consists of or contains filled in land or wetlands. With respect to
any real property formerly owned, operated, or leased by the Company or the
Subsidiaries, during the period of such ownership, operation or tenancy, no
portion of such property was used as a dump or landfill. Neither PCBs nor
asbestos-containing materials are present on or in the Real Property or the
improvements thereon.
(e) The Company has Furnished to II-VI and MergerSub copies of all
environmental assessments, reports, audits and other documents in its
possession or under its control that relate to the Real Property, compliance
with Environmental Laws, or any other real property that the Company or the
Subsidiaries formerly owned, operated, or leased. Any information the Company
or the Subsidiaries has Furnished to II-VI and MergerSub concerning the
environmental history of the Real Property and the operations of the Company or
the Subsidiaries related to compliance with Environmental Laws is accurate and
complete.
(f) No Real Property, and no property to which Hazardous Materials
originating on or from such properties or the businesses or assets of the
Company or any Subsidiary has been sent for treatment or disposal, is listed or
proposed to be listed on the National Priorities List or CERCLIS or on any
other governmental database or list of properties that may or do require
investigation or cleanup under Environmental Laws.
(g) No Lien in favor of any person relating to or in connection with any
Claim under any Environmental Law has been filed or has attached to the Real
Property.
(h) No authorization, notification, recording, filing, consent, waiting
period, remediation, investigation, or approval is required under any
Environmental Law in order to consummate the transaction contemplated hereby.
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(i) No proposed or final regulation published pursuant to Environmental Laws
and no Environmental Permit for which the Company or the Subsidiaries has or
should have applied, could reasonably be expected to result in a capital
expenditure in excess of $100,000.
Section 5.18 Year 2000 Program.
(a) Except as described in Section 5.18 of the Disclosure Letter, to the
knowledge of the Company, the Company's central operating and accounting
systems described in the Company's most recently filed Form 10-K (the "System")
are Year 2000 Compliant.
(b) "Year 2000 Compliant" means the System:
(i) will accurately input, process and output all date and time data,
whether from years in the same century or in different centuries, including
by yielding correct results in arithmetic operations, comparisons,
sequencing and sorting of date and time data and in leap year calculations;
and
(ii) will not operate abnormally or cease to operate, return an error
message or otherwise fail due to date- or time-related processing relating
to the then current date being after January 1, 2000 or any other date.
Section 5.19 Insurance.
Each of the Company and its Subsidiaries maintains insurance policies (the
"Insurance Policies") against all risks of a character and in such amounts as
are usually insured against by similarly situated companies in the same or
similar businesses. Each Insurance Policy is in full force and effect and is
valid, outstanding and enforceable, and all premiums due thereon have been paid
in full. None of the Insurance Policies will terminate or lapse (or be affected
in any other materially adverse manner) by reason of the transactions
contemplated by this Agreement. Each of the Company and its Subsidiaries has
complied in all material respects with the provisions of each Insurance Policy
under which it is the insured party. No insurer under any Insurance Policy has
canceled or generally disclaimed liability under any such policy or, to the
Company's knowledge, indicated any intent to do so or not to renew any such
policy. All material claims under the Insurance Policies have been filed in a
timely fashion.
Section 5.20 Certain Business Practices.
None of the Company, any of its Subsidiaries or any directors, officers,
agents or employees of the Company or any of its Subsidiaries has: (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity; (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (iii) made any other unlawful payment.
Neither the Company nor any of its Subsidiaries has participated in any
boycotts.
Section 5.21 Suppliers and Customers.
The documents and information supplied by the Company to II-VI and MergerSub
or any of their representatives in connection with this Agreement with respect
to relationships and volumes of business done with its significant suppliers
and customers are accurate in all material respects. During the last twelve
(12) months, the Company has received no notices of termination or material
alteration of a contract or business relationship, or written threats of any
such action from any of the fifteen (15) largest suppliers or the fifteen (15)
largest customers of the Company and its Subsidiaries.
Section 5.22 Contracts.
(a) Section 5.22 of the Disclosure Letter contains a complete and accurate
list of all contracts (written or oral), undertakings, commitments or
agreements (other than contracts, undertakings, commitments or agreements for
employee benefit matters set forth in Section 5.12 of the Disclosure Letter and
real property leases set forth in Section 5.26 of the Disclosure Letter) of the
following categories to which the Company or
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any of its Subsidiaries is a party or by which any of them is bound
(collectively, and together with the contracts, undertakings, commitments or
agreements for employee benefit matters set forth in Section 5.13 of the
Disclosure Letter and the real property leases set forth in Section 5.26 of the
Disclosure Letter, the "Contracts"):
(i) Contracts requiring annual expenditures by or liabilities of the
Company and its Subsidiaries in excess of One Hundred Thousand Dollars
($100,000) which have a remaining term in excess of one hundred eighty
(180) days or are not cancelable (without material penalty, cost or other
liability) within one hundred eighty (180) days;
(ii) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments relating to the lending of money, whether
as borrower, lender or guarantor, in excess of One Hundred Thousand Dollars
($100,000);
(iii) Contracts containing covenants limiting the freedom of the Company
or any of its Subsidiaries to engage in any line of business (other than
prohibitions against engaging in business relating to specific product
lines) or compete with any person, in any product line or line of business,
or operate at any location;
(iv) joint venture or partnership agreements or joint development or
similar agreements pursuant to which any third party has been entitled or
is reasonably expected to be entitled to share in profits or losses of the
Company or its Subsidiaries;
(v) Contracts with any federal, state or local government which have a
remaining term in excess of one year or are not cancelable (without
material penalty, cost or other liability) within one year;
(vi) other Contracts or commitments in which the Company or any of its
Subsidiaries has granted manufacturing rights or exclusive marketing rights
relating to any product or service, any group of products or services or
any territory; and
(vii) to the knowledge of the Company, as of the date hereof any other
Contract the performance of which could be reasonably expected to require
expenditures by the Company or any of its Subsidiaries in excess of One
Hundred Thousand Dollars ($100,000).
(b) Except as set forth in Section 5.22 of the Disclosure Letter, true and
complete copies of the written Contracts and descriptions of verbal Contracts,
if any, have been delivered or made available to II-VI and MergerSub. Each of
the Contracts is a valid and binding obligation of the Company and, to the
Company's knowledge, the other parties thereto, enforceable against the Company
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium, reorganization, arrangement or similar laws
affecting creditors' rights generally and by general principles of equity. To
the knowledge of the Company, except for the execution of this Agreement and
the consummation of the transactions contemplated hereby and thereby, no event
has occurred which would, on notice or lapse of time or both, entitle the
holder of any indebtedness issued pursuant to a Contract identified in Section
5.22 of the Disclosure Letter in response to paragraph (ii) above to
accelerate, or which does accelerate, the maturity of any such indebtedness.
(c) None of the Company or its Subsidiaries is in breach, default or
violation (and no event has occurred or not occurred through the Company's
action or inaction or, to the knowledge of the Company, through the action or
inaction of any third parties, which with notice or the lapse of time or both
would constitute a breach, default or violation) of any term, condition or
provision of any Contract to which the Company or any of its Subsidiaries is
now a party or by which any of them or any of their respective properties or
assets may be bound, except for violations, breaches or defaults that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
Section 5.23 Disclosure.
None of the representations or warranties made by the Company herein or in
any schedule hereto, including the Disclosure Letter, or in any certificate
furnished by the Company pursuant to this Agreement, or in the Company SEC
Reports, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective
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Time to state any material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which made,
not misleading.
Section 5.24 Intellectual Property.
(a) Each of the Company and its Subsidiaries owns or possesses adequate
licenses or other valid rights to use all existing United States and foreign
patents, trademarks, trade names, service marks, copyrights, trade secrets and
applications therefor (the "Company Intellectual Property Rights") except where
the failure to own or possess valid rights to use such Company Intellectual
Property Rights would not have a Material Adverse Effect on the Company.
