As filed with the Securities and Exchange Commission on March 21, 2000.
April 3, 2012
Registration No. 333-
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333-180098
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
----------------------
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
GSI Lumonics Inc.
(Exact NameGROUP INC.
(Exact name of Registrantregistrant as Specifiedspecified in its Charter)
New Brunswick, Canada 38-1859358
(Statecharter)
| New Brunswick, Canada | 98-0110412 | |
| (State or Other | (I.R.S. Employer Identification No.) |
125 Middlesex Turnpike
Bedford, Massachusetts 01730
(781) 266-5700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Identification
Incorporation or Number)
Organization)
----------------------
105 Schneider Road
Kanata, Ontario, Canada K2K 1Y3
(613) 592-1460
(Address, including zip code,Registrant’s Principal Executive Offices)
John A. Roush, Chief Executive Officer
GSI Group Inc.
125 Middlesex Turnpike
Bedford, Massachusetts 01730
(781) 266-5700
(Name, Address, Including Zip Code, and telephone number, including area code,Telephone Number, Including Area Code, of registrant's principal executive offices)
----------------------
Charles D. Winston
39 Manning Road
Billerica, MA 01821
(978) 439-5511
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
With a copyAgent For Service)
Copy to:
Deborah L. Mark L. Weissler
James D. Scarlett Robert A.
Weinstein Milbank, Tweed, Torys Ouimette
LaBarge Weinstein HadleyC. Gorton, Esq.
Senet S. Bischoff, Esq.
Dennis G. Craythorn, Esq.
Latham & McCloy Suite 3000, Torys
Xerox TowerWatkins LLP Maritime Life 237 Park
885 Third Avenue
333 Preston One Chase Tower 20th Floor
Street, Manhattan Plaza P.O. Box 270
New York, NY
11th Floor New York NY Toronto Dominion 10017
Ottawa, ON K1S 10005 Centre 10022
(212) 880-6000
5N4 (212) 530-5000 79 Wellington
(613) 231-3000 Street West
Toronto, ON M5K
1N2
(416) 865-0040
906-1200
Approximate date of commencement of proposed sale to the public: As soon as
practicableFrom time to time after the effective date of this Registration Statement.
registration statement.
If the only securities being registered on this formForm are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_]
¨
If any of the securities being registered on this formForm are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, please check the following box. [_]
x
If this formForm is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
¨
If this formForm is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
¨
If delivery ofthis Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the prospectus is expected to be madeCommission pursuant to Rule 434,
please462(e) under the Securities Act, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of each Class of Amount Proposed Maximum Aggregate Amount of
Securities to be to be Offering Price Offering Registration
Registered Registered(1) per Unit(2) Price(2) Fee
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Common Shares, no par
value.................. 4,600,000 shares $16.88 $77,625,000 $20,493
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(1) Includes 600,000 shares¨
If this Form is a post-effective amendment to be issueda registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the underwriters' over-
allotment option.
(2) EstimatedSecurities Act, check the following box. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer | x | |||
| Non-accelerated filer | ¨ (do not check if a smaller reporting company) | Smaller reporting company | ¨ |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
EXPLANATORY NOTE
This Amendment No. 1 to the Registration Statement on Form S-3 of GSI Group Inc. (the “Company”) is being filed solely for the purpose of calculatingfiling a revised Exhibit 5.1 to the amount ofRegistration Statement and to add language to the registration fee pursuantsection entitled “WHERE YOU CAN FIND MORE INFORMATION” to Rule 457(c)incorporate by reference certain documents filed by the Company under the Securities Exchange Act of 1933
and based on1934 prior to the averageeffectiveness of the highRegistration Statement as contemplated by Division of Corporation Finance Compliance and low sales price ofDisclosure Interpretations, Securities Act Forms, Question 123.05.
Except as described above, no changes have been made to the common
shares on March 17, 2000, as reported on the Nasdaq National Market.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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Subject to Completion, Dated March 21, 2000
Registration Statement.
The information contained in this prospectus is not complete and may be changed. These securitiesWe may not be soldsell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any statejurisdiction where the offer or sale is not permitted.
4,000,000
PROSPECTUS
Subject to completion, dated April 3, 2012.
GSI Group Inc.
$200,000,000
Debt Securities
Common Shares
US$ per share
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GSI Lumonics Inc. is offering 4,000,000
We may offer, from time to time, to sell any combination of debt securities and common shares described in the United States and
Canada. This is a firm commitment underwriting.this prospectus in one or more offerings. The common shares are listed on the Nasdaq National Market under the symbol
"GSLI" and on The Toronto Stock Exchange under the symbol "LSI." On March 20,
2000, the last reported saleaggregate initial offering price of the common shares was US$18.4375 onsecurities that we offer under this prospectus will not exceed $200,000,000. This prospectus provides a general description of the Nasdaq National Market and Cdn$27.10 onsecurities we may offer. Each time we sell securities, we will provide specific terms of the securities offered in a supplement to this prospectus. The Toronto Stock Exchange.
Investingprospectus supplement may also add, update or change information contained in the common shares involves risks. See "Risk Factors" beginning on
page 6.
We may offer securities through underwriting syndicates managed or co-managed by one or more underwriters or dealers, through agents or directly to purchasers. The prospectus supplement for each offering of securities will describe in detail the plan of distribution for that offering. For general information about the distribution of securities, please see “Plan of Distribution” in this prospectus.
In addition, the selling shareholders identifiedshareholder named in this prospectus have
granted an over-allotment optionmay offer, from time to the underwriters. Under this option, the
underwriters may electtime, up to purchase a maximum2,800,000 of 296,612 additional shares from
us and 303,388 additional shares from the selling shareholders within 30 days
following the date of this prospectus to cover over-allotments.our common shares. We will not receive any of the proceeds from the sale of our common shares by the selling shareholders.
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Neithershareholder. To the Securities and Exchange Commission norextent that any state securities
commission has approved or disapproved of these securities or determined ifselling shareholder resells any common shares, the selling shareholder may be required to provide you with this prospectus is truthfuland a prospectus supplement containing specific information about the offering.
The selling shareholder may offer securities through underwriting syndicates managed or complete. Any representationco-managed by one or more underwriters or dealers, through agents or directly to purchasers. For a description of the contrary is
a criminal offense.
CIBC World Markets Chase H&Q
Needham & Company, Inc.
plan of distribution of the common shares by the selling shareholder, please see “Plan of Distribution” in this prospectus. If required, the prospectus supplement for each offering of securities by the selling shareholder will describe in detail the plan of distribution for that offering.
Our common shares are listed for trading on the NASDAQ Global Select Market under the symbol “GSIG.” On March 13, 2012, the closing price of our common shares on the NASDAQ Global Select Market was $11.51 per share.
Investing in our securities involves risks. See “Risk Factors” on page 2 of this prospectus, in the documents incorporated into this prospectus and in any applicable prospectus supplement.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2000.
Table2012.
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i
This prospectus is a part of Contents
This prospectus also may be used by the term "common shares" meansselling shareholder identified in this prospectus to sell up to 2,800,000 of our common shares. We will not receive any proceeds from the sale of any of our common shares no par value. Inoffered under this prospectus unless stated otherwise,by the selling shareholder. To the extent that any selling shareholder resells any common shares, the selling shareholder may be required to provide you with this prospectus and a prospectus supplement containing specific information about the offering.
You should read both this prospectus and any prospectus supplement, including all referencesdocuments incorporated herein or therein by reference, together with additional information described under “Where You Can Find More Information.”
We have not authorized any dealer, salesperson or other person to "US$"give any information or "$" are to U.S. dollarsmake any representation other than those contained or incorporated by reference in this prospectus or any accompanying prospectus supplement. You must not rely upon any information or representation not contained or incorporated by reference in this prospectus or any accompanying prospectus supplement. This prospectus and all referencesany accompanying prospectus supplement do not constitute an offer to "Cdn$" aresell or the solicitation of an offer to Canadian dollars.
Our principal executive offices are located at 105 Schneider Road, Kanata,
Ontario, Canada K2K 1Y3. Our telephone numberbuy any securities other than the registered securities to which they relate, nor do this prospectus and any accompanying prospectus supplement constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is (613) 592-1460.
Unless otherwise stated, allunlawful to make such offer or solicitation in such jurisdiction. You should not assume that the information contained in this prospectus assumes
no exerciseand any accompanying prospectus supplement is accurate on any date subsequent to the date set forth on the front of the over-allotment option granteddocument or that any information we have incorporated by reference is correct on any date subsequent to the underwriters.date of the document incorporated by reference, even though this prospectus and any accompanying prospectus supplement is delivered or securities are sold on a later date. Our business, financial condition, results of operations and prospects may have changed since those dates.
ii
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. The underwriters are offeringSEC maintains a web site,http://www.sec.gov, which contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the common shares subjectSEC. You may read and copy any document we file with the SEC at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. You may also obtain these materials from us at no cost by directing a written or oral request to various conditions
and may reject allus at GSI Group Inc., 125 Middlesex Turnpike, Bedford, Massachusetts 01730, Attn: Investor Relations, or by calling our Investor Relations Department at (781) 266-5137, or at our website atwww.gsig.com. The information contained on or accessible through our website is not incorporated by reference into this prospectus or any prospectus supplement.
The SEC allows us to “incorporate by reference” certain information we file with the SEC, which means that we can disclose important information to you by referring to the other information we have filed with the SEC. The information that we incorporate by reference is considered a part of any order. The shares should be ready for
delivery on or about , 2000 against payment in immediately available funds.
The following trademarksthis prospectus and trade names of GSI Lumonics are used in this
prospectus: WaferMark(R), LightWriter(R), ScreenCut(R), SoftMark(R),
LuxStar(R), PC-Mark(R), Laserdyne(R), Xymark(R), LaserMark(R)information that we file later with the SEC will automatically update and ScanArray(R).
(i)
Prospectus Summary
This summary highlightssupersede the information contained in other parts of this prospectus. Because it is a summary, it may not contain allWe incorporate by reference the following documents we filed with the SEC pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”):
Annual Report on Form 10-K for the year ended December 31, 2011;
Current Report on Form 8-K filed on March 2, 2012; and
the description of our common shares contained in Form 8-A filed on February 10, 2011.
Notwithstanding the foregoing, unless specifically stated to the contrary, none of the information that you should consider before investingwe disclose under Items 2.02, 7.01 or 9.01 of any Current Report on Form 8-K that we may from time to time furnish to the SEC will be incorporated by reference into, or otherwise included in, our common shares. You should readthis prospectus or any prospectus supplement.