(b) The validity of the Company Intellectual Property Rights and the title
thereto of the Company or any Subsidiary, as the case may be, is not being
questioned in any pending litigation proceeding to which the Company or any
Subsidiary is a party nor, to the knowledge of the Company, is any such
litigation proceeding threatened. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company and except as set forth in Section 5.24 of the Disclosure Letter, the
conduct of the business of the Company and its Subsidiaries as now conducted
does not, to the knowledge of the Company, infringe any valid patents,
trademarks, trade names, service marks or copyrights of others, and the
consummation of the transactions completed by this Agreement will not result in
the loss or impairment of any Company Intellectual Property Rights.
Section 5.25 Related Party Transactions.
Except as set forth in Section 5.25 of the Disclosure Letter, (a) no
beneficial owner of 5% or more of the Company's outstanding capital stock, or
(b) officer or director of the Company or (c) any Person (other than the
Company) in which any such beneficial owner, officer or director owns any
beneficial interest (other than a publicly held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than 1% of the stock of which is beneficially owned by all such Persons)
(collectively, "Related Parties") has any interest in: (i) any contract,
arrangement or understanding with, or relating to, the business or operations
of, the Company or any of its Subsidiaries; (ii) any loan, arrangement,
understanding, agreement or contract for or relating to indebtedness of the
Company or any of its Subsidiaries; or (iii) any property (real, personal or
mixed), tangible or intangible, used in the business or operations of the
Company or any of its Subsidiaries, excluding any such contract, arrangement,
understanding or agreement constituting an Employee Plan. Following the
Effective Time, except for obligations set forth in this Agreement, neither the
Company nor any of its Subsidiaries will have any obligations to any Related
Party except for: (i) accrued salary for the pay period commencing immediately
prior to the Effective Time; and (ii) the obligations set forth in the Section
5.25 of the Disclosure Letter.
Section 5.26 Assets.
(a) The assets and properties of the Company and its Subsidiaries,
considered as a whole, constitute all of the material assets and properties
which are reasonably required for the business and operations of the Company
and its Subsidiaries as presently conducted. The Company and its Subsidiaries
have good and marketable title to or a valid leasehold estate in all personal
properties and assets reflected on the Company's Balance Sheet at the Balance
Sheet Date (except for properties or assets subsequently sold in the ordinary
course of business consistent with past practice), except as would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(b) Section 5.26 of the Disclosure Letter sets forth: (i) a complete and
accurate list of all improved and unimproved Real Property of the Company or
any of its Subsidiaries, and the current use of such Real Property and
indicating whether the Real Property is owned or leased; (ii) a complete and
accurate list of all leases pursuant to which the Company or any of its
Subsidiaries lease personal property and which require an annual expenditure by
the Company or any of its Subsidiaries individually in excess of $100,000 or
which are not cancelable (without material penalty, cost or other liability)
within one year; and (iii) with respect to each lease for real property, the
term (including renewal options) and current fixed rent.
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(c) Except as set forth in Section 5.26 of the Disclosure Letter, there are
no pending or, to the knowledge of the Company, threatened condemnation or
similar proceedings relating to any of the Real Properties of the Company and
its Subsidiaries, except for such proceedings which would not, individually or
in the aggregate, have a Material Adverse Change on the Company.
Section 5.27 Delaware Section 203.
The provisions of Section 203 of Delaware Corporate Law will not apply to
this Agreement, as it may be amended from time to time, or any of the
transactions contemplated hereby. The Company has heretofore delivered to II-VI
and MergerSub a complete and correct copy of the resolutions of the Board of
Directors of the Company to the effect that pursuant to 203(a)(1) of the
Delaware Corporate Law, the restrictions contained in Section 203 of Delaware
Corporate Law are and shall be inapplicable to the Merger and the transactions
contemplated by this Agreement, as it may be amended from time to time.
Section 5.28 Business Relations.
The Company does not have any knowledge that any customer, supplier or
licensor engaged in doing business with the Company will cease to do business
with the Company after the consummation of the Merger as previously conducted
with the Company except for any terminations which will not, in the aggregate,
result in a Material Adverse Change.
Section 5.29 Rights Agreement.
The Company has taken all actions necessary to cause the Rights Agreement to
be amended to: (i) render the Rights Agreement inapplicable to the acquisition
by MergerSub of Shares pursuant to the Offer in accordance with this Agreement
and the Merger and (ii) ensure that (A) neither II-VI nor MergerSub is an
Acquiring Person (as defined in the Rights Agreement) pursuant to the Rights
Agreement solely by virtue of the execution of this Agreement or the
consummation of the Offer, the Merger or the other transactions contemplated by
this Agreement and (B) the provisions of the Rights Agreement, including the
occurrence of a Distribution Date (as defined in the Rights Agreement) are not
triggered solely by reason of the execution of this Agreement or the
consummation of the Offer, the Merger or the consummation of the other
transactions contemplated by this Agreement in accordance with the provisions
hereof.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF II-VI AND MERGERSUB
II-VI and MergerSub represent and warrant to the Company that:
Section 6.1 Corporate Existence and Power.
Each of II-VI and MergerSub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all corporate powers to execute and deliver this
Agreement and to consummate the Merger and the transactions contemplated
hereby.
Section 6.2 Corporate Authorization.
The execution, delivery and performance by II-VI and MergerSub of this
Agreement and the consummation by MergerSub of the transactions contemplated
hereby are within the corporate powers of II-VI and MergerSub and have been
duly authorized by all necessary corporate and stockholder action. This
Agreement constitutes a valid and binding agreement of II-VI and MergerSub.
Section 6.3 Governmental Authorization.
The execution, delivery and performance by II-VI and MergerSub of this
Agreement and the consummation by II-VI and MergerSub of the transactions
contemplated by this Agreement require no action
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by or in respect of, or filing with, any Governmental Authority other than: (i)
the filing of a certificate of merger in accordance with Delaware Corporate
Law; (ii) compliance with any applicable requirements of the HSR Act; (iii)
compliance with the applicable requirements of the Exchange Act; (iv)
compliance with the applicable requirements of the Securities Act; (v)
compliance with any applicable foreign or state securities or Blue Sky laws;
(vi) compliance with the requirements of the National Industrial Security
Program Regulations; (vii) compliance with the requirements of the
International Trade in Arms Regulations; and (viii) such other items the
failure of which to be obtained will not have a Material Adverse Effect on II-
VI and MergerSub.
Section 6.4 Non-Contravention.
The execution, delivery and performance by II-VI and MergerSub of this
Agreement and the consummation by II-VI and MergerSub of the transactions
contemplated hereby do not and will not: (i) contravene or conflict with the
certificate of incorporation or bylaws of II-VI and MergerSub; (ii) contravene,
conflict with or constitute a violation of any provision of law, regulation,
judgment, order or decree binding upon II-VI and MergerSub; or (iii) constitute
a default under or give rise to any right of termination, cancellation or
acceleration of any right or obligation of II-VI and MergerSub or to a loss of
any benefit to which II-VI and MergerSub is entitled under any agreement,
contract or other instrument binding upon II-VI and MergerSub which in the
aggregate would have a Material Adverse Effect on II-VI and MergerSub.
Section 6.5 Registration Statements, Offer Documents and Proxy Statement.
None of the information supplied by or on behalf of II-VI or MergerSub for
inclusion in the Offer Registration Statement, the registration statement to be
filed with the SEC in connection with the issuance of II-VI Common Stock
pursuant to the Merger ("Merger Registration Statement"), Schedule TO, the
Schedule 14D-9 or the Proxy Statement (the "II-VI Information"), will, at the
time the Offer Registration Statement, Merger Registration Statement, Schedule
TO, the Schedule 14D-9 or the Proxy Statement, as the case may be, is filed
with the SEC or sent to shareholders, at the time of the Stockholders' Meeting
or at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Offer Registration Statement, the Merger
Registration Statement and the Offer Documents willnot, at the respective times
they are filed with the SEC or first published, sent or given to the Company's
stockholders, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statement therein, in light of the circumstances under which they were
made, not misleading. Notwithstanding the foregoing, II-VI and MergerSub do not
make any representation or warranty with respect to statements made or
incorporated by reference in any of the foregoing documents based upon
information that has been supplied by the Company or its accountants, counsel
or other authorized representatives for use in any of the foregoing documents.
The Offer Registration Statement, the Merger Registration Statement and the
Offer Documents will comply as to form in all material respects with the
provisions of Securities Act and the Exchange Act and the rules and regulations
thereunder.