We are also incorporating by reference additional documents that we may file with the entireSEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the initial registration statement and prior to effectiveness of the registration statement and after the date of this prospectus carefully, including "Risk Factors," the consolidated
financial statements and the related notes,termination of this offering. These documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as Proxy Statements.
iii
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this prospectus or any prospectus supplement contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are subject to certain risks and uncertainties, and typically can be identified by the use of words such as “may,” “expect,” “intend,” “could,” “estimate,” “anticipate,” “forecast,” “plan,” “believe” and similar terms. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially. Factors that could cause actual results to differ materially from those contemplated above include, among others:
economic and political conditions and the effects of these conditions on our customers’ businesses and level of business activity;
our significant dependence upon our customers’ capital expenditures, which are subject to cyclical market fluctuations;
our dependence upon our ability to respond to fluctuations in product demand;
our ability to continually innovate;
delays in our delivery of new products;
our reliance upon third party distribution channels subject to credit, business concentration and business failure risks beyond our control;
fluctuations in our quarterly results, and our failure to meet or exceed the expectations of securities analysts or investors;
customer order timing and other similar factors beyond our control;
disruptions in, or breaches in security of, our information technology systems;
changes in interest rates, credit ratings or foreign currency exchange rates;
risk associated with our operations in foreign countries;
our increased use of outsourcing in foreign countries;
our failure to comply with local import and export regulations in the jurisdictions in which we haveoperate;
our history of operating losses and our ability to sustain our profitability;
our exposure to the credit risk of some of our customers and in weakened markets;
violations of our intellectual property rights and our ability to protect our intellectual property against infringement by third parties;
risk of losing our competitive advantage;
our ability to make acquisitions or divestitures that provide business benefits;
our failure to successfully integrate future acquisitions into our business;
our ability to retain key personnel;
our restructuring and realignment activities and disruptions to our operations as a result of consolidation of our operations;
product defects or problems integrating our products with other vendors’ products;
disruptions in the supply of or defects in raw materials, certain key components or other goods from our suppliers;
iv
production difficulties and product delivery delays or disruptions;
changes in governmental regulation of our business or products;
our failure to implement new information technology systems and software successfully;
our failure to realize the full value of our intangible assets;
any requirement to make additional tax payments and/or recalculate certain of our tax attributes depending on the resolution of the complaint we filed against the U.S. government pursuant to Bankruptcy Code Section 505;
our ability to utilize our net operating loss carryforwards and other tax attributes;
fluctuations in our effective tax rates and audit of our estimates of tax liabilities;
being subject to U.S. federal income taxation even though we are a non-U.S. corporation;
being subject to the Alternative Minimum Tax for U.S. federal income tax purposes;
any need for additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, which may not be available on acceptable terms or at all;
volatility in the market for our common shares;
our dependence on significant cash flow to service our indebtedness and fund our operations;
our ability to access cash and other assets of our subsidiaries;
the influence over our business of several significant shareholders;
provisions of our articles of incorporation, which may delay or prevent a change in control;
our significant existing indebtedness and restrictions in our new senior secured credit agreement that may limit our ability to engage in certain activities;
our intention not to pay dividends in the near future; and
our failure to maintain appropriate internal controls in the future.
Additional factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth in the section entitled “Business” in our Annual Report on Form 10-K for the year ended December 31, 2011, the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the section titled “Risk Factors” in each of this prospectus, any prospectus supplement and in our Annual Report on Form 10-K for the year ended December 31, 2011. Please consider our forward-looking statements in light of those risks as you read this prospectus and any prospectus supplement.
v
GSI Group Inc. and its subsidiaries (collectively referred you, before making an investment decision.
GSI Lumonics Inc.
Weto as the “Company”, “we”, “us”, or “ours” unless the context requires otherwise) design, develop, manufacture and marketsell laser-based advancedsolutions (consisting of lasers and laser-based systems), laser scanning devices, and precision motion and optical control technologies. Our technology is incorporated into customer products or manufacturing systems and componentsprocesses for a wide range of applications including cutting,
drilling, welding, marking, micro-machining, inspection,in a variety of markets, including: electronics, industrial, medical, and optical detectionscientific. Our products enable customers to make advances in materials and transmission. Major markets for theseprocessing technology and to meet extremely precise manufacturing specifications.
Our strategy is to drive sustainable, profitable growth through short-term and long-term initiatives, including:
strengthening our strategic position in scanning solutions, fiber lasers, and medical components through continual investment in differentiated new products include the semiconductor,
electronics, automotive, medical/biotechnology and telecommunications
industries. In addition, we sell to other markets such as the aerospacesolutions;
expanding our market access and packaging industries.
Laser systems offer manufacturers precision, lower production costs, fast
solutions and production line flexibility. Semiconductor manufacturers face
demands for greater throughput, reduced device size, and increased device
complexity, performance, traceability, and quality. They use our laser systemsreach, particularly in several production process steps, including product marking and memory
repair. In the electronics industry, producers of electronic components and
assemblies use our laser systems to support their process requirements.
Features of these laser systems include precision laser spot size, precision
laser power control, high-speed parts handling, and applications adaptability.
We also manufacture laser systems for the automotive, aerospace and certain
other industrial markets which require advanced manufacturing applications,
including cutting, drilling, welding, scribing and machining. In addition, we
design and manufacture precision optics usedhigher growth, emerging regions through investment in fiber optics telecommunications
networks.
We expect capital equipment expenditures by the semiconductor and electronics
industry, fueled by demand for computers, cellular phones and communications
devices, to stimulate demand for laser-based systems. Dataquest, an independent
market research company, estimates that capital spending by the semiconductor
industry will grow from $33.9 billion in 1999 to $74.9 billion in 2002,
representing a compound annual growth rate of 30.2%.
Our competitive advantages include our continuing commitment to technical
advancement, thirty years of applications experience, and our global presence
which consists of eleven operations facilities located in the United States,
Canada and the United Kingdom,internal sales channels as well as a direct salesexternal channel partners;
broadening our product and service presence
at those locations plus an additional ten offices in Europeofferings through the acquisition of innovative and the Pacific
Rim.
We have over 1,000 customers. Our customers in 1999 included: A.T.&S.,
Ericsson, Intel, Kodak, Maxim Integrated Products, Medtronic Physio-Control,
Samsungcomplementary technologies and Sumitomo Heavy Industries.
We intend to acceleratesolutions;
streamlining our growthexisting operations through site consolidations and increasestrategic divestitures and expanding our market share. The key
elements of our strategy include:
. Invest in laser-based technologies, productsbusiness through strategic acquisitions;
expanding operating margins by establishing a continuous improvement culture through formalized productivity programs and capabilities which
position us as one of the leading competitors in markets that offer strong
profitable growth opportunities, specifically semiconductor, electronicsinitiatives; and automotive;
1
. Concentrate on high value-added systems that have a global market;
. Enhance our capabilities to supply precision optical components used in
dense wavelength division multiplexing for the fiber optic
telecommunications networks;
. Further strengthen our competencies in technology, manufacturing
attracting, retaining, and distribution;developing talented and . Acquire complementary products and technologies.
We have built and continue to extend our patent portfolio. We own 85 United
States patents and 52 foreign patents, and currently have 43 United States and
89 foreign patents pending.
Lumonicsmotivated employees.
GSI Group Inc. was founded and initially incorporated in 1970 for the purpose of producing lasers for
scientific and research applications. We first became a public companyMassachusetts in 1980,
and our common shares were listed on The Toronto Stock Exchange until 1989. In
1989, all of our common shares were acquired by a wholly owned subsidiary of
Sumitomo Heavy Industries, Ltd., and we ceased to be a public company. On
September 28, 1995, we again became a public company, and our shares were again
listed on The Toronto Stock Exchange.1968 as General Scanning, Inc. was incorporated in 1968 in Massachusetts. In its early
years,(“General Scanning”). General Scanning developed, manufactured and sold components and subsystems used for high-speed micropositioningmicro positioning of laser beams. Starting in the mid-
to-late 1980s,In 1999, General Scanning began manufacturing completemerged its business with Lumonics Inc., a Canadian company that developed, manufactured and sold laser-based, advanced manufacturing systems for theelectronics, semiconductor, and electronics markets,
and a number of other applications such as aerospace assembly and medical
recording and imaging.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals
and continued under the namegeneral industrial applications. The post-merger entity, GSI Lumonics Inc. Our shares commenced trading on
the Nasdaq National Market and, continued to trade on The Toronto Stock
Exchange.
2
The Offering
Common shares offered by us........ 4,000,000 shares
Common shares to be outstanding
after this offering............... 38,546,875 shares(1)
Over-allotment option.............. 600,000 shares, to be satisfied first by us
up to 296,612 shares, with the balance of
up to shares to be satisfied by the
selling shareholders.
Use of proceeds.................... We intend to use the net proceeds for
capital expenditures, working capital and
general corporate purposes, including
possible future acquisitions. Pending these
uses, the net proceeds will be added to our
cash resources.
Nasdaq National Market symbol...... GSLI
The Toronto Stock Exchange symbol.. LSI
(1) This share number is based on 34,546,875 common shares outstanding as of
February 29, 2000 and excludes 3,687,425 common shares that are issuable
upon the exercise of currently outstanding options and warrants, and
320,718 common shares reserved for future grant under our option plan.
3
Summary Consolidated Financial Data
(in thousands, except per share data)
You should read the following summary of selected consolidated financial data
together with "Selected Consolidated Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," our
consolidated financial statements and the other information in this prospectus,
as well as the documents incorporated by reference.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals.
We recorded this transaction as a purchase for accounting purposes.
Accordingly, our consolidated financial statements exclude the results of
General Scanning before the merger date and therefore do not provide meaningful
year-to-year comparative information. Note 2 to our consolidated financial
statements includes, for illustrative purposes, unaudited pro forma information
as if the merger had occurred on January 1, 1998.
Years ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Consolidated Statement of
Operations Data:
Sales......................... $274,550 $144,192 $177,328 $153,367 $125,268
Gross profit.................. 95,777 40,673 65,922 60,999 48,031
Operating expenses:
Research and development..... 28,700 12,985 11,993 11,872 7,068
Selling, general and
administrative.............. 64,653 38,191 37,591 32,999 28,385
Amortization of technology
and other intangibles....... 4,070 861 400 381 384
Acquired in-process research
and development............. 14,830 -- -- -- --
Restructuring and other
charges..................... 19,631 2,022 -- -- --
Foreign exchange, interest
and gain on sale of assets.. 1,223 (2,210) (1,048) (634) 854
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................ (37,330) (11,176) 16,986 16,381 11,340
Income taxes provision
(benefit).................... (2,556) (3,260) 5,074 4,635 3,304
-------- -------- -------- -------- --------
Net income (loss)............. $(34,774) $ (7,916) $ 11,912 $ 11,746 $ 8,036
======== ======== ======== ======== ========
Net income (loss) per common
share:
Basic........................ $ (1.14) $ (0.46) $ 0.75 $ 0.83 $ 0.70
Diluted...................... $ (1.14) $ (0.46) $ 0.72 $ 0.78 $ 0.65
======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 30,442 17,079 15,989 14,077 11,521
Weighted average common shares
outstanding and dilutive
potential common shares...... 30,442 17,079 16,454 15,079 12,457
December 31, 1999
-----------------------------------
Actual As adjusted(1)
-------- --------------
Consolidated Balance Sheet Data:
Working capital............................ $103,727
Total assets............................... 289,722
Long-term liabilities, including current
portion................................... 10,022
Total shareholders' equity................. 171,730
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(1) The "as adjusted" column reflects the sale by us of 4,000,000 common shares
in this offering at an assumed offering price of $ per share, after
deducting the estimated underwriting discount and offering expenses, and
the application of the net proceeds from the offering.
4
The following table presents unaudited quarterly data for the quarters ended
December 31, 1999, October 1, 1999, July 2, 1999 and April 2, 1999. We believe
this information is helpful in isolating ongoing trends in our business from
the effects of the merger. This information has been presented on the same
basis as the audited consolidated financial statements appearing elsewhere in
this prospectus. Results of operations for any quarter are not necessarily
indicative of the results to be expected for the entire fiscal year or for any
future period.
Our management believes that the unaudited quarterly data reflected in the
following table contains all adjustments necessary to present fairly the
information included in the table, and that the adjustments made consist of
only normal reoccurring adjustments. Our quarterly operating results are
subject to fluctuation due to a variety of factors, some of which are outside
of our control. Accordingly, you should not rely on our results for any past
quarter as an indication of future performance. Generally, our sales are higher
in the second and fourth quarters of the year.
Three months ended
-----------------------------------------
December 31, October 1, July 2, April 2,
1999 1999 1999 1999
------------ ---------- ------- --------
Quarterly Consolidated Statement of
Operations Data:
Sales............................... $88,667 $78,041 $69,248 $ 38,594
Gross profit........................ 34,394 30,488 23,376 7,519
Operating expenses:
Research and development........... 8,676 8,104 8,584 3,336
Selling, general and
administrative.................... 17,931 17,704 18,521 10,497
Amortization of technology and
other intangibles................. 1,251 1,251 1,251 317
Acquired in-process research and
development....................... -- -- -- 14,830
Restructuring and other charges.... -- -- -- 19,631
Foreign exchange, interest and gain
on sale of assets................. 182 512 (64) 593
------- ------- ------- --------
Income (loss) before income taxes... 6,354 2,917 (4,916) (41,685)
Income taxes provision (benefit).... 2,115 874 (1,174) (4,371)
------- ------- ------- --------
Net income (loss)................... $ 4,239 $ 2,043 $(3,742) $(37,314)
======= ======= ======= ========
Net income (loss) per common share:
Basic.............................. $ 0.12 $ 0.06 $ (0.11) $ (1.94)
Diluted............................ $ 0.12 $ 0.06 $ (0.11) $ (1.94)
======= ======= ======= ========
Weighted average common shares
outstanding........................ 34,222 34,173 34,167 19,204
Weighted average common shares
outstanding and dilutive potential
common shares...................... 35,755 35,085 34,167 19,204
5
Risk Factors
You should carefully consider the following risk factors and other information
contained or incorporated by reference in this prospectus before deciding to
invest in our common shares. Investing in our common shares involves a high
degree of risk. The risks and uncertainties described below may not be the only
ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be harmed, the trading price
of our common shares could decline, and you might lose all or part of your
investment. Please see the "Special Note Regarding Forward-Looking Statements"
on page 14 of this prospectus.