Section 6.6 Litigation.
There is no action, suit or proceeding, claim, arbitration or investigation
against II-VI or MergerSub pending or, to II-VI's and MergerSub's knowledge,
threatened against II-VI and/or MergerSub or any of their properties, assets or
rights before any court, arbitrator or administrative or environmental body,
which could prevent II-VI and MergerSub from consummating the transactions
contemplated by this Agreement.
Section 6.7 Finders' Fees.
Except for fees payable to II-VI Banker, there is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of II-VI and MergerSub who would be entitled to any
fee or commission from II-VI or MergerSub or any of its affiliates upon
consummation of the transactions contemplated by this Agreement.
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Section 6.8 Financing.
II-VI and MergerSub shall have at the Closing sufficient cash to enable it
to pay the cash portion of the Merger Consideration as provided herein, to make
all other necessary payments by it in connection with the Merger and to pay all
of the related fees and expenses (the "Financing"). The Company shall use all
commercially reasonable efforts to cooperate with and assist MergerSub in
obtaining the consent of Wells Fargo Bank to the assignment to the Surviving
Corporation of the Company's obligations under its outstanding indebtedness. If
such consent cannot be obtained from Wells Fargo Bank, then II-VI and MergerSub
shall have at the Closing sufficient cash to enable it to repay the Company's
outstanding indebtedness.
Section 6.9 Capitalization.
As of the date hereof, the authorized capital shares of MergerSub consists
of 3,000 shares of common stock, no par value, of which as of the date hereof
there are outstanding 1,000 shares. As of the date hereof, the authorized
capital shares of II-VI consists of 30,000,000 shares of common stock, no par
value, of which as of the date hereof are outstanding 6,445,333 shares and
5,000,000 shares of preferred stock, no par value, none of which as of the date
hereof is outstanding. All outstanding capital stock of II-VI and MergerSub
have been duly authorized and validly issued and are fully paid and
nonassessable. All II-VI Common Stock that will be issued pursuant to the Offer
and the Merger will be duly authorized and validly issued and fully paid and
nonassessable. As of the moment immediately prior to the Effective Time, except
as set forth in this Section 6.9, there will be: (i) no capital stock or other
voting securities of MergerSub; (ii) no securities of MergerSub convertible
into or exchangeable for capital stock of MergerSub; and (iii) no options or
other rights to acquire from MergerSub, and no obligation of MergerSub to issue
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of MergerSub (the items
referred to in clauses (i), (ii) and (iii) being referred to collectively as
the "MergerSub Securities"). There are no outstanding obligations of MergerSub
to repurchase, redeem or otherwise acquire any MergerSub Securities.
Section 6.10 II-VI Reports and Financial Statements.
Since December 31, 1997, II-VI has filed all forms, reports and documents
with the SEC required to be filed by it pursuant to the federal securities laws
and the SEC rules and regulations thereunder, and all forms, reports and
schedules, registration statements and other documents (together with any
exhibits, any amendments thereto and information incorporated by reference
therein, collectively referred to as "II-VI SEC Reports") filed with the SEC by
II-VI have complied in all material respects with all applicable requirements
of the federal securities laws and the SEC rules and regulations thereunder. As
of their respective dates, the II-VI SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and the unaudited consolidated interim
financial statements of II-VI included in the II-VI SEC Reports were prepared
in accordance with GAAP applied on a consistent basis (except as may be
indicated therein or in the notes or schedules thereto) and present fairly, in
all material respects, the consolidated financial position of II-VI and its
subsidiaries as of the dates thereof and their consolidated results of
operations and changes in financial position for the periods then ended.
ARTICLE VII
COVENANTS OF THE COMPANY
Section 7.1 Conduct of the Company.
Except for matters set forth in Section 7.1 of the Disclosure Letter or as
otherwise contemplated by or specifically provided in this Agreement, without
the prior written consent of II-VI and MergerSub from the date hereof to the
Effective Time, the Company shall carry on its business in the ordinary and
usual course of business and consistent with past practice and shall use its
reasonable best commercial efforts to: (i) preserve
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intact its present business organization; (ii) maintain in effect all material
federal, state and local Permits that are required for the Company or any of
its Subsidiaries to carry on its business; (iii) keep available the services of
its key officers and employees; and (iv) maintain satisfactory relationships
with its customers, lenders, suppliers and others having material business
relationships with it. Without limiting the generality of the foregoing, and
except for matters set forth in Section 7.1 of the Disclosure Letter attached
hereto or as otherwise contemplated by or specifically provided in this
Agreement, without the prior written consent of II-VI and MergerSub, prior to
the Effective Time, the Company shall not and shall not permit its Subsidiaries
to:
(a) adopt any change in its amended and restated certificate of
incorporation or bylaws or comparable organizational documents;
(b) except pursuant to existing agreements or arrangements: (i) acquire (by
merger, consolidation, acquisition of stock or assets, joint venture or
otherwise of a direct or indirect ownership interest or investment) any
corporation, partnership or other business organization or division thereof, or
sell, lease or otherwise dispose of a material amount of assets (excluding
sales of inventory or other assets in the ordinary course of business) or
securities; (ii) waive, release, grant, or transfer any rights of material
value; (iii) modify or change in any material respect any material Permit; (iv)
except to refund or refinance commercial paper, incur, assume or prepay any
indebtedness for borrowed money except in the ordinary course of business,
consistent with past practice; (v) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
any indebtedness for borrowed money or trade payables of any other Person,
except in the ordinary course of business consistent with past practice; (vi)
make any loans, advances or capital contributions to, or investments in, any
other Person, except in the ordinary course of business, consistent with past
practice; (vii) authorize any capital expenditure or expenditures not in the
ordinary course of business that have not been authorized and approved prior to
the date hereof (other than the Company's computer upgrade currently in
process) which individually or in the aggregate is in excess of One Hundred
Thousand Dollars ($100,000); (viii) pledge or otherwise encumber shares of
capital stock of the Company or any of its Subsidiaries; (ix) mortgage or
pledge any of its material assets, tangible or intangible, or create or suffer
to exist any material Lien thereupon; (x) enter into any contract or agreement
other than in the ordinary course of business consistent with past practice
that would be material to the Company and its Subsidiaries, taken as a whole;
or (xi) amend, modify or waive in any material respects any right under any
material contract of the Company or any of its Subsidiaries;
(c) take any action that would result in any representation and warranty of
the Company hereunder becoming untrue in any material respects as of the
Effective Time;
(d) split, combine or reclassify any shares of, declare, set aside or pay
any dividend (including, without limitation, an extraordinary dividend) or
other distribution (whether in cash, stock or property or any combination
thereof) in respect of Company Securities or redeem, repurchase or otherwise
acquire or offer to redeem, repurchase, or otherwise acquire any Company
Securities;
(e) adopt or amend any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or employee benefit plan, agreement, trust, plan, fund or other
arrangement for the benefit and welfare of any director, officer or employee,
or increase in any manner the compensation or fringe benefits of any director,
officer or any class of employees (or support any portion thereof) or pay any
benefit not required by any existing plan or arrangement (including, without
limitation, the granting of stock options or stock appreciation rights or the
removal of existing restrictions in any benefit plans or agreements); provided,
however, that notwithstanding the foregoing, the Company shall be entitled to
adopt or amend any bonus, profit sharing, compensation, severance, deferred
compensation, termination of employment agreement for the benefit and welfare
of any individual employee (excluding officers), or increase in any manner the
compensation or fringe benefits of any such employee in each case in the
ordinary course of business and consistent with past practice;
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(f) except as required by applicable Law or GAAP, revalue in any material
respect any of its assets, including writing down the value of inventory in any
material manner or write-off of notes or accounts receivable in any material
manner;
(g) pay, discharge or satisfy any material claims, liabilities or
obligations (whether absolute, accrued, asserted or unasserted, contingent or
otherwise) other than the payment, discharge or satisfaction in the ordinary
course of business, consistent with past practices, or as otherwise required by
the terms thereof;
(h) make any material Tax election or settle or compromise any material Tax
liability;
(i) make any change in accounting methods, principles or practices
materially affecting the reported consolidated assets, liabilities or results
of operations of the Company, except insofar as may have been required by a
change in GAAP;
(j) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
Company Securities or equity equivalents;
(k) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its Subsidiaries (other than the Merger);
(l) alter through merger, liquidation, reorganization, restructuring or any
other fashion the corporate structure of ownership of any Subsidiary; or
(m) agree or commit to do any of the foregoing.