Risks Relating to Our Business
Our customers' cyclical fluctuations may adversely affect our operations, which
may result in volatility or a decrease in the price of our common shares.
Several significant markets for our products have historically been subject to
economic fluctuations due to the substantial capital investment required in the
industries served. In the past, this has led to significant short-term over- or
under-capacity in some markets, particularly in the semiconductor, aerospace
and automotive industries where we generated 23% of our revenues during 1999.
These fluctuations may continue and could have an adverse impact on our
operations.
For example, and most importantly, we sell many of our products to the
semiconductor industry, which is subject to sudden, extreme, cyclical
variations in product supply and demand. The timing, length and severity of
these cycles are difficult to predict. In some cases, these cycles have lasted
more than a year. Semiconductor manufacturers may contribute to these cycles by
misinterpreting the conditions in the industry and over- or under-investing in
semiconductor manufacturing capacity and equipment. We may not be able to
respond effectively to these industry cycles.
Downturns in the semiconductor industry often occur in connection with, or
anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. Industry downturns
have been characterized by reduced demand for semiconductor devices and
equipment, production over-capacity and accelerated decline in average selling
prices. During a period of declining demand, we must be able to quickly and
effectively reduce expenses while continuing to motivate and retain key
employees. Our ability to reduce expenses in response to any downturn in the
semiconductor industry is limited by our need for continued investment in
engineering and research and development and extensive ongoing customer service
and support requirements. In addition, although we order materials and
subassemblies in response to firm orders, the long lead time for production and
delivery of some of our products creates a risk that we may incur expenditures
or purchase inventories for products which we cannot sell. A downturn in the
semiconductor industry could therefore harm our sales and revenues if demand
drops or if our gross margins or our average selling prices decline.
Industry upturns have been characterized by abrupt increases in demand for
semiconductor devices and equipment and production under-capacity. During a
period of increasing demand and rapid growth, we must be able to quickly
increase manufacturing capacity to meet customer demand and hire and assimilate
a sufficient number of qualified personnel. Our inability to ramp up in times
of increased demand could harm our reputation and cause some of our existing or
potential customers to place orders with our competitors rather than us.
We are subject to quarterly fluctuations in operations, and our inability to
anticipate these fluctuations may adversely affect our operations in a given
quarter.
We have experienced and expect to continue to experience significant
fluctuations in our quarterly operating results due to factors like the
following:
. cycles in the markets we serve;
6
. mix of products sold;
. timing and shipment of significant orders;
. disruption in sources of supply;
. changing market acceptance of new and enhanced products;
. seasonality and changing demand;
. exchange rate fluctuations; and
. length of sales cycles.
We expect our operating results to fluctuate in the future as a result of these
factors and a variety of other factors, including:
. the emergence of new industry standards;
. product obsolescence; and
. economic conditions generally or in various geographic areas where we or
our customers do business.
These factors are difficult or impossible to forecast.
We derive a substantial portion of our sales from products that have a high
average selling price and significant lead times between the initial order and
delivery of the product. The timing and recognition of sales from customer
orders can cause significant fluctuations in our operating results from quarter
to quarter. Gross margins realized on product sales vary depending upon a
variety of factors, including the mix of products sold during a particular
period, negotiated selling prices, the timing of new product introductions and
enhancements and manufacturing costs. A delay in a shipment near the end of a
fiscal quarter or year, due, for example, to rescheduling or cancellations by
customers or to unexpected manufacturing difficulties experienced by us, may
cause sales in a particular period to fall significantly below our expectations
and may materially adversely affect our operations for that period. Our
inability to adjust spending quickly enough to compensate for any sales
shortfall would magnify the adverse impact of that sales shortfall on our
results of operations. In addition, announcements by us or our competitors of
new products and technologies could cause customers to defer purchases of our
existing systems, which could negatively impact our earnings and our financial
position.
As a result of these factors, our operating results may vary significantly from
quarter to quarter. Any shortfall in revenues or net income from levels
expected by securities analysts and investors could cause a decrease in the
trading price of our common shares.
If we cannot protect or lawfully use our proprietary technology, we may not be
able to compete successfully.
We protect our intellectual property through patent filings, confidentiality
agreements and the like. However, these methods of protection are uncertain and
costly. In addition, we may face allegations that we are violating the
intellectual property rights of third parties. These types of allegations are
common in the industry.
Monitoring unauthorized use of our products is difficult. We cannot be certain
that the steps we have taken will prevent unauthorized use of our technology.
The laws of some foreign countries in which our products are or may be
developed, manufactured or sold, including various countries in Asia, may not
protect our products or intellectual property rights to the same extent as do
the laws of the United States and thus make the possibility of piracy of our
technology and products more likely in these countries. If competitors are able
to use our technology, our ability to compete effectively could be harmed.
7
Claims or litigation could seriously harm our business or require us to incur
significant costs.
We are subject to litigation from time to time, some of which is material to
our business. If, in any of these actions, there is a final adverse ruling
against us, it could seriously harm our business and have a material adverse
effect on our operating results and financial condition, as well as having a
significant negative impact on our liquidity. Among other things, we are
currently subject to the following claims and actions:
Electro Scientific Industries, Inc. v. GSI Lumonics Inc. On March 16, 2000,
Electro Scientific Industries, Inc. filed an action for patent infringement in
the United States District Court for the Central District of California against
us and Dynamic Details Inc., an unrelated party who is one of our customers.
Electro Scientific alleges that we offer to sell, sell and import into the
United States our GS-600 high speed laser drilling system and that Dynamic
Details possesses and uses a GS-600 System. It further alleges that Dynamic
Details' use of our GS-600 laser system infringes on Electro Scientific's U.S.
patent no. 5,847,960 and that we have actively induced the infringement of, and
contributorily infringed on, the patent. Electro-Scientific seeks an
injunction, unspecified damages, trebling of those damages, and attorney fees.
Electro Scientific Industries, Inc. v. General Scanning Inc. In September 1998,
the United States District Court for the Northern District of California
granted a motion for summary judgment in favor of Electro Scientific and
against General Scanning in this case on a claim of infringement and on the
issue of whether Electro Scientific committed inequitable conduct by
intentionally failing to cite prior art to the United States Patent Office in
connection with one of its patents. The court denied our motion for summary
judgment that the patents are invalid due to prior art. During March 1999, the
court granted Electro Scientific's motion for partial summary judgment that
upgrade kits sold by General Scanning for 1.3 micron laser wavelength memory
repair infringe the patents in suit. In April 1999, a federal court jury issued
a verdict that Electro Scientific's U.S. patent no. 5,473,624 was invalid and
that Electro Scientific's U.S. patent no. 5,265,114 was valid and awarded a
$13.1 million damage judgment against us. In July 1999, the court refused
Electro Scientific's requests to increase damages awarded by the jury in April
and for attorney fees but granted interest on the damages. The court also
affirmed the jury's decision to invalidate one of the two patents asserted by
Electro Scientific in the case. We have appealed the decisions on infringement,
the validity of the second patent, and the award of damages. We were required
to post an unsecured bond with the court in order to proceed with the appeal.
No date has been set for arguments.
Robotic Vision, Inc. v. View Engineering, Inc. We are involved in a patent
infringement complaint filed by Robotic Vision Systems, Inc. alleging
infringement of a patent by View Engineering, Inc., our wholly owned
subsidiary. The matter was tried before a judge sitting in the United States
District Court for the Central District of California in November 1999, and we
are currently awaiting the court's decision. Robotic Vision alleges
infringement relating to lead inspection machines formerly sold by View
Engineering and seeks damages of $60.5 million.
GSI Lumonics Inc. v. BioDiscovery, Inc. On December 10, 1999 we filed suit in
the United States District Court for the District of Massachusetts seeking a
declaration that our QuantArray Microarray Analysis Software does not infringe
any copyright owned by BioDiscovery, Inc. or its president. BioDiscovery, Inc.
is a manufacturer of microarray quantification software under the name
ImaGene(R). We had previously distributed ImaGene(R) software under a non-
exclusive arrangement with BioDiscovery, but subsequently developed our own
software when BioDiscovery refused to develop necessary enhancements to stay
abreast of industry trends, especially in the field of multi-channel scanning.
On December 21, 1999, BioDiscovery's president responded to our action for
declaratory judgment by filing a separate suit in the United States District
Court for the Southern District of California, alleging that we reverse
engineered his software, and additionally sued us for copyright infringement.
We have applied to the California court to seek the prompt dismissal of the
California action in favor of our prior pending action. In the matter before
the United States District Court for the District of Massachusetts, the court
denied BioDiscovery's president's motion to dismiss and has scheduled the trial
for May 2000.
8
Potential Claims. In 1994, a party commenced legal proceedings in the United
States against a number of United States manufacturing companies, including
companies that have purchased systems from us. The plaintiff has alleged that
certain equipment used by these manufacturers infringes patents claimed to be
held by the plaintiff. We are not a defendant in any of the proceedings.
However, several of our customers have notified us that, if the party
successfully pursues infringement claims against them, they may require us to
indemnify them to the extent that any of their losses can be attributed to
systems we sold to them.
We depend on limited source suppliers which could cause substantial
manufacturing delays and additional cost if a disruption of supply occurs.
We obtain some components from a single source. We also rely on a limited
number of independent contractors to manufacture subassemblies for some of our
products. If suppliers or subcontractors experience difficulties that result in
a reduction or interruption in supply to us or fail to meet any of our
manufacturing requirements, our business would be harmed until we are able to
secure alternative sources. These components and manufacturing services may not
continue to be available to us at favorable prices, if at all.
The loss of key personnel could negatively impact our operations.
Our business and future operating results depend in part upon our ability to
attract and retain qualified management, technical, sales and support personnel
for our operations on a worldwide basis. Competition for qualified personnel is
intense, and we cannot guarantee that we will be able to continue to attract
and retain qualified personnel. Availability of qualified technical personnel
varies from country to country and may affect our operations in some parts of
the world. Our operations could be negatively affected if we lose key
executives or employees or are unable to attract and retain skilled executives
and employees as needed. In particular, if our growth strategies are
successful, we may not have sufficient operational personnel to manage that
growth and may not be able to attract the personnel needed. In addition, we do
not maintain insurance to protect against the loss of key executives or
employees. Our future growth and operating results will depend on:
. our ability to continue to broaden our senior management group;
. our ability to attract, hire and retain skilled employees; and
. the ability of our officers and key technical employees to continue to
expand, train and manage our employee base.
We must introduce new and enhanced products on a timely basis, or we may not be
able to compete successfully.
The markets for our products experience rapidly changing technologies, evolving
industry standards, frequent new product introductions and short product life
cycles. Developing new technology is a complex and uncertain process requiring
us to be innovative and to accurately anticipate technological and market
trends. We may have to manage the transition from older products in order to
minimize disruption in customer ordering patterns, avoid excess inventory and
ensure adequate supplies of new products. We may not successfully develop,
introduce or manage the transition to new products. Failed market acceptance of
new products or problems associated with new product transitions could harm our
business.
If we fail to adequately invest in research and development, we may be unable
to compete effectively.
We have limited resources to allocate to research and development, and must
allocate our resources among a wide variety of projects. Because of intense
competition in the industries in which we compete, the cost of
9
failing to invest in strategic products is high. If we fail to adequately
invest in research and development, we may be unable to compete effectively in
the markets in which we operate.
A loss of major customers could adversely affect us.
Our ten largest customers represented approximately 26% of sales during 1999. A
loss of one or more of these or other large customers could have an adverse
effect on our business.
We face competition or potential competition from companies with greater
resources than ours, and, if we are unable to compete effectively with these
companies, our market share may decline and our business could be harmed.
The industries in which we operate are highly competitive. We face substantial
competition from established competitors, some of which have greater financial,
engineering, manufacturing and marketing resources than we do. Our competitors
can be expected to continue to improve the design and performance of their
products and to introduce new products. Furthermore, competition in our markets
could intensify, or our technological advantages may be reduced or lost as a
result of technological advances by our competitors. Their greater capabilities
in these areas may enable them to:
. better withstand periodic downturns;
. compete more effectively on the basis of price and technology;
. more quickly develop enhancements to and new generations of products; and
. more effectively retain existing customers and obtain new customers.
In addition, new companies may in the future enter the markets in which we
compete, further increasing competition in those markets.
We believe that our ability to compete successfully depends on a number of
factors, including:
. performance of our products;
. quality of our products;
. reliabilty of our products;
. cost of using our products;
. our ability to ship products on the schedule required;
. quality of the technical service we provide;
. timeliness of the services we provide;
. our success in developing new products and enhancements;
. existing market and economic conditions; and
. price of our products as compared to our competitors' products.
We may not be able to compete successfully in the future, and increased
competition may result in price reductions, reduced profit margins, loss of
market share, and an inability to generate cash flows that are sufficient to
maintain or expand our development of new products.
10
Operating in foreign countries exposes us to increased risks.
In addition to operating in the United States, Canada and the United Kingdom,
we have sales and service offices in France, Germany, Italy, Japan, Singapore,
Hong Kong, Korea, Taiwan, Malaysia and the Philippines. We may in the future
expand into other international regions. Because of the scope of our
international operations, we are subject to the following risks which could
materially impact our results of operations:
. foreign exchange rate fluctuations;
. longer payment cycles;
. greater difficulty in collecting accounts receivable;
. utilization of different systems and equipment; and
. difficulties in staffing and managing foreign operations and diverse
cultures.
In addition, changes in government policies could negatively affect our
operating results due to:
. increased regulatory requirements;
. higher taxation;
. currency conversion limitations;
. restrictions on the transfer of funds;
. the imposition of, or increase in, tariffs; or
. limitations on imports or exports.
We may need additional funds to finance our future growth, and if we are unable
to obtain such funds, we may not be able to expand our business as planned.
We may require additional capital to finance our future growth and fund our
ongoing research and development activities. Our capital requirements depend on
many factors, including acceptance of, and demand for, our products, and the
extent to which we invest in new technology and research and development
projects.
To the extent that our existing sources of liquidity and cash flow from
operations are insufficient to fund our activities, we may need to raise
additional funds. If we raise additional funds through the issuance of equity
securities, the percentage ownership of our existing shareholders would be
diluted. If we finance our capital requirements with debt we may incur
significant interest costs. Additional financing may not be available to us
when needed or, if available, it may not be available on terms favorable to us.
Our business may be harmed by acquisitions we complete in the future.
We plan to continue to pursue additional acquisitions. Our identification of
suitable acquisition candidates involves risks inherent in assessing the
values, strengths, weaknesses, risks and profitability of acquisition
candidates, including the effects of the possible acquisition on our business,
diversion of our management's attention and risks associated with unanticipated
problems or latent liabilities. If we are successful in pursuing future
acquisitions, we may be required to expend significant funds, incur additional
debt or issue additional securities, which may negatively affect our results of
operations and be dilutive to our shareholders. If we spend significant funds
or incur additional debt, our ability to obtain financing for working capital
or other purposes could decline, and we may be more vulnerable to economic
downturns and competitive pressures. We
11
cannot guarantee that we will be able to finance additional acquisitions or
that we will realize any anticipated benefits from acquisitions that we
complete. Should we successfully acquire another business, the process of
integrating acquired operations into our existing operations may result in
unforeseen operating difficulties and may require significant financial
resources that would otherwise be available for the ongoing development or
expansion of our existing business.
We have significant fixed costs which are not easily reduced if revenues fall
below expectations.
Our expense levels are based in part on our future revenue expectations. Many
of our expenses, particularly those relating to capital equipment and
manufacturing overhead, are relatively fixed. If we do not meet our sales
goals, we may be unable to rapidly reduce these fixed costs. Our ability to
reduce expenses is further constrained, because we must continue to invest in
research and development to maintain our competitive position and to maintain
service and support for our existing global customer base. Accordingly, if we
suffer an unexpected downturn in revenue, our inability to reduce fixed costs
rapidly could increase the adverse impact on our results of operations.
We do not have long-term contracts with most of our customers and therefore
there is no assurance of future sales.
Our agreements with customers generally do not provide any assurance of future
sales. Accordingly:
. our customers can cease purchasing our products at any time without
penalty;
. our customers are free to purchase products from our competitors;
. we are exposed to competitive price pressure on each order; and
. our customers are not required to make minimum purchases.
Sales are typically made pursuant to individual purchase orders and may occur
with short lead times. If we are unable to fulfill these orders in a timely
manner, we may lose future sales and customers.
Our operations are subject to environmental laws that may expose us to
liabilities for noncompliance.
We are subject to a variety of governmental regulations relating to the use,
storage, discharge, handling, manufacture and disposal of toxic or other
hazardous chemical by-products of, and water used in, our manufacturing
processes. Environmental claims against us or our failure to comply with any
present or future regulations could result in:
.the assessment of damages or imposition of fines against us;
.the suspension of production of our products; or
.the cessation of our operations.
New regulations could require us to acquire costly equipment or to incur other
significant expenses. Our failure to control the use or adequately restrict the
discharge of hazardous substances could subject us to future liabilities, which
could negatively impact our earnings and financial position.
Risks Relating to this Offering and the Market for our Common Shares
Our share price may be volatile.
The stock markets on which our common shares are traded have fluctuated widely
in the past. The securities of many technology companies, including our own,
have experienced substantial price and volume fluctuations.
12
These broad market fluctuations may adversely affect the market price of our
common shares. More specifically, the trading price of our common shares could
fluctuate in response to:
. quarterly variations in our operations and financial results;
. announcements by us or our competitors of technological innovations, new
products, new contracts or acquisitions;
. general conditions in the markets we serve; and
. systemic fluctuations in the stock markets.
Enforcement of United States legal judgments outside the United States may be
difficult.
We are a corporation existing under the laws of the Province of New Brunswick, Canada. SeveralIn 2005, we changed our name to GSI Group Inc. In August 2008, we acquired Excel Technology, Inc., a designer, manufacturer and marketer of photonics-based solutions consisting of lasers, laser-based systems, precision motion devices and electro-optical components primarily used in industrial and scientific applications.
Our principal executive offices are located at 125 Middlesex Turnpike, Bedford, Massachusetts 01730, and our current directors and officers, and several experts
namedtelephone number is (781) 266-5700. Our website address ishttp://www.gsig.com. The information on, or accessible through, our website is not part of this prospectus.
Investing in our securities involves risks. Prior to making a decision about investing in our securities, you should carefully consider the information contained or incorporated by reference in this prospectus are residentsor in any accompanying prospectus supplement, including, without limitation, the risks described in our Annual Report on Form 10-K for the year ended December 31, 2011, which is incorporated herein by reference, the risk factors described under the caption “Risk Factors” in any applicable prospectus supplement and any risk factors set forth in our other filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of Canada, andthe Exchange Act. Each of these risk factors could have a material adverse effect on our business, results of operations, financial position or cash flows, which may result in the loss of all or a substantial
portion of, their assets and a substantial part of your investment. Please read “Where You Can Find More Information” and “Disclosure Regarding Forward-Looking Statements” included elsewhere in this prospectus. Please note that additional risks not presently known to us, or that we currently deem immaterial, may also impair our assets are located
outside the United States. Consequently, it may be difficult for United States
investors to effect service of process within the United States on such person
or to realize,business and operations.
Unless we indicate otherwise in the United States, on judgments rendered against us or these
persons based on the civil liability provisions of the United States federal
securities laws. In addition, there is substantial doubt as to the
enforceability in Canada against us or these persons, in original actions or in
actions for enforcement of judgments of United States courts, of liabilities
based solely upon the United States federal securities laws. No treaty exists
between the United States and Canada for the reciprocal enforcement of foreign
court judgments.
Management has discretion in spending our proceeds from this offering.
We have broad discretion in allocating our proceeds from this offering. You
will not have the opportunity to evaluate the economic, financial or other
information on whichapplicable prospectus supplement, we base our decision on how to use the proceeds we receive
from this offering.
13
Special Note Regarding Forward-Looking Statements
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These forward-looking
statements include, among other things, statements concerning our product
development plans, use of proceeds, projected capital expenditures, liquidity
and business strategy. These statements may be found under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." Forward-looking
statements typically are identified by use of terms such as "believes,"
"estimates," "expects," "intends," "may," "will," "should" or "anticipates" or
the negative forms of these expressions, although some forward-looking
statements are expressed differently. You should be aware that our actual
results could differ materially from those contained in the forward-looking
statements due to a number of factors, including the matters discussed under
"Risk Factors" and in other sections of this prospectus, which address various
factors that could cause our actual results to differ from those set forth in
the forward-looking statements.
14
Use of Proceeds
We estimate that the net proceeds from the sale of the 4,000,000 common shares
we are offering will be approximately $ million. If the underwriters fully
exercise the over-allotment option, the net proceeds will be approximately $
million. "Net proceeds" is what we expect to receive after we pay the
underwriting discount and other estimated expenses for this offering. For the
purpose of estimating net proceeds, we are assuming that the public offering
price will be $ per share.
We expectintend to use the net proceeds of the securities offered by us pursuant to this prospectus to acquire or invest in complementary businesses, technologies, products or intellectual property. We may also use the net proceeds of the securities offered by us pursuant to this prospectus for working capital and general corporate purposes, which may include the purchaserepayment or refinancing of equipmentoutstanding indebtedness, capital expenditures and the expansionworking capital. When a particular series of facilities. We also maysecurities is offered, a prospectus supplement related to that offering will set forth our intended use a portion of the net proceeds to acquire or invest
in businesses, technologies, products or services that are complementary to our
business. We are not currently in discussions regarding any material
acquisitions or investments and have no agreements or commitments to complete
any such material transaction. Pending our usesreceived from the sale of the proceeds, we intend to
invest the net proceeds of this offering primarily in short-term, investment-
grade, interest-bearing instruments.
If thethose securities.
The selling shareholders sell any common shares in connection with the
underwriters' exercise of their over-allotment option,shareholder will receive all of the net proceeds from the sale of thoseour common shares offered by those selling shareholders will goit pursuant to the selling shareholders. Wethis prospectus, and we will not receive any of the proceeds from the sale of those shares.
Dividend Policy
We have never declared cash dividends on oursuch common shares. We anticipate that
we will retain earnings to support operations and to finance the growth and
development of our business. Therefore, we do not expect to pay cash dividends
in the foreseeable future.
15
Capitalization
The following table shows our capitalization at December 31, 1999, on an actual
basis and as adjusted to reflect the sale of the 4,000,000 common shares that
we are offering, assuming the over-allotment option is not exercised, at an
assumed per share offering price of $ , after deducting the underwriting
discount and estimated offering expenses, and the application of the net
proceeds from the offering.