Section 7.2 Proxy Statement.
As promptly as practicable after the consummation of the Offer and if
required by law in order to consummate the Merger, the Company shall prepare
and file with the SEC the Proxy Statement. The Company shall use its reasonable
efforts to cause the Proxy Statement to be cleared by the SEC for mailing to
the stockholders of the Company as promptly as practicable and shall mail the
Proxy Statement to its stockholders as promptly as practicable thereafter. II-
VI shall furnish all information concerning it and the holders of its capital
stock as the Company may reasonably request in connection with such actions.
Section 7.3 Stockholders' Meeting.
Promptly after the consummation of the Offer, if required by law in order to
consummate the Merger, the Company shall take all action reasonably necessary
in accordance with Delaware Corporate Law and its articles of incorporation and
bylaws to convene the Stockholders' Meeting. The Company shall use commercially
reasonable efforts to solicit from stockholders of the Company proxies in favor
of the approval of this Agreement and the Merger. Notwithstanding the
foregoing, if MergerSub or any other subsidiary of II-VI shall acquire at least
ninety percent (90%) of the outstanding Shares, and provided that the
conditions set forth in ARTICLE X shall have been satisfied or waived, the
Company shall, at the request of II-VI, take all necessary and appropriate
action to cause the Merger to become effective as soon as practicable after
such acquisition, without the approval of the stockholders of the Company, in
accordance with Section 253 of Delaware Corporate Law.
Section 7.4 Access to Information; Right of Inspection.
From the date hereof until the Effective Time, the Company will give II-VI,
MergerSub, their counsel, financial advisors, auditors and other authorized
representatives full access to the offices, properties, books and records of
the Company (so long as such access does not unreasonably interfere with the
operations of the Company), will furnish to II-VI, MergerSub, their counsel,
financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such Persons may
reasonably request
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and will instruct the Company's employees, counsel and financial advisors to
cooperate with II-VI and MergerSub in their investigation of the business of
the Company; provided, that any information provided to II-VI and MergerSub
pursuant to this Section 7.4 shall be subject to the Confidentiality Agreement.
The Company hereby grants to II-VI and MergerSub a license to enter and inspect
the Real Property, such inspection to be completed prior to Closing. In order
to complete their investigation pursuant to this section, II-VI and MergerSub
or their designated consultant shall have the right but not the obligation: (i)
to conduct tests of the soil, surface or subsurface waters, and air quality at,
in, on, beneath or about the Property, in a manner consistent with good
engineering practice; (ii) to inspect all records, reports, permits,
applications, monitoring results, studies, correspondence, data and any other
information or documents related to Hazardous Materials, compliance with
Environmental Laws or other environmental conditions; and (iii) to inspect all
buildings and equipment at the Real Property for asbestos-containing materials
or other Hazardous Materials. II-VI and MergerSub agree to conduct such
investigations in a manner that minimizes the disruption to the business
activities of the Company and the Subsidiaries, and the Company agrees to
permit II-VI and MergerSub reasonable access to all portions of the Real
Property, both during business hours and after business hours. II-VI and
MergerSub agree to keep and hold any and all reports, summaries, studies or
results that are the product of their investigations of the Real Property in
accordance with the terms of the Confidentiality Agreement, and not to disclose
such reports prior to the Closing without the written consent of the Company or
unless required to do so by applicable Law.
Section 7.5 Other Potential Acquirers.
(a) Neither the Company nor any of its affiliates shall, nor shall the
Company authorize or permit any of its or their respective officers, directors,
employees, representatives or agents to, directly or indirectly, encourage,
solicit or engage in discussions or negotiations with or provide any non-public
information to any person or group (other than II-VI or its affiliates or any
designees of II-VI or its affiliates) concerning any subsequent Third-Party
Acquisition; provided, however, that nothing herein shall prevent the Board of
Directors of the Company from: (i) making any disclosure required under
applicable law; and (ii) conducting such "due diligence" inquiries (which shall
be in writing to the extent possible) in response to any Third-Party
Acquisition proposal as the Board of Directors of the Company, by a majority
disinterested vote, determines in its good faith judgment, after consultation
with and based, among other things, upon the advice of legal counsel, may be
required in order to comply with its fiduciary duties. The Company shall
immediately notify II-VI and MergerSub in the event it receives any proposal or
inquiry concerning a Third Party Acquisition, including the terms and
conditions thereof and the identity of the party submitting such proposal, and
shall promptly update II-VI and MergerSub of the status and any material
developments concerning the same, including furnishing copies of any such
written inquiries.
(b) Except as set forth in this Section 7.5(b), the Board of Directors of
the Company shall not withdraw its recommendation of the transactions
contemplated hereby or approve or recommend, or cause the Company to enter into
any agreement with respect to, any Third Party Acquisition. If the Board of
Directors of the Company, by a majority disinterested vote determines in its
good faith judgment after consultation with and based, among other things, upon
the advice of legal counsel, that it is required to do so in order to comply
with its fiduciary duties, the Board of Directors of the Company may withdraw
its recommendation of the transactions contemplated hereby or approve or
recommend a Superior Proposal (as defined in subsection (c) below), but in each
case only: (i) after providing written notice to II-VI and MergerSub (a "Notice
of Superior Proposal") advising II-VI and MergerSub that the Board of Directors
of the Company has received a Superior Proposal, specifying the material terms
and conditions of such Superior Proposal and identifying the person making such
Superior Proposal; and (ii) if II-VI and MergerSub do not, within two (2)
business days of II-VI's and MergerSub's receipt of the Notice of Superior
Proposal, make an offer that the Board of Directors of the Company by a
majority disinterested vote determines in its good faith judgment (after
receipt of written advice of a financial adviser of nationally recognized
reputation consistent with such determination) to be at least as favorable to
the Company's stockholders as such Superior Proposal; provided, however, that
the Company shall not be permitted to enter into any agreement with respect to
a Superior Proposal unless and until this Agreement is terminated by its terms
pursuant to Section 11.1 and the Company has paid all amounts due to
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II-VI and MergerSub pursuant to Section 11.2. Any disclosure that the Board of
Directors of the Company may be compelled to make with respect to the receipt
of a proposal for a Third-Party Acquisition or otherwise in order to comply
with its fiduciary duties or Rule 14d-9 or 14e-2 will not constitute a
violation of this Agreement, provided that such disclosure states that no
action will be taken by the Board of Directors of the Company in violation of
this Section 7.3(b).
(c) For the purposes of this Agreement, "Third Party-Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company
by merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than MergerSub or any
affiliate thereof (a "Third-Party"); (ii) the acquisition by a Third Party of
any material portion of the assets of the Company and its Subsidiaries taken as
a whole, other than the sale of its products in the ordinary course of business
consistent with past practices; (iii) the acquisition by a Third Party of ten
percent (10%) or more of the outstanding Company Common Stock or the issuance
by the Company of preferred stock of a new series containing terms which are
inconsistent with the consummation of the transactions contemplated by this
Agreement; (iv) the adoption by the Company of a plan of liquidation or the
declaration or payment of an extraordinary dividend; (v) the repurchase by the
Company or any of its Subsidiaries of more than ten percent (10%) of the
outstanding Shares; or (vi) the acquisition by the Company or any of its
Subsidiaries by merger, purchase of stock or assets, joint venture or otherwise
of a direct or indirect ownership interest or investment in any business whose
annual revenues, net income or assets is equal or greater than ten percent
(10%) of the annual revenues, net income or assets of the Company, other than
any such acquisition to which II-VI and MergerSub have consented pursuant to
Section 7.1(b). For purposes of this Agreement, a "Superior Proposal" means any
bona fide proposal to acquire directly or indirectly for consideration
consisting of cash and/or securities more than ten percent (10%) of the shares
of Company Common Stock then outstanding or all or substantially all the assets
of the Company and otherwise for a consideration higher than the Merger
Consideration and on terms that the Board of Directors of the Company by a
majority vote determines in its good faith judgment (after receipt of written
advice of a financial advisor of nationally recognized reputation consistent
with such determination) to be more favorable to the Company's stockholders
than the Merger.