December 31, 1999
----------------------
As
Actual adjusted
--------- ---------
(in thousands)
Debt
Bank indebtedness, due on demand(1)................... $ 23,100 $
Japanese yen term loans maturing October 31, 2000(2).. 3,917
Mortgage loan(2)...................................... 1,508
-------- --------
Total debt.......................................... 28,525
-------- --------
Stockholders' equity
Common shares: no par value; unlimited number of
shares authorized,
34,298,942 shares issued and outstanding, actual;
38,298,942 shares issued and outstanding, as
adjusted............................................. 222,865(3)
Deficit............................................... (44,225)
Accumulated other comprehensive income................ (6,910)
--------- --------
Total shareholders' equity.......................... 171,730
-------- --------
Total capitalization(4)................................. $200,255 $
======== =========
- ------------------
(1) See note 7 to the consolidated financial statements.
(2) See note 8 to the consolidated financial statements.
(3) Does not include 3,978,000 common shares issuable upon exercise of
outstanding options granted under our stock option plans or up to 70,818
common shares that may be issued for outstanding warrants as of December
31, 1999. Subsequent to December 31, 1999, 93,000 additional options have
been issued under our stock option plan.
(4) See note 17 to the consolidated financial statements for our obligations
under operating leases.
16
Price Range of Common Shares
Our common shares are quoted on the Nasdaq National Market under the symbol
"GSLI" and on The Toronto Stock Exchange under the symbol "LSI."
The following table gives, for the periods indicated, the high ask and low bid
prices of our common shares as reported on the Nasdaq National Market in U.S.
dollars and The Toronto Stock Exchange in Canadian dollars.
Toronto
Stock
Nasdaq Exchange
price range price range
US$ Cdn$
-------------- -------------
High Low High Low
------- ------ ------ ------
2000:
First quarter, through March 16, 2000.......... $29.375 $8.250 $40.00 $ 7.60
1999:
First quarter.................................. $ 6.375 $4.500 $10.50 $ 6.75
Second quarter................................. 4.875 3.250 7.25 5.00
Third quarter.................................. 6.875 3.813 10.25 5.60
Fourth quarter................................. 11.250 4.188 16.20 7.60
1998:
First quarter.................................. -- -- $27.75 $21.50
Second quarter................................. -- -- 23.00 11.80
Third quarter.................................. -- -- 13.75 7.50
Fourth quarter................................. -- -- 9.10 6.50
The closing price of the shares on March 20, 2000 was US$18.4375 on the Nasdaq
National Market and Cdn$27.10 on The Toronto Stock Exchange.
The following table gives in Canadian dollars the exchange rates for the United
States dollar, determined based on publicly available information from the
Federal Reserve Bank of New York for the calendar years 1999 and 1998.
Cdn$ per US$
---------------
1999 1998
------- -------
High......................................................... $1.5300 $1.5770
Low.......................................................... 1.4440 1.4075
End of period................................................ 1.4440 1.5375
Average...................................................... 1.4827 1.4898
The average exchange rate is calculated on the last business day of each month
for the applicable period.
On March 20, 2000, the noon buying rate in New York for cable transfers in
Canadian dollars was US$1.00 = Cdn$1.4703 as certified for customer purposes by
the Federal Reserve Bank of New York.
17
Selected Consolidated Financial Data
This section presents our selected historical consolidated financial data. You
should read carefully the consolidated financial statements included in this
prospectus, including the notes to the consolidated financial statements. The
selected consolidated data in this section is not intended to replace the
consolidated financial statements.
We derived the consolidated statement of operations data for the years ended
December 31, 1999, December 31, 1998 and December 31, 1997 and the consolidated
balance sheet data as of December 31, 1999 and December 31, 1998 from the
audited consolidated financial statements in this prospectus. Those
consolidated financial statements were audited by Ernst & Young LLP, our
independent auditors. We derived the consolidated statement of operations data
for the years ended December 31, 1996 and December 31, 1995 and consolidated
balance sheet data as of December 31, 1997, December 31, 1996 and December 31,
1995 from audited consolidated financial statements that are not included in
this prospectus.
On March 22, 1999, Lumonics and General Scanning completed a merger of equals.
We recorded this transaction as a purchase for accounting purposes.
Accordingly, the consolidated financial statements exclude the results of
General Scanning before the merger date and therefore do not provide meaningful
year-to-year comparative information. Note 2 to the consolidated financial
statements includes, for illustrative purposes, unaudited pro forma information
as if the merger had occurred on January 1, 1998. Results for 1999 reflect
$34.5 million of restructuring and acquired in-process research and development
expenses related to the merger.
Years ended December 31,
------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands, except per share data)
Consolidated Statement of
Operations Data:
Sales......................... $274,550 $144,192 $177,328 $153,367 $125,268
Gross profit.................. 95,777 40,673 65,922 60,999 48,031
Operating expenses:
Research and development..... 28,700 12,985 11,993 11,872 7,068
Selling, general and
administrative.............. 64,653 38,191 37,591 32,999 28,385
Amortization of technology
and other intangibles....... 4,070 861 400 381 384
Acquired in-process research
and development............. 14,830 -- -- -- --
Restructuring and other
charges..................... 19,631 2,022 -- -- --
Foreign exchange, interest
and gain on sales of assets. 1,223 (2,210) (1,048) (634) 854
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................ (37,330) (11,176) 16,986 16,381 11,340
Income tax provision
(benefit).................... (2,556) (3,260) 5,074 4,635 3,304
-------- -------- -------- -------- --------
Net income (loss)............. $(34,774) $ (7,916) $ 11,912 $ 11,746 $ 8,036
======== ======== ======== ======== ========
Net income (loss) per common
share:
Basic........................ $ (1.14) $ (0.46) $ 0.75 $ 0.83 $ 0.70
Diluted...................... $ (1.14) $ (0.46) $ 0.72 $ 0.78 $ 0.65
======== ======== ======== ======== ========
Weighted average common shares
outstanding.................. 30,442 17,079 15,989 14,077 11,521
Weighted average common shares
outstanding and dilutive
potential common shares...... 30,442 17,079 16,454 15,079 12,457
December 31,
-----------------------------------------
1999 1998 1997 1996 1995
-------- ------- -------- ------- -------
(in thousands)
Consolidated Balance Sheet Data:
Working capital...................... $103,727 $85,977 $110,895 $71,981 $58,087
Total assets......................... 289,722 159,642 189,180 135,602 122,802
Long-term liabilities, including
current portion..................... 10,022 7,082 9,239 13,820 19,367
Total shareholders' equity........... 171,730 120,757 133,623 88,345 69,442
18
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read this discussion together with the consolidated financial
statements and other financial information included in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those indicated in
the forward-looking statements. Please see the "Special Note Regarding Forward-
Looking Statements" elsewhere in this prospectus.
Overview
We design, develop, manufacture and market laser-based advanced manufacturing
systems and components for a wide range of applications, including cutting,
welding, drilling, marking, micro-machining, inspection, and optical detection
and transmission. Markets for these products include the semiconductor,
electronics, automotive, medical/biotechnology and telecommunications
industries. In addition, we sell to other markets such as the aerospace and
packaging industries. Our systems sales depend on our customers' capital
expenditures which are affected by business cycles in the markets they serve.
Results of Operations for Fiscal Years Ended December 31, 1999, 1998 and 1997
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth items in the consolidated statementour ratios of operations as a percentage of salesearnings to fixed charges for the periods indicated:
shown.
| Year Ended December 31, | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
Ratio of Earnings to Fixed Charges(1) | 3.2x | 1.4x | — | — | 13.6x | |||||||||||||||
| (1) | The ratio of fixed charges is computed by dividing earnings by fixed charges. For the purpose of computing this ratio, “earnings” consist of pretax income (loss) from continuing operations before adjustments for income from an equity method investment and income attributable to a noncontrolling interest, plus fixed charges. “Fixed charges” consist of interest expense (which includes interest on outstanding debt obligations, amortization of debt discounts attributable to warrants, amortization of deferred financing fees, and losses on extinguishment of debt attributable to the write-offs of unamortized deferred financing fees at the time of extinguishment) and an estimate of interest within rental expense. Earnings were insufficient to cover fixed charges for the years ended December 31, |
The following table sets forth sales in millionsselling shareholder may sell a total of dollarsup to our primary
markets for 1999, 1998 and 1997.
Under a registration rights agreement dated July 23, 2010, the selling shareholder has a right to twice demand the registration of operations are affected by external factors
that impactits registrable securities on a registration statement, subject to the markets in which we compete. Sales to Japan and the Asia-
Pacific region were impacted by the financial crisis that occurred therelimitations contained in the fall of 1997 andregistration rights agreement. The registration may be a shelf registration, filed with the effects which extended into 1999. Japan suffered a
recession during the same period, brought about partly by the financial crisis.
The semiconductor equipment business was in a recession from mid-1998 through
the first quarter of 1999.
In 1999, sales increased by 90% due primarily to the merger and improved market
conditions in the second half of the year in some of our markets. Product
prices in some of our markets faced increased competitive pressures during
1999, particularly in the first half of the year, and had a negative effectSEC on reported gross profit. Sales in 1998 declined 19% overall due to a sharp
decline in the semiconductor market as well as declines of 26% in the
automotive market and 27% in the aerospace market.
The increase in sales during 1999 to the semiconductor industry was due
primarily to the merger between Lumonics and General Scanning. The decline
experienced in the semiconductor market during 1997 continued through 1998 and
into 1999. Excess capacity in semiconductor fabrication plants worldwide
resulted in a 63% decline in 1998 semiconductor sales relative to 1997. The
semiconductor market is cyclical, and the downturn in the industry slowed
demand for our products through this period. The semiconductor equipment
market, however, has been on a slow recovery as reflected in quarterly
improvements in sales during 1999.
Sales to the electronics market grew in each quarter in 1999. This increase was
due primarily to the success of the new GS-600 systems for drilling micro vias,an underwritten or precise holes, and increased demand for trim and test systems. During 1998,
sales to the electronics market increased by 11% over 1997, as a result
primarily of increased demand for systems from the printed circuit board
industry, particularly the GS-600.
During 1999, sales to the automotive market declined 12% following a decline of
27% in 1998, each due to lower capital spending by automotive companies.
The increased sales to the aerospace market in 1999 were due primarily to the
merger. Sales to the aerospace market declined by 26% during 1998, due
primarily to a decreased demand for systems from the aerospace sector in North
America.non-underwritten basis. In addition, sales in 1997 were unusually high because we delivered a
$3.5 million order representing the largest advanced laser-based systems we
have ever built.
Packaging market sales declined in 1999 by 12% compared to 1998. Sales in this
market sector were not affected significantly by the merger. Packaging market
sales were essentially flat during 1998 compared to 1997.
20
Component sales increased in 1999 due primarily to the merger. Sales to the
medical and biotechnology markets increased in 1999 due primarily to the merger
and the increased market acceptance of ScanArray
systems. Sales of systems to our emerging product markets declined in 1999 due
to a decline in consumer products sales and a further decline in sales to the
nuclear energy industry. During 1998, in aggregate dollars, sales to the
emerging products component and medical and biotechnology markets were
essentially flat.
Parts and service full year sales increased 21% for 1999, with about half of
the increase due to the merger. The remaining increase reflects customers'
increased utilization of existing installed systems, as well as the improvement
of parts and service support for the former General Scanning systems. Largely
as a result of the slowdown in the semiconductor market in 1998, parts and
service revenues declined by 7% relative to the previous year.
Sales by Region. We distribute our systems and services via our global sales
and service network and through third-party distributors and agents. Our sales
territories are divided into the following regions: the United States; Canada;
Latin and South America; Europe, consisting of Europe, the Middle East and
Africa; Japan; and Asia-Pacific, consisting of ASEAN countries, China and other
Asia-Pacific countries. selling shareholder has unlimited piggyback registration rights.
The table below shows sales in millions of dollars to
each geographic region for 1999, 1998 and 1997.
Selling Shareholder | Number of Common Shares Owned Before Any Sale | Number of Common Shares Subject to Sale Pursuant to this Prospectus | Number of Common Shares Owned After Sale of All Shares Subject to Sale Pursuant to this Prospectus* | Percentage of Common Shares Owned After Sale of All Shares Subject to Sale Pursuant To this Prospectus* | ||||||||||||
Liberty Harbor Master Fund I, L.P. | 2,800,000 | (1) | 2,800,000 | — | — | |||||||||||
| * | Assumes that the selling shareholder will sell all of its common shares |
| (1) | Goldman Sachs Asset Management, L.P. (“GSAM”), a wholly owned |
General
We have authority to issue an unlimited number of common shares.shares, no par value. As atof February 29, 2000, 34,546,875 of our2012, 33,515,041 common shares were issued and outstanding. As of February 29, 2012, we had an aggregate of 712,641 common shares reserved for issuance upon vesting of restricted stock unit awards granted under our 2010 Incentive Award Plan, as amended, or our Amended 2010 Plan, 169,864 common shares reserved for issuance upon settlement of deferred stock units granted to our directors pursuant either to stand-alone award agreements that are independent from an equity plan or the Amended 2010 Plan, 6,536 common shares reserved for issuance upon the vesting of restricted stock awards granted under our prior equity plans that were cancelled upon our emergence from bankruptcy on July 23, 2010, and 1,944,168 common shares reserved for issuance pursuant to future grants under our Amended 2010 Plan.
Terms
Each outstanding common share will beis entitled to one vote at all meetings of our shareholders, to participate ratably in any dividends which may be declared by the board of directors and, in the event of liquidation, dissolution or winding-up or other distribution of our assets or property, to a pro rata share of our assets after payment of all our liabilities and obligations. We have never declared or paid cash dividends on our common shares. We currently intend to retain any current and future earnings to finance the growth and development of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.
Shareholders have cumulative voting rights in the election of directors. Cumulative voting rights permit each shareholder entitled to vote at a meeting of shareholders called for the election of directors to cast a number of votes equal to the number of shares held by the shareholder multiplied by thatthe number of directors to be elected. The shareholder is entitled to cast all such votes in favor of one candidate for director or distribute them among the candidates in any manner.
Shareholder
The common shares are not liable to any calls or assessments and are not convertible into any other securities. There are no redemption or sinking fund provisions applicable to the common shares, and there are no preemptive rights plan
On April 12, 1999,held by holders of the common shares.
All outstanding common shares are fully paid and non-assessable, and common shares offered pursuant to this prospectus will, when issued, be fully paid and non-assessable.
Anti-Takeover Considerations
Our Articles contain provisions that may enable our board of directors adoptedto resist a shareholders rights plan.
Under this shareholders rights plan, one right has been issuedchange in respectcontrol of eachour company. These provisions include:
the ability to issue an unlimited number of common share outstanding asshares; and
a limitation that stipulates that only holders of that date and one right has been and will
be issued in respect of each common share issued thereafter. Each right, when
exercisable, entitles the holder to purchase one common share from us at the
exercise price of Cdn$200, subject to adjustment and certain anti-dilution
provisions.
The rights are not exercisable and cannot be transferred separately from the
common shares until the "separation time," which is defined as the eighth
business day, subject to extension by the board of directors, after the earlier
of:
. the "stock acquisition date", which is generally the first date of
public announcement that a person or group of affiliated or associated
persons (excluding certain persons and groups) has acquired beneficial
ownership of 20% or moreless than 10 percent of the issued and outstanding common shares or
. the date of commencement of, or first public announcement of the intent
of any person or group of affiliated or associated persons to commence,
a take-over bid.
At such time as any person or group of affiliated or associated persons becomes
an "acquiring person," each right will constituteCompany carrying the right to purchase fromvote at a meeting of shareholders are authorized to call a special meeting of shareholders.
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors of their choosing or cause us to take other corporate actions that numbershareholders desire.
Canadian Law Matters
There is no limitation imposed by Canadian law or by our Articles on the right of a non-resident to hold or vote common shares, havingother than as provided in the Investment Canada Act (the “ICA”). Unless a transaction falls
within an aggregate market price on that date
equalavailable exemption, the ICA requires a non-Canadian making an investment which would result in the acquisition of control of a Canadian business or an investment to twiceestablish a new Canadian business, to identify, notify, or (if the exercise price, for the exercise price, such right being
subject to anti-dilution adjustments.
So long as the rights are not transferable separately from the common shares,
we will issue one right with each new common share issued. The rights could
have certain anti-takeover effects, in that they would cause substantial
dilution to a person or group that attempts to acquire us on terms not approved
by our board of directors.
40
Tax Considerations
Canadian Tax Considerations
In the opinion of LaBarge Weinstein, our Canadian counsel, the following is a
summaryvalue of the principal Canadian federal income tax considerations generally
applicable to a U.S. holder who acquires common shares pursuant to this
offering. In this summary, a "U.S. holder" means a person who, for the purposesassets of the Canada-United States Income Tax Convention (1980),target Canadian business exceed a certain monetary threshold, or if the transaction is considered to be an investment that could be injurious to Canadian national security) file an application for review with the Investment Review Division of Industry Canada (“IRD”).
The notification procedure involves a residentbrief statement of information about the investment on a prescribed form which is required to be filed with the IRD by the investor at any time up to 30 days following implementation of the United Statesinvestment. It is intended that investments requiring only notification will proceed without government intervention unless the investment is in a specific type of business activity related to Canada’s cultural heritage and national identity.
If an investment is reviewable under the ICA, an application for review in the form prescribed is normally required to be filed with the IRD prior to the investment taking place and the investment may not be implemented until the review has been completed and the Minister of Industry (“Minister”) (the Minister responsible for Investment Canada) is satisfied that the investment is likely to be of net benefit to Canada (and, if applicable, is satisfied that the investment would not be injurious to Canadian national security). The Minister has up to 75 days to make this determination, though this period can be extended by agreement between the IRD and who, for purposesthe investor (a national security review can take up to 130 days). If the Minister is not satisfied that the investment is likely to be of net benefit to Canada, the non-Canadian must not implement the investment or, if the investment has been implemented, may be required to divest himself of control of the Income Tax Act
(Canada) (the "Tax Act"), (1)business that is neither resident nor deemedthe subject of the investment. If the Governor in Council considers that it is advisable to be residentprotect national security, she may prohibit the investment, authorize it to proceed on conditions, or require divestiture.
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada (2) does not use or hold, and is not deemedexchange restrictions affecting the remittance of dividends, profits, interest, royalties or other payments to use or hold, the common
shares in carrying on a business in Canada, (3) holds such common sharesnon-resident holders of Common Shares, except as capital property, and (4) deals at arm's length with us. Additional
considerations, which are not discussed below, may be relevant to a U.S. holder
that is an insurer carrying on business in Canada and elsewhere.
Thisdescribed under “Canadian Taxation Matters”.
Canadian Taxation Matters
The following summary is based onupon the current provisions of theIncome Tax Act (Canada) (the “Tax Act”), the current provisions of the regulations promulgated thereunder (the “Regulations”) and the current provisions of the Canada-United States Tax Act,Convention (the “Treaty”), as at the regulations
thereunder,date hereof and counsel’s understanding of the current administrative practices of the Canada Revenue Agency (the “CRA”). This summary takes into account all specific proposals to amend the Tax Act orand the regulationsRegulations that have been publicly announced by, or on behalf of, the Minister of Finance (Canada) prior to the date hereof
and counsel's understanding of the currentthis registration statement on Form S-3 (the “Tax Proposals”), but does not otherwise take into account or anticipate any changes in law, whether by judicial, governmental or legislative decision or action, or changes in administrative practices of the CRA. No assurances can be given that the Tax Proposals will be enacted as proposed, if at all. This summary does not take into account the tax legislation of any province or territory of Canada Customsor any non-Canadian jurisdiction. Provisions of provincial income tax legislation vary from province to province in Canada and Revenue Agency. in some cases differ from federal income tax legislation.
The Tax Act contains certain "mark-to-market
rules"provisions relating to securities held by certain financial institutions.institutions (the “mark-to-market rules”). This summary does not take into account thosethe mark-to-market rules and U.S. holdersinvestors that are "financial institutions"financial institutions for the purposes of suchthose rules should consult their own tax advisors. This summary is not exhaustive of all possible Canadian federal incomeapplicable to investors an interest in which would be a “tax shelter investment”, as defined in the Tax Act, and any such investor should consult their own tax considerations and, except as mentioned above, does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account tax legislation or
considerations of any province or territory of Canada, which may differ from
the Canadian federal income tax considerations described herein.
Thisadvisors.
The following summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular U.S. holder, and
no representation with respect to theinvestor. This summary is not exhaustive of all
Canadian federal income tax consequences to any particular
U.S. holder is made. Consequently, prospective purchasersconsiderations. Accordingly, investors should consult their own tax advisors with respect to their particular circumstances.
Taxationcircumstances, including the application and effect of Dividends
the income and other taxes of any country, province, territory, state or local tax authority.
The following summary is generally applicable to an investor who, at all relevant times, for purposes of the Tax Act and any applicable income tax treaty or convention, is neither resident nor deemed to be resident in Canada, is not affiliated with the Company for the purposes of the Tax Act, deals at arm’s length with the Company for the purposes of the Tax Act, holds common shares as capital property and does not use or hold, and is not deemed to use or hold common shares in connection with carrying on business in Canada (a “non-resident shareholder”). Special rules, which are not discussed in this summary, may apply to a non-resident shareholder that is an insurer that carries on an insurance business in Canada and elsewhere.
Dividends on Common Shares
Generally, dividends (including stock dividends) paid or credited (including amounts on account of or in lieu of dividends) by Canadian corporations to non-resident shareholders are subject to a common sharewithholding tax of 25 percent. However, the Treaty provides for a 15 percent withholding tax on dividends paid to all individuals and corporate residents of the United States that qualify for benefits under the Treaty. Dividends paid to any non-resident company that qualifies for benefits under the Treaty and that beneficially owns at least 10 percent of the voting stock of the payer company are subject to withholding tax at 5 percent.
Dividends (including stock dividends) paid or credited to a U.S. holder that is a United States tax-exempt organization, as described in Article XXI of the Treaty, and is entitled to the benefits of Article XXI(2) of the Treaty will be subjectnot have to pay any Canadian withholding tax at the rate of 25%in respect of the gross amount of such
dividends, although such rate may be reduced under the provisions of an
applicable income tax treaty. Under the Convention, U.S. holders will generally
be subject to a 15% withholding tax on the gross amount of dividends paid or
credited on a common share. The withholding tax rate is further reduced by the
Convention to 5% of the gross amount or the dividends if the beneficial owner
is a company which owns at least 10% of the voting shares of the company paying
dividends.
dividend.
Disposition of OfferedCommon Shares
A U.S. holder of a common sharenon-resident shareholder will not be subject to tax under the Tax Act in
respect ofon any capital gain realized on thea disposition of the common sharea Common Share unless the common share constitutes or is deemedshares constitute “taxable Canadian property” to the non-resident shareholder. Generally, common shares will not constitute "taxable“taxable Canadian property"
(as defined inproperty” to a non-resident shareholder at a particular time provided that (a) the Tax Act). Taxable Canadian property will generally include
any common shareshares are listed on a prescribeddesignated stock exchange for purposes ofat that time, (b) the Tax
Act held by a U.S. holder if, at any time during the five-year period
immediately preceding the disposition of the common share, the U.S. holder,non-resident shareholder, persons with whom the U.S. holder didnon-resident shareholder does not deal at arm'sarm’s length, or the U.S.
holdernon-resident shareholder together with such persons owned or is considered towith whom the non-resident shareholder does not deal at arm’s length, have not owned 25% or more of the issued shares of any classof the classes (or of any series within a class) of the Company at any time during the 60-month period that ends at that time, and (c) less than 50% of the fair market value of the share is derived, directly or seriesindirectly, from one or any combination of our shares. real or immovable property in Canada, Canadian resource properties, timber resource properties or options in respect of, or interests or rights in, such properties. Common shares may also be taxable Canadian property in certain other circumstances, including where the non-resident shareholder elected to have them treated as taxable Canadian property upon ceasing to be resident in Canada. Notwithstanding the foregoing, in certain circumstances set out in the Tax Act, common shares could be deemed taxable Canadian property. Non-resident shareholders should consult their own tax advisors to determine whether the common shares will constitute taxable Canadian property in their particular circumstances.