Section 7.6 Resignation of Directors.
Prior to the Effective Time, the Company shall deliver to MergerSub evidence
satisfactory to MergerSub of the resignation of all directors of the Company
effective at the Effective Time.
ARTICLE VIII
COVENANTS OF II-VI AND MERGERSUB
Section 8.1 Voting of Shares.
MergerSub agrees, and II-VI agrees to cause MergerSub, to vote all Shares
beneficially owned by it in favor of adoption of this Agreement at the Company
Stockholder Meeting.
Section 8.2 Director and Officer Liability.
(a) The Surviving Corporation shall honor all of the Company's obligations
to indemnify and hold harmless (including any obligations to advance funds for
expenses) the present and former officers and directors of the Company in
respect of acts or omissions occurring prior to the Effective Time to the
extent provided under the Company's articles of incorporation and bylaws in
effect on the date hereof, and such obligations shall survive the Merger and
shall continue in full force and effect in accordance with the terms of the
Surviving Corporation's articles of incorporation and bylaws, from the
Effective Time until the expiration of the applicable statue of limitations
with respect to any claims against such directors or officers arising out of
such acts or omissions; provided that such indemnification shall be subject to
any limitation imposed from time to time under applicable Law. For a period of
three (3) years after the Effective Time, the Surviving Corporation shall cause
to be maintained the current policies of officers' and directors' liability
insurance
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maintained by the Company (the "Current Policies") (provided that the Surviving
Corporation may substitute therefor policies with reputable and financially
sound carriers of at least the same coverage and amount containing terms and
conditions that are no less favorable (the "Replacement Policies")) in respect
of acts or omissions occurring prior to the Effective Time covering each such
Person currently covered by such Current Policies; provided, however, that in
no event will the Surviving Corporation be required to expend in excess of 150%
of the annual premium currently paid by the Company for such coverage (or such
coverage as is available for 150% of such annual premium); provided further
that if the annual premium required to cause the Current Policies to be
maintained as provided in this Section 8.2(a) exceeds 150% of the annual
premium currently paid by the Company, any present or former officer or
director of the Company who desires to be covered by the Current Policies may
so elect and shall be covered by the Current Policies so long as such former
officer or director pays the portion of the premium for such Current Policies
in excess of the amount which the Surviving Corporation is obligated to pay
pursuant to this Section 8.2(a).
(b) The Surviving Corporation shall keep in effect the provisions in its
articles of incorporation and bylaws to honor the Company's indemnification
obligations as set forth in Section 8.2(a) to the fullest extent permitted by
law and such provisions shall not be amended, repealed or otherwise modified in
any manner adverse to the present and former officers and directors of the
Company, without the prior written consent of such persons, except as required
by applicable law.
(c) In the event that the Surviving Corporation or any of its controlling
persons or successors or assigns: (i) consolidates with or mergers into any
other person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger; or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, in each
such case, to the extent necessary to effectuate the purpose of this Section
8.2, proper provision shall be made so that the successors and assigns of the
Surviving Corporation or such controlling persons shall succeed to the
obligations set forth in this Section 8.2.
Section 8.3 Nasdaq National Market Listing.
II-VI shall use its reasonable best efforts to cause the II-VI Common Stock
to be issued in connection with the Offer and the Merger to be listed on the
Nasdaq National Market, subject to official notice of issuance.
ARTICLE IX
COVENANTS OF II-VI AND MERGERSUB AND THE COMPANY
The parties hereto agree that:
Section 9.1 Reasonable Best Efforts.
Subject to the terms and conditions of this Agreement, each party will use
its reasonable best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement, including without limitation the Securities Act and , if
applicable, the National Industrial Security Program Regulations. Each party
shall also refrain from taking, directly or indirectly, any action which would
impair such party's ability to consummate the Merger and the other transactions
contemplated hereby. Without limiting the foregoing, the Company shall use its
reasonable best efforts to: (i) take all action necessary so that no state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger or any of the other transactions contemplated by this Agreement; and
(ii) if any state takeover statute or similar statute or regulation becomes
applicable to any of the foregoing, take all action necessary so that the
Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
Notwithstanding the foregoing, the Board of Directors of the Company shall not
be prohibited from taking any action permitted by Section 7.4.
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Section 9.2 Certain Filings.
(a) The parties shall cooperate with one another: (i) in determining whether
any action by or in respect of, or filing with, any Governmental Authority is
required, or any actions, consents, approvals or waivers are required to be
obtained from parties to any material contracts, in connection with the
consummation of the transactions contemplated by this Agreement; and (ii) in
seeking any such actions, consent approvals or waivers or making any such
filings, furnishing information required in connection therewith or with the
Offer Registration Statement, Merger Registration Statement or Proxy Statement
and seeking to obtain any such actions, consents, approvals or waivers,
provided, however, that the Company shall not be required to make any material
monetary expenditure or grant any material accommodation (financial or
otherwise) in connection with any of the foregoing.
(b) The Company and II-VI shall: (i) use their respective reasonable best
efforts to take or cause to be taken, (A) all actions necessary, proper or
advisable by such party with respect to the prompt preparation and filing with
the SEC of the Offer Registration Statement, Merger Registration Statement and
Proxy Statement, (B) such actions as may be required to have the Offer
Registration Statement, Merger Registration Statement and Proxy Statement
cleared by the SEC, as promptly as practicable, and (C) such actions as may be
required to be taken under the Exchange Act and state securities or applicable
Blue Sky Laws in connection with the Merger; and (ii) promptly prepare and file
all necessary documentation, effect all necessary applications, notices,
petitions and filings, and use all reasonable efforts to obtain all necessary
permits, consents, approvals and authorizations of Governmental Authorities
(including, without limitation, the Offer Registration Statement, Merger
Registration Statement, the National Industrial Security Program Regulations,
the International Trade in Arms Regulations and the HSR Act or any other
applicable antitrust law or regulation).
(c) The Company agrees to provide and will cause its Subsidiaries and its
and their respective officers, employees and advisors to provide, prior to the
Effective Date, all documents that II-VI and MergerSub may reasonably request
relating to the existence of the Company and the authority of the Company for
this Agreement, all in form and substance reasonably satisfactory to II-VI and
MergerSub.
Section 9.3 Public Announcements.
II-VI and the Company will consult with each other before issuing any press
release or making any public statement with respect to this Agreement and the
transactions contemplated hereby (other than following a change, if any, of the
Board of Directors of the Company's recommendation of the Merger (in accordance
with Section 7.5(b)), and except for any press release or public statement as
may be required by applicable Law or any listing agreement with Nasdaq, will
not issue any such press release or make any such public statement prior to
such consultation.
Section 9.4 Further Assurances.
At and after the Effective Time, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the name and on
behalf of the Company, II-VI or MergerSub (as appropriate), any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf
of the Company, II-VI or MergerSub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of the Company acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger.
Section 9.5 Notices of Certain Events.
Each of the parties hereto shall promptly notify the other party of:
(i) the receipt by such party of any notice or other communication
from any Person alleging that the consent of such Person is or may be
required in connection with the transactions contemplated by this
Agreement;
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(ii) the receipt by such party of any notice or other communication
from any Governmental Authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of such party's knowledge threatened against, or
affecting such party which, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to this Agreement or
which relate to the consummation of the transactions contemplated by this
Agreement.
ARTICLE X
CONDITIONS TO THE MERGER
Section 10.1 Conditions to the Obligations of Each Party.
The obligations of the Company and MergerSub to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) If required by Delaware Corporate Law, this Agreement shall have been
approved in accordance with Delaware Corporate Law by the affirmative vote of
the holders of a majority in voting interests of the shares of Company Common
Stock.
(b) Any applicable waiting period under the HSR Act relating to the Merger
shall have expired or been terminated.
(c) The Merger Registration Statement shall be effective, no stop order
suspending the effectiveness of the Merger Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall have been
initiated by the SEC that have not been concluded or withdrawn and all state
securities or Blue Sky authorizations necessary to consummate the Merger shall
have been obtained.
(d) No provision of any applicable Law and no judgment, order, decree or
injunction shall prohibit or restrain the consummation of the Merger; provided,
however, that the parties shall each use their reasonable best efforts to have
any such judgment, order, decree or injunction vacated.
(e) Representations shall have been obtained from the DOD under the National
Industrial Security Program Regulations that II-VI will be able to operate
after the Merger those portions of the business of the Surviving Corporation
that are governed by the National Industrial Security Program Regulations,
either unconditionally or subject only to such conditions as are customarily
imposed under the National Industrial Security Program, and are not, in the
judgment of II-VI, after consultation with the Company, to the extent
practicable, materially burdensome to II-VI and its affiliates.
(f) MergerSub shall have accepted for payment and paid for all Shares
validly tendered in the Offer and not withdrawn.
Section 10.2 Conditions to the Obligations of II-VI and MergerSub.
The obligations of II-VI and MergerSub to consummate the Merger are subject
to the satisfaction of the following further conditions:
(a) The Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of the Company contained in
this Agreement shall be true in all material respects at and as of the
Effective Time (provided that representations made as of a specific date shall
be required to be true as of such date only) as if made at and as of such time
and MergerSub shall have received a certificate signed by the Chief Executive
Officer and the Chief Financial Officer of the Company to his knowledge to the
foregoing effect;
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(b) There shall not be pending: (i) any action or proceeding by any
Governmental Authority; or (ii) any action or proceeding by any other Person,
in any case referred to in clauses (i) and (ii), before any court or
Governmental Authority that has reasonable likelihood of success seeking to:
(i) make illegal, to delay materially or otherwise directly or indirectly to
restrain or prohibit the consummation of the Merger or seeking to obtain
material damages; (ii) restrain or prohibit II-VI's (including its affiliates)
ownership or operation of all or any material portion of the business or assets
of the Surviving Corporation or the Company, or to compel II-VI or any of its
affiliates to dispose of or hold separate all or any material portion of the
business or assets of the Surviving Corporation or the Company; (iii) impose or
confirm material limitations on the ability of II-VI or any of its affiliates
to effectively control the business or operations of the Surviving Corporation
or the Company or effectively to exercise full rights of ownership of the
shares of Company Common Stock, including, without limitation, the right to
vote any Shares acquired or owned by II-VI or any of its affiliates on all
matters properly presented to the Company's stockholders, or (iv) require
divestiture by II-VI or any of its affiliates of any material amount of share;,
and no court, arbitrator or Governmental Authority shall have issued any
judgment, order, decree or injunction, and there shall not be any statute, rule
or regulation, that, in the sole judgment of II-VI is likely, directly or
indirectly, to result in any of the consequences referred to in the preceding
clauses (i) through (iv); provided, however, that II-VI shall use its
reasonable best efforts to have any such judgment, order, decree or injunction
vacated;
(c) The parties shall have received, each in form and substance satisfactory
to II-VI and MergerSub, all authorizations, consents, orders and approvals of
all Governmental Authorities and officials, including, without limitation,
approvals or agreements required by the DOD under the National Industrial
Security Program Regulations, and all third party consents and estoppel
certificates, which II-VI and MergerSub deem necessary or desirable for the
consummation of the transactions contemplated by this Agreement or the conduct
of the business of the Company and its Subsidiaries by II-VI after the Merger;
(d) The Merger Registration Statement shall be effective, no stop order
suspending the effectiveness of the Merger Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall have been
initiated by the SEC that have not been concluded or withdrawn and all state
securities or Blue Sky authorizations necessary to consummate the Merger shall
have been obtained.
(e) The aggregate number of Dissenting Shares shall not equal 10% or more of
the shares of the Company outstanding as of the record date for the Company
Stockholder Meeting; and
(f) Since the date of this Agreement, there shall not have occurred any
change, event, occurrence, development or circumstance which, individually or
in the aggregate, has had, or would reasonably be expected to have, a Material
Adverse Effect on the Company.
Section 10.3 Conditions to the Obligations of the Company.
The obligation of the Company to consummate the Merger is subject to the
satisfaction of the following further conditions:
(a) II-VI and MergerSub shall have performed in all material respects all of
their obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of II-VI and MergerSub
contained in this Agreement and in any certificate or other writing delivered
by it pursuant hereto shall be true in all material respects at and as of the
Effective Time (provided that representations made as of a specific date shall
be required to be true as of such date only) as if made at and as of such time
and the Company shall have received a certificate signed by the President or
any Vice President of II-VI to the foregoing effect; and
(b) The Board of Directors of the Company shall have received advice,
reasonably satisfactory to the Board, from an independent advisor to the effect
that the transactions contemplated herein are fair and reasonable to the
Company and its stockholders.
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ARTICLE XI
TERMINATION
Section 11.1 Termination.
This Agreement may be terminated and the Offer and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company):
(a) By mutual written consent of the Company on the one hand and II-VI and
MergerSub on the other hand;
(b) By either the Company or MergerSub, if the Offer has not been
consummated within 120 days of the date of this Agreement (the "Termination
Date"), provided that the party seeking to exercise such right is not then in
breach in any material respect of any of its obligations under this Agreement;
and provided, further that the Termination Date may be extended for one (1)
additional 30-day period in the event no party is in breach of this Agreement
and the sole condition to the Merger that remains unsatisfied is the consent,
authorization or approval of a Governmental Authority;
(c) By either the Company or II-VI and MergerSub at any time prior to the
consummation of the Offer, if II-VI and MergerSub (in the case of termination
by the Company) or the Company (in the case of termination by II-VI and
MergerSub) shall have breached in any material respect any of its covenants or
obligations under this Agreement or any representation or warranty of II-VI
and MergerSub (in the case of termination by the Company) or of the Company
(in the case of termination by II-VI and MergerSub) shall have been incorrect
in any material respect when made or at any time prior to the Effective Time
(unless such breach is capable of cure and, in such case, the breaching party
shall not have cured such breach within 15 days after the receipt of written
notice from the non-breaching party to the breaching party of such breach);
(d) By either the Company or II-VI and MergerSub, if any court of competent
jurisdiction in the United States or other United States federal or state
Governmental Authority shall have issued a final order, decree or ruling, or
taken any other final action restraining, enjoining or otherwise prohibiting
acceptance for payment of, or payment for, Shares pursuant to the Offer or
Shares pursuant to the Merger and such order, decree, ruling or other action
is or shall have become nonappealable;
(e) By II-VI and MergerSub: (i) if prior to the consummation of the Offer
and to the extent permitted by Section 7.5, the Board of Directors of the
Company shall have withdrawn, or modified or changed in a manner adverse to
II-VI and MergerSub its approval or recommendation of this Agreement or the
Merger or shall have approved a Third-Party Acquisition; (ii) if there shall
have occurred a Third-Party Acquisition; or (iii) if the Company, or any of
the Company's officers, directors, employees, representatives or agents, shall
take any of the actions described in the first sentence of Section 7.5(a)
hereof, other than the proviso thereto;
(f) By the Company at any time prior to the consummation of the Offer, if
the Company has approved a Superior Proposal in accordance with Section
7.5(b), provided the Company has complied with all provisions thereof,
including the notice provisions therein, and that it makes simultaneous
payment of the Termination Fee;
(g) By the Company if: (i) the Offer shall not be commenced upon the
twentieth business day immediately following the date of this Agreement;
PROVIDED, that the failure to so commence has not been caused by and does not
result from the failure of the Company to perform any of its representations,
warranties, covenants or agreements contained in this Agreement; or (ii)
MergerSub terminates the Offer; or
(h) By II-VI and MergerSub at any time prior to the consummation of the
Offer, if the Offer is terminated or expires in accordance with its terms
without MergerSub having purchased any Shares and pursuant to ANNEX A hereto
and ARTICLE II hereof, MergerSub is neither required to accept and pay for the
Shares tendered in the Offer nor extend the expiration date of the Offer,
provided that II-VI and MergerSub may not terminate this Agreement pursuant to
this Section 11.1(h) of II-VI or MergerSub is in material breach of this
Agreement.
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The party desiring to terminate this Agreement pursuant to Section 11.1(b)
through (h) shall give written notice of such termination to the other party in
accordance with Section 12.1.
Section 11.2 Termination Fees.