Even if athe common share isshares are taxable Canadian property to a U.S. holder, anynon-resident shareholder, a taxable capital gain realizedor an allowable capital loss resulting from the disposition of the shares will not be included in computing the non-resident shareholder’s income for the purposes of the Tax Act if the common shares constitute “treaty-protected property”. Common shares owned by a non-resident shareholder will generally be treaty-protected property if the U.S. holder ongain from the disposition of such property would, because of an applicable income tax treaty or convention to which Canada is a disposition maysignatory, be exempt from tax under the Convention.
41
Distributions onTax Act. Non-resident shareholders should consult their own tax advisors to determine whether the common shares Distributionsconstitute treaty-protected property in their particular circumstances.
Under the Tax Act, the disposition of a common share by a holder may occur in a number of circumstances including on a sale or gift of the common share or upon the death of the holder. There are no Canadian federal estate or gift taxes on the purchase or ownership of the common shares.
All non-resident shareholders who dispose of “taxable Canadian property” are required to file a Canadian tax return reporting their gain or loss on the disposition and, subject to an applicable tax treaty exemption, pay the Canadian federal tax due on the disposition.
All non-resident shareholders who dispose of “taxable Canadian property” are also required to obtain an advance clearance certificate in respect of their disposition under section 116 of the Tax Act (the “Section 116 Certificate”). The purchaser of the common shares is obligated to withhold 25% of the gross proceeds on the acquisition of the common shares from a non-resident shareholder except to the extent of the certificate limit on the Section 116 Certificate. A Section 116 Certificate is required even where the gain is exempt from Canadian income tax under a provision of an income tax treaty with Canada, such as the Treaty. If the non-resident shareholder does not provide a Section 116 Certificate to the purchaser, then the purchaser will be required to withhold and remit to the CRA 25% of the proceeds on account of the non-resident shareholder’s tax obligation, on or before the end of the month following the date of the sale. The non-resident shareholder may then file a Canadian tax return to obtain a refund of excess withholding tax, if any.
Transfer Agent
The registrar and transfer agent for our common shares is Computershare Investor Services.
Listing
Our common shares are listed on The NASDAQ Global Select Market under the symbol “GSIG.”
DESCRIPTION OF DEBT SECURITIES
The following description, together with the additional information we include in any applicable prospectus supplement, summarizes certain general terms and provisions of the debt securities that we may offer under this prospectus. When we offer to sell a particular series of debt securities, we will describe the specific terms of the series in a supplement to this prospectus. We will also indicate in the prospectus supplement the extent to which the general terms and provisions described in this prospectus apply to a particular series of debt securities.
We may issue debt securities either separately, or together with, or upon the conversion or exercise of or in exchange for, other securities described in this prospectus. Debt securities may be our senior, senior subordinated or subordinated obligations and, unless otherwise specified in a supplement to this prospectus, the debt securities will be our direct, unsecured obligations and may be issued in one or more series.
The debt securities will be issued under an indenture between us and a trustee to be identified in the applicable prospectus supplement. We have summarized select portions of the indenture below. The summary is not complete. The form of the indenture has been filed as an exhibit to the registration statement of which this prospectus forms a part and you should read the indenture for provisions that may be important to you. In the summary below, we have included references to the section numbers of the indenture so that you can easily locate these provisions. Capitalized terms used in the summary and not defined herein have the meanings specified in the indenture.
As used in this section only, “GSI Group,” “we,” “our” or “us” refer to GSI Group Inc. excluding our subsidiaries, unless expressly stated or the context otherwise requires.
General
The terms of each series of debt securities will be established by or pursuant to a resolution of our board of directors and set forth or determined in the manner provided in a resolution of our board of directors, in an officer’s certificate or by a supplemental indenture. (Section 2.2) The particular terms of each series of debt securities will be described in a prospectus supplement relating to such series (including any pricing supplement or term sheet).
We can issue an unlimited amount of debt securities under the indenture that may be in one or more series with the same or various maturities, at par, at a premium, or at a discount. (Section 2.1) We will set forth in a prospectus supplement (including any pricing supplement or term sheet) relating to any series of debt securities being offered, the aggregate principal amount and the following terms of the debt securities, if applicable:
the title and ranking of the debt securities (including the terms of any subordination provisions);
the price or prices (expressed as a percentage of the principal amount) at which we will sell the debt securities;
any limit on the aggregate principal amount of the debt securities;
the date or dates on which the principal of the debt securities of the series is payable;
the rate or rates (which may be fixed or variable) per annum or the method used to determine the rate or rates (including any commodity, commodity index, stock exchange index or financial index) at which the debt securities will bear interest, the date or dates from which interest will accrue, the date or dates on which interest will commence and be payable and any regular record date for the interest payable on any interest payment date;
the place or places where principal of, and interest, if any, on the debt securities will be payable (and the method of such payment), where the securities of such series may be surrendered for registration of transfer or exchange, and where notices and demands to us in respect of the debt securities may be delivered;
the period or periods within which, the price or prices at which, and the terms and conditions upon which we may redeem the debt securities;
any ability we have to redeem or purchase the debt securities pursuant to any redemption, sinking fund or analogous provisions and the period or periods within which, the price or prices at which, and the terms and conditions upon which debt securities of the series may be redeemed or purchased, in whole or in part, pursuant to such provisions;
the dates on which and the price or prices at which we will offer to repurchase debt securities at the option of the holders of debt securities and other detailed terms and provisions of these repurchase obligations;
the denominations in which the debt securities will be issued, if other than minimum denominations of $2,000 and any integral multiple of $1,000 in excess thereof;
whether the debt securities will be issued in the form of certificated debt securities or global debt securities;
the portion of principal amount of the debt securities payable upon declaration of acceleration of the maturity date, if other than the principal amount;
the currency of denomination of the debt securities, which may be United States Dollars or any foreign currency, and if such currency of denomination is a composite currency, the agency or organization, if any, responsible for overseeing such composite currency;
the designation of the currency, currencies or currency units in which payment of principal of, or premium and interest on, the debt securities will be made;
if payments of principal of, or premium or interest on, the debt securities will be made in one or more currencies or currency units other than that or those in which the debt securities are denominated, the manner in which the exchange rate with respect to these payments will be determined;
the manner in which the amounts of payment of principal of, or premium, if any, or interest on, the debt securities will be determined, if these amounts may be determined by reference to an index based on a currency or currencies other than that in which the debt securities are denominated or designated to be payable or by reference to a commodity, commodity index, stock exchange index or financial index;
any provisions relating to any security provided for the debt securities;
any addition to, deletion of or change in the Events of Default described in this prospectus or in the indenture with respect to the debt securities and any change in the acceleration provisions described in this prospectus or in the indenture with respect to the debt securities;
any addition to, deletion of or change in the covenants described in this prospectus or in the indenture with respect to the debt securities;
any depositaries, interest rate calculation agents, exchange rate calculation agents or other agents with respect to the debt securities;
the provisions, if any, relating to conversion or exchange of any securities of such series, including if applicable, the conversion or exchange price and period, provisions as to whether conversion or exchange will be mandatory, the events requiring an adjustment of the conversion or exchange price and provisions affecting conversion or exchange; and
any other terms of the debt securities, which may supplement, modify, replace or delete any provision of the indenture as it applies to that series, including any terms that may be required under applicable law or regulations or advisable in connection with the marketing of the securities. (Section 2.2)
We may issue debt securities that provide for an amount less than their stated principal amount to be due and payable upon declaration of acceleration of their maturity pursuant to the terms of the indenture. We will provide you with information on the federal income tax considerations and other special considerations applicable to any of these debt securities in the applicable prospectus supplement.
If we denominate the purchase price of any of the debt securities in a foreign currency or currencies or a foreign currency unit or units, or if the principal of and any premium and interest on any series of debt securities is payable in a foreign currency or currencies or a foreign currency unit or units, we will provide you with information on the restrictions, elections, general tax considerations, specific terms and other information with respect to that issue of debt securities and such foreign currency or currencies or foreign currency unit or units in the applicable prospectus supplement.
Transfer and Exchange
Each debt security will be represented by either (i) one or more global securities registered in the name of The Depository Trust Company, or the Depositary, or a nominee of the Depositary (we will refer to any debt security represented by a global debt security as a “book-entry debt security”), or (ii) a certificate issued in definitive registered form (we will refer to any debt security represented by a certificated security as a “certificated debt security”) as set forth in the applicable prospectus supplement. Except as set forth under the heading “Global Debt Securities and Book-Entry System” below, book-entry debt securities will not be issuable in certificated form.
Certificated Debt Securities. You may transfer or exchange certificated debt securities at any office we maintain for this purpose in accordance with the terms of the indenture. (Section 2.4) No service charge will be made for any transfer or exchange of certificated debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with a transfer or exchange. (Section 2.7)
You may effect the transfer of certificated debt securities and the right to receive the principal of, premium and interest on certificated debt securities only by surrendering the certificate representing those certificated debt securities and either reissuance by us or the trustee of the certificate to the new holder or the issuance by us or the trustee of a new certificate to the new holder.
Global Debt Securities and Book-Entry System. Each global debt security representing book-entry debt securities will be deposited with, or on behalf of, the Depositary, and registered in the name of the Depositary or a nominee of the Depositary. Please see “Global Securities.”
Covenants
We will set forth in the applicable prospectus supplement any restrictive covenants applicable to any issue of debt securities. (Article IV)
No Protection In the Event of a Change of Control
Unless we state otherwise in the applicable prospectus supplement, the debt securities will not contain any provisions which may afford holders of the debt securities protection in the event we have a change in control or in the event of a highly leveraged transaction (whether or not such transaction results in a change in control) which could adversely affect holders of debt securities.
Consolidation, Merger and Sale of Assets
We may not consolidate with or merge with or into, or convey, transfer or lease all or substantially all of our properties and assets to any person (a “successor person”) unless:
either we are the surviving corporation or the successor person (if other than GSI Group) is a corporation organized and validly existing under the laws of New Brunswick, Canada or any U.S. domestic jurisdiction and such successor person expressly assumes our obligations on the debt securities and under the indenture; and
immediately after giving effect to the transaction, no Default or Event of Default, shall have occurred and be continuing.
Notwithstanding the above, any of our subsidiaries may consolidate with, merge into or transfer all or part of its properties to us. (Section 5.1)
Events of Default
“Event of Default” means with respect to any series of debt securities, any of the following:
default in the payment of any interest upon any debt security of that series when it becomes due and payable, and continuance of such default for a period of 30 days (unless the entire amount of the payment is deposited by us with the trustee or with a paying agent prior to the expiration of the 30-day period);
default in the payment of principal of any debt security of that series at its maturity;
default in the performance or breach of any other covenant or warranty by us in the indenture (other than a covenant or warranty that has been included in the indenture solely for the benefit of a series of debt securities other than that series), which default continues uncured for a period of 60 days after we receive written notice from the trustee or we and the trustee receive written notice from the holders of not less than 25% in principal amount of the outstanding debt securities of that series as provided in the indenture;
certain voluntary or involuntary events of bankruptcy, insolvency or reorganization of GSI Group; and
any other Event of Default provided with respect to common shares,debt securities of that series that is described in the applicable prospectus supplement. (Section 6.1)
No Event of Default with respect to a particular series of debt securities (except as to certain events of bankruptcy, insolvency or reorganization) necessarily constitutes an Event of Default with respect to any other series of debt securities. (Section 6.1) The occurrence of certain Events of Default or an acceleration under the indenture may constitute an event of default under certain of our indebtedness or that of our subsidiaries outstanding from time to time.