(a) Notwithstanding any other provision of this Agreement, if this Agreement
is terminated pursuant to either of Sections 11.1(e) or 11.l(f), then the
Company shall immediately pay to II-VI a break-up fee of Two Million Dollars
($2,000,000) (the "Termination Fee"). The parties hereto agree that the
Termination Fee is not a penalty, but rather is liquidated damages in a
reasonable amount that will compensate MergerSub for the costs incurred,
efforts expended and opportunities foregone while negotiating this Agreement
and in reliance on this Agreement and on the expectation of the consummation of
the transactions contemplated hereby, which amount would otherwise be
impossible to calculate with precision.
(b) If (i) the Company shall have actually paid to Union Miniere USA Inc.
the termination fee contemplated by the UM Merger Agreement, and (ii) and this
Agreement is terminated for any reason other than as set forth in the proviso
to this subsection (b), then II-VI shall pay Laser Power a termination fee of
Two Million Five Hundred Thousand Dollars ($2,500,000) in cash promptly after
the date of such termination, provided, that II-VI shall not be obligated to
pay such termination fee if (A) prior to the consummation of the Offer, a third
party shall have publicly announced a Third-Party Acquisition proposal,
subsequent to which the Minimum Condition under the Offer shall be not have
been satisfied; (B) the Agreement shall have been terminated pursuant to
Section 11.1(e); (C) the Agreement shall have been terminated pursuant to
Section 11.1(d) as a result of an action, suit or proceeding brought by any
person other than a Governmental Entity; or (D) the Agreement shall have been
terminated by II-VI or MergerSub pursuant to Section 11.1(c) hereof. The
termination fee provided for in this subsection (b) constitutes liquidated
damages. Upon payment of the termination fee provided by this section, the
Company shall have no other rights or claims against II-VI or MergerSub and
neither II-VI nor MergerSub shall have any other or further obligations under
this Agreement.
Section 11.3 Effect of Termination.
If this Agreement is terminated pursuant to Section 11.1, this Agreement
shall become void and of no effect with no liability on the part of any party
hereto except to the extent that such termination results from the willful and
material breach by a party of any representation, warranty or covenant
contained in this Agreement except that the agreements contained in the last
proviso of Section 7.4 and Sections 11.2, 11.3, 12.1, 12.4 and 12.7 shall
survive the termination hereof.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Notices.
All notices, requests and other communications to any party hereunder shall
be in writing (including telecopy or similar writing) and shall be given,
if to II-VI or MergerSub, to:
II-VI Incorporated
375 Saxonburg Blvd.
Saxonburg, Pennsylvania 16056
Attention: Carl J. Johnson
Telephone: (724) 352-4455
Facsimile: (724) 352-5299
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with a copy to:
Buchanan Ingersoll
Professional Corporation
One Oxford Centre
301 Grant Street--20th Floor
Pittsburgh, Pennsylvania 15219-1410
Attention: Ronald Basso, Esq.
Telephone: (412) 562-8800
Facsimile: (412) 562-1041
if to the Company, to:
Laser Power Corporation
36570 Briggs Road
Munrieta, CA 92563
Attention: Dick Sharman
Telephone: (909) 926-1986
Facsimile: (909) 926-9026
with a copy to:
Best Best & Krieger
3750 University Avenue
P.O. Box 1026
Riverside, California 92502
Attention: George Reyes, Esq.
Telephone: (909) 686-1450
Facsimile: (909) 686-3083
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (i) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified in this
Section and the appropriate telecopy confirmation is received or (ii) if given
by any other means when delivered at the address specified in this Section
12.1.
Section 12.2 Survival of Representations and Warranties.
The representations and warranties contained herein and in any certificate
or other writing delivered pursuant hereto shall survive until (but not beyond)
the Effective Time. This Section 12.2 shall not limit any covenant or agreement
of the parties which by its terms contemplates performance after the Effective
Time.
Section 12.3 Amendments' No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment by the Company and MergerSub or in the case
of a waiver, by the party against whom the waiver is to be effective; provided
that after the adoption of this Agreement by the stockholders of the Company,
there shall be no amendment that by law requires further approval by the
stockholders of the Company without the further approval of such stockholders.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
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Section 12.4 Expenses.
Except as provided in Sections 7.5 and 11.2, all costs and expenses
incurred in connection with this Agreement shall be paid by the party
incurring such cost or expense.
Section 12.5 Transfer Taxes.
All stock transfer, real estate transfer, documentary, stamp, recording and
other similar taxes (including interest, penalties and additions to any such
Taxes) ("Transfer Taxes") incurred in connection with the transactions
contemplated by this Agreement shall be paid by either MergerSub or the
Surviving Corporation, and the Company shall cooperate with MergerSub in
preparing, executing and filing any returns with respect to such Transfer
Taxes.
Section 12.6 Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
provided that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the consent of the other
parties hereto.
Section 12.7 Governing Law.
This Agreement shall be construed in accordance with and governed by the
law of the State of Delaware.
Section 12.8 Counterparts; Effectiveness; Facsimile Transmission.
This Agreement may be signed in any number of counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This Agreement shall become effective
when each party hereto shall have received counterparts hereof signed by all
of the other parties hereto. Signatures of a party to this Agreement or other
documents executed in connection herewith which are sent to the other parties
by facsimile transmission shall be binding as evidence of acceptance of the
terms hereof or thereof by such signatory party, with originals to be
circulated to the other parties in due course.
Section 12.9 Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any Law, or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
Section 12.10 Specific Performance.
The parties hereby acknowledge and agree that the failure of any party to
perform its agreements and covenants hereunder, including its failure to take
all actions as are necessary on its part to the consummation of the Merger,
will cause irreparable injury to the other parties, for which damages, even if
available, will not be an adequate remedy. Accordingly, each party hereby
consents to the issuance of injunctive relief by any court of competent
jurisdiction to compel performance of such party's obligations and to the
granting by any court of the remedy of specific performance of its obligations
hereunder.
Section 12.11 Entire Agreement; No Third-Party Beneficiaries.
This Agreement: (i) constitutes the entire agreement, and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement; and (ii) except for the
provisions of ARTICLE III and Section 8.2, is not intended to confer upon any
Person other than the parties any rights or remedies.
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[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
LASER POWER CORPORATION
By: /s/ Dick Sharman
------------------------
Dick Sharman
Chief Executive Officer
II-VI INCORPORATED
By: /s/ Carl J. Johnson
------------------------
Carl J. Johnson
Chairman and Chief Executive Officer
II-VI ACQUISITION CORP.
By: /s/ Carl J. Johnson
------------------------
Carl J. Johnson
Chief Executive Officer
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<PAGE>
ANNEX A
TENDER OFFER CONDITIONS
The capitalized terms used but not defined in this ANNEX A shall have the
meanings set forth in the Agreement to which it is annexed.
Notwithstanding any other provision of the Offer and subject to the
provisions of the Merger Agreement, MergerSub shall not be required to accept
for payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to MergerSub's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for any Shares tendered pursuant to the Offer and
may terminate or amend the Offer and may postpone the acceptance of, and
payment for, any Shares, if:
(i) there shall not have been validly tendered and not properly
withdrawn prior to the expiration of the Offer a number of Shares which,
together with the Shares owned by II-VI on the date of this Agreement,
represent in the aggregate a majority of all issued and outstanding Shares,
on a fully diluted basis ("on a fully-diluted basis" meaning, at any time,
the number of Shares outstanding, together with the Shares which the
Company may be required to issue pursuant to options or other obligations
outstanding at such time under employee stock or similar benefit plans or
otherwise, whether or not vested or then exercisable), on the date of
purchase (the "Minimum Condition");
(ii) any applicable waiting period (and any extension thereof) under the
HSR Act shall not have expired or been terminated; or
(iii) The Offer Registration Statement shall not have become effective,
a stop order suspending the effectiveness of the Offer Registration
Statement has been issued by the SEC or if proceedings for that purpose
shall have been initiated by the SEC and not concluded or withdrawn or all
state securities or Blue Sky authorizations necessary to consummate the
Offer shall not have been obtained.
(iv) Representations shall not have been obtained from the DOD under the
National Industrial Security Program Regulations that II-VI will be able to
own after the Merger those portions of the business of the Surviving
Corporation that are governed by the National Industrial Security Program,
either unconditionally or subject only to such conditions as are
customarily imposed under the National Industrial Security Program
Regulations and are not, in the judgment of II-VI, after consultation with
the Company, to the extent practicable, materially burdensome to II-VI and
its affiliates; or
(v) at any time on or after the date of the Merger Agreement and at or
before the time of payment for any such Shares (whether or not any Shares
have theretofore been accepted for payment or paid for pursuant to the
Offer) any of the following shall occur:
(A) there shall be instituted or pending any action or proceeding by
any Governmental Entity before any court of competent jurisdiction or
Governmental Entity:, (i) challenging or seeking to, or which would
reasonably be expected to make, illegal, impede, materially delay or
otherwise directly or indirectly restrain or prohibit the Offer or the
Merger; (ii) seeking to prohibit or materially limit the ownership or
operation by II-VI or MergerSub of all or any material portion of the
business or assets of the Company and the Company Subsidiaries taken as
a whole or to compel II-VI or MergerSub to dispose of or hold
separately all or any material portion of the business or assets of
II-VI and the II-VI Subsidiaries taken as a whole or the Company and
the Company Subsidiaries taken as a whole, or seeking to impose any
limitation on the ability of II-VI or MergerSub to conduct its business
or own such assets; (iii) seeking to impose limitations on the ability
of II-VI or MergerSub effectively to exercise full rights of ownership
of the shares of Company Common Stock, including, without limitation,
the right to vote any shares of Company Common Stock acquired or owned
by MergerSub or II-VI on all matters properly presented to the
Company's shareholders; (iv) seeking to require divestiture by II-VI or
MergerSub of any shares of Company Common Stock; or (v) seeking any
material diminution in the benefits expected to be derived by II-VI or
MergerSub as a result of the transactions contemplated by the Offer or
the Merger;
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(B) there shall be any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
proposed, enacted, enforced, promulgated, amended or issued and
applicable to or deemed applicable to: (i) II-VI, MergerSub, the
Company or any Company Subsidiary; or (ii) the Offer or the Merger, by
any legislative body, court or Governmental Entity, other than the
routine application of the waiting period provisions of the HSR Act, to
the Offer, Offer Registration Statement, the Merger or Merger
Registration Statement, that would reasonably be expected to result
directly or indirectly in any of the consequences referred to in
paragraph (A) above;
(C) there shall have occurred: (i) any general suspension of trading
in, or limitation on prices for, securities on any United States
securities exchange or in any United States over-the-counter market,
for a period in excess of three hours (excluding suspensions or
limitations resulting solely from physical damage or interference with
such exchanges not related to market conditions); (ii) a declaration of
a banking moratorium or any suspension of payments in respect of banks
in the United States; (iii) any material limitation (whether or not
mandatory) by any United States Federal or United States state or
governmental authority or agency on, the extension of credit by banks
or other financial institutions; or (iv) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof;
(D) any representation or warranty of the Company contained in the
Agreement that: (i) is qualified as to Company Material Adverse Effect
shall not be true and correct as of the date of consummation of the
Offer as though made on or as of such date (other than representations
and warranties which by their terms address matters as of another
specified date, which shall be true and correct as of such other
specified date); or (ii) is not qualified as to Company Material
Adverse Effect shall not be true and correct (except where the failure
of any such representation or warranty referred to in this clause (ii)
to be so true and correct would not, in the aggregate, have a Company
Material Adverse Effect), as of the date of consummation of the Offer
as though made on or as of such date (other than representations and
warranties which by their terms address matters as of another specified
date, which shall be true and correct as of such other specified date);
(E) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed
or complied with by it under the Merger Agreement;
(F) the Merger Agreement shall have been terminated in accordance
with its terms; or
(G) since the date of this Agreement, there shall have occurred an
event, change, effect or development which would reasonably be expected
to have a Company Material Adverse Effect; which, in the reasonable
judgment of MergerSub, in any such case and regardless of the
circumstances (including any action or inaction by II-VI or MergerSub)
giving rise to any such condition, makes it inadvisable to proceed with
the Offer and/or with such acceptance for payment of, or payment for,
Shares.
(vi) II-VI Common Stock to be issued in the Offer shall not have been
authorized for listing on the Nasdaq National Market, subject to official
notice of issuance.
The foregoing conditions are for the sole benefit of II-VI and MergerSub,
subject to the Company's rights under the Merger Agreement, and may be asserted
by II-VI or MergerSub, or may be waived by II-VI or MergerSub, in whole or in
part at any time and from time to time in their respective sole discretion. The
failure by II-VI or MergerSub at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
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FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment") to
the Agreement and Plan of Merger (the "Agreement") dated as of June 28, 2000 by
and between LASER POWER CORPORATION, a Delaware corporation (the "Company"),
II- VI Incorporated, a Pennsylvania corporation ("II-VI"), and II-VI
ACQUISITION CORP., a Delaware corporation and a wholly owned subsidiary of II-
VI ("MergerSub"), is dated as of August 1, 2000.
RECITALS
A. The Company, II-VI and MergerSub are parties to the Agreement relating to
the acquisition of the Company under the terms and conditions set forth
therein.
B. In connection with the transactions contemplated by the Agreement and in
accordance with Section 12.3(a) thereof, the parties desire to enter into this
Amendment to amend the Agreement as provided herein.
C. Capitalized terms used in this Amendment and not defined herein shall
have the meanings given to such terms in the Agreement.
AMENDMENT
NOW, THEREFORE, in consideration of the Agreement, the foregoing and the
representations, warranties, covenants and agreements contained therein and
herein, the parties hereto agree as follows:
1. Section 1.1 of the Agreement is hereby amended by amending the definition
of "II-VI Share Value" so that it reads in its entirety as follows:
"II-VI Share Value" means the weighted-average trading price of the II-VI
Common Stock for the 12 consecutive trading days ending on the third trading
day immediately preceding the date in question.
2. Except as expressly provided in this Amendment, all terms and conditions
of the Merger Agreement shall remain in full force and effect without
modification.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective authorized officers as of the day and year first
above written.
LASER POWER CORPORATION
By: /s/ Dick Sharman
-------------------------
Dick Sharman
Chief Executive Officer
II-VI INCORPORATED
By: /s/ Carl J. Johnson
-------------------------
Carl J. Johnson
Chairman and Chief Executive Officer
II-VI ACQUISITION CORP.
By: /s/ Carl J. Johnson
-------------------------
Carl J. Johnson
Chief Executive Officer
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DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
Copyright (c) 1975-1999 by The State of Delaware. All rights reserved.
Current through End of 1999 First Spec. Sess.
(S) 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in
writing pursuant to (S) 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the stockholder's
shares of stock under the circumstances described in subsections (b) and
(c) of this section. As used in this section, the word "stockholder" means
a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with
the depository.
(b) Appraisal rights shall be available for the shares of any class or series
of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to
(S) 251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or
(S) 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and
to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to (S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of
the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section,
shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or (S)
253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constitutent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in
such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be givenby the surviving or resulting corporation to
all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constitutent corporation shall send a second
notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constitutent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to appraisal rights
and who has demanded
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appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer
agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining
the stockholders entitled to receive either notice, each constitutent
corporation may fix, in advance, a record date that shall be not more
than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of
Chancery demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor
of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within
10 days after such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10 days
after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of
their shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or resulting
corporation, the petition shall be accompanied by such a duly verified
list. The Register in Chancery, if so ordered by the Court, shall give
notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation
and to the stockholders shown on the list at the addresses therein
stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock
represented by certificates to submit their certificates of stock to the
Register in Chancery for notation thereon of the pendency of the
appraisal proceedings; and if any stockholder fails to comply with such
direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the fair value. In
determining such fair value, the Court shall take into account all
relevant factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest which the
surviving or resulting corporation would have had to pay to borrow money
during the pendency of the proceeding. Upon application by the surviving
or resulting corporation or by any
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stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name appears
on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that
such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and
the case of holders of shares represented by certificates upon the
surrender to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation
be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose
or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record
at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal
shall be filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder's demand for an
appraisal and an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented
to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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