If an Event of Default with respect to debt securities of any series at the time outstanding occurs and is continuing, then the trustee or the holders of not less than 25% in principal amount of the outstanding debt securities of that series may, by a notice in writing to us (and to the trustee if given by the holders), declare to be due and payable immediately the principal of (or, if the debt securities of that series are discount securities, that portion of the principal amount as may be specified in the terms of that series) and accrued and unpaid interest, if any, on all debt securities of that series. In the case of an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization, the principal (or such specified amount) of and accrued and unpaid interest, if any, on all outstanding debt securities will become and be immediately due and payable without reductionany declaration or other act on the part of the trustee or any holder of outstanding debt securities. At any time after a declaration of acceleration with respect to debt securities of any series has been made, but before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of a majority in principal
amount of the outstanding debt securities of that series may rescind and annul the acceleration if all Events of Default, other than the non-payment of accelerated principal and interest, if any, with respect to debt securities of that series, have been cured or waived as provided in the indenture. (Section 6.2) We refer you to the prospectus supplement relating to any series of debt securities that are discount securities for the particular provisions relating to acceleration of a portion of the principal amount of such discount securities upon the occurrence of an Event of Default.
The indenture provides that the trustee will be under no obligation to exercise any of its rights or powers under the indenture unless the trustee receives indemnity satisfactory to it against any cost, liability or expense which might be incurred by it in exercising such right of power. (Section 7.1(e)) Subject to certain rights of the trustee, the holders of a majority in principal amount of the outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceeding for any Canadian tax withheld, generallyremedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the debt securities of that series. (Section 6.12)
No holder of any debt security of any series will be taxablehave any right to youinstitute any proceeding, judicial or otherwise, with respect to the indenture or for the appointment of a receiver or trustee, or for any remedy under the indenture, unless:
that holder has previously given to the trustee written notice of a continuing Event of Default with respect to debt securities of that series; and
the holders of not less than 25% in principal amount of the outstanding debt securities of that series have made written request, and offered reasonable indemnity or security, to the trustee to institute the proceeding as ordinary incometrustee, and the trustee has not received from the holders of not less than a majority in principal amount of the outstanding debt securities of that series a direction inconsistent with that request and has failed to institute the proceeding within 60 days. (Section 6.7)
Notwithstanding any other provision in the indenture, the holder of any debt security will have an absolute and unconditional right to receive payment of the principal of, premium and any interest on that debt security on or after the due dates expressed in that debt security and to institute suit for the enforcement of payment. (Section 6.8)
The indenture requires us, within 120 days after the end of our fiscal year, to furnish to the trustee a statement as to compliance with the indenture. (Section 4.3) If a Default or Event of Default occurs and is continuing with respect to the debt securities of any series and if it is known to a responsible officer of the trustee, the trustee shall mail to each Securityholder of the debt securities of that series notice of a Default or Event of Default within 90 days after it occurs. The indenture provides that the trustee may withhold notice to the holders of debt securities of any series of any Default or Event of Default (except in payment on any debt securities of that series) with respect to debt securities of that series if the trustee determines in good faith that withholding notice is in the interest of the holders of those debt securities. (Section 7.5)
Modification and Waiver
We and the trustee may modify and amend the indenture or the debt securities of any series without the consent of any holder of any debt security:
to cure any ambiguity, defect or inconsistency;
to comply with covenants in the indenture described above under the heading “Consolidation, Merger and Sale of Assets”;
to provide for uncertificated securities in addition to or in place of certificated securities;
to make any change that does not adversely affect the rights of any holder of debt securities;
to provide for the issuance of and establish the form and terms and conditions of debt securities of any series as permitted by the indenture;
to effect the appointment of a successor trustee with respect to the debt securities of any series and to add to or change any of the provisions of the indenture to provide for or facilitate administration by more than one trustee;
to conform the text of the indentures to any provision of the “Description of Debt Securities” to the extent paid outthat such provision in the “Description of Debt Securities” was intended to be a verbatim recitation of a provision of the indentures; or
to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act. (Section 9.1)
We may also modify and amend the indenture with the consent of the holders of at least a majority in principal amount of the outstanding debt securities of each series affected by the modifications or amendments. We may not make any modification or amendment without the consent of the holders of each affected debt security then outstanding if that amendment will:
reduce the amount of debt securities whose holders must consent to an amendment, supplement or waiver;
reduce the rate of or extend the time for payment of interest (including default interest) on any debt security;
reduce the principal of or premium on or change the fixed maturity of any debt security or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation with respect to any series of debt securities;
reduce the principal amount of discount securities payable upon acceleration of maturity;
waive a default in the payment of the principal of, premium or interest on any debt security (except a rescission of acceleration of the debt securities of any series by the holders of at least a majority in aggregate principal amount of the then outstanding debt securities of that series and a waiver of the payment default that resulted from such acceleration);
make the principal of or premium or interest on any debt security payable in currency other than that stated in the debt security;
make any change to certain provisions of the indenture relating to, among other things, the right of holders of debt securities to receive payment of the principal of, premium and interest on those debt securities and to institute suit for the enforcement of any such payment and to waivers or amendments; or
waive a redemption payment with respect to any debt security. (Section 9.3)
Except for certain specified provisions, the holders of at least a majority in principal amount of the outstanding debt securities of any series may on behalf of the holders of all debt securities of that series waive our currentcompliance with provisions of the indenture. (Section 9.2) The holders of a majority in principal amount of the outstanding debt securities of any series may on behalf of the holders of all the debt securities of such series waive any past default under the indenture with respect to that series and its consequences, except a default in the payment of the principal of, premium or accumulated earningsany interest on any debt security of that series; provided, however, that the holders of a majority in principal amount of the outstanding debt securities of any series may rescind an acceleration and profits (as
determined forits consequences, including any related payment default that resulted from the acceleration. (Section 6.13)
Defeasance of Debt Securities and Certain Covenants in Certain Circumstances
Legal Defeasance. The indenture provides that, unless otherwise provided by the terms of the applicable series of debt securities, we may be discharged from any and all obligations in respect of the debt securities of any series (subject to certain exceptions). We will be so discharged upon the deposit with the trustee, in trust, of money and/or U.S. government obligations or, in the case of debt securities denominated in a single currency other than U.S. Dollars, government obligations of the government that issued or caused to be issued such currency, that, through the payment of interest and principal in accordance with their terms, will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants or investment bank to pay and discharge each installment of principal, premium and interest on and any mandatory sinking fund payments in respect of the debt securities of that series on the stated maturity of those payments in accordance with the terms of the indenture and those debt securities.
This discharge may occur only if, among other things, we have delivered to the trustee an opinion of counsel stating that we have received from, or there has been published by, the United States Internal Revenue Service a ruling or, since the date of execution of the indenture, there has been a change in the applicable United States federal income tax purposes). Distributionslaw, in excesseither case to the effect that, and based thereon such opinion shall confirm that, the holders of our current or accumulated earnings and profits will be treated first
as a non-taxable returnthe debt securities of capital reducing your tax basis in the common
shares. Any such distribution in excess of your tax basis in the common shares
will be treated as capital gain and will be either long-term or short-term
capital gain depending upon whether you have held the common shares for more
than one year. Such income will be includable in your gross income as ordinary
income on the day received by you.
Dividends paid by us generallythat series will not be eligible for the dividends received
deduction available to certain United States corporate shareholders under Code
sections 243 and 245.
The amount of any cash distribution paid in Canadian dollars will equal the
United States dollar value of the distribution, calculated by reference to the
exchange rate in effect on the date the dividends are received. You should not
recognize any foreign currencyincome, gain or loss if such foreign currency is
converted into United States dollars on the date received by you. If the
Canadian dollars are not converted into United States dollars on the date of
receipt, however, gain or loss may be recognized upon a subsequent sale or
other disposition of the Canadian dollars. Such foreign currency gain or loss,
if any, will be United States source ordinary income or loss for United States federal income tax purposes. You will have a basis in the Canadian dollar equal
to the United States dollar value on the date of receipt.
Generally, you will have the option of claiming the amount of Canadian tax
withheld at the source on the distribution of dividends with respect to our
common stock as either a deduction from adjusted gross income orpurposes as a credit
against your United States federal income tax liability. If you elect to claim
a credit for such Canadian taxes, the election will be binding for all foreign
taxes paid or accrued by you for the taxable year for which the election is
made. If you claim the standard deduction rather than itemized deductions, you
may not claim a deduction for foreign taxes withheld, but you may claim such
amount as a credit against your United States federal tax liability.
Dividends received with respect to the common shares will be treated as foreign
source income, which may be relevant in calculating your foreign tax credit
limitation. The limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. For this purpose,
dividends paid with respect to the common shares generally will constitute
"passive income" or, in the case of certain holders, "financial services
income." Special rules apply to certain individuals whose foreign source income
during the taxable year consists entirely of "qualified passive income" and
whose creditable foreign taxes paid or accrued during the taxable year do not
exceed $300 ($600 in the case of a joint return). Further, in certain
circumstances, a U.S. holder that (a) has held common shares for less than a
specified minimum period during which it is not protected from risk or loss,
(b) is obligated under a short sale or otherwise to make payments related to
the dividends for posititions in substantially similar or related property or
(c) holds the ordinary shares in arrangements in which the U.S. holder's
expected economic profit, after non-United States taxes, is insubstantial will
not be allowed a foreign tax credit for foreign taxes imposed on dividends paid
on common shares.
Distributions in excess of our current and accumulated earnings and profits
will not give rise to foreign source income, and you will not be able to use
the foreign tax credit arising from any Canadian withholding tax imposed on
such distribution unless such credit can be applied (subject to applicable
limitations) against United States federal income tax due on other foreign
source income in the appropriate category for foreign tax credit purposes.
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Sale or exchange of common shares
You will generally recognize capital gain or loss upon the sale or exchangeresult of the common shares measured by the difference between the amount you receivedeposit, defeasance and your tax basis in the common shares. Such gain or lossdischarge and will be long-term
capital gain or loss if the common shares have been held for more than one
year. Non-corporate taxpayers may be subject to reduced rates of tax on long-
term capital gains. In general, any capital gain or loss recognized upon the
sale or exchange of common shares will be treated as United States source
income or loss, for United States foreign tax credit purposes.
Taxation of Non-U.S. Holders
The following discussion applies to you if you are not described in the
previous section.
Distributions on common shares
You generally will not be subject to United States federal income tax or
withholding tax on dividends received from us with respect to common shares
unless such income is considered as effectively connected with the conduct of a
United States trade or business.
Sale or exchange of common shares
You generally will not be subject to United States federal income tax on any
gain realizedthe same amounts and in the same manner and at the same times as would have been the case if the deposit, defeasance and discharge had not occurred. (Section 8.3)
Defeasance of Certain Covenants. The indenture provides that, unless otherwise provided by the terms of the applicable series of debt securities, upon the sale or exchange of common shares, unless:
. such gain is effectively connectedcompliance with certain conditions:
we may omit to comply with the conductcovenant described under the heading “Consolidation, Merger and Sale of a United States trade
or business; or
. if you are an individual, you are present in the United States for 183 days
or more during the taxable year of dispositionAssets” and certain other covenants set forth in the indenture, as well as any additional covenants which may be set forth in the applicable prospectus supplement; and
any omission to comply with those covenants will not constitute a Default or an Event of Default with respect to the debt securities of that series (“covenant defeasance”).
The conditions are met.
If you are engagedinclude:
depositing with the trustee money and/or U.S. government obligations or, in the case of debt securities denominated in a single currency other than U.S. Dollars, government obligations of the government that issued or caused to be issued such currency, that, through the payment of interest and principal in accordance with their terms, will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants or investment bank to pay and discharge each installment of principal of, premium and interest on and any mandatory sinking fund payments in respect of the debt securities of that series on the stated maturity of those payments in accordance with the terms of the indenture and those debt securities; and
delivering to the trustee an opinion of counsel to the effect that the holders of the debt securities of that series will not recognize income, gain or loss for United States trade or business,federal income tax purposes as a result of the income from the
common shares (including dividendsdeposit and the gain from the sale or exchange
thereof) that is effectively connected with the conduct of such trade or
businessrelated covenant defeasance and will generally be subject to regular United States federal income tax on such incomethe same amounts and in the same manner and at the same times as discussed inwould have been the previous section.case if the deposit and related covenant defeasance had not occurred. (Section 8.4)
Covenant Defeasance and Events of Default. In addition, if youthe event we exercise our option to effect covenant defeasance with respect to any series of debt securities and the debt securities of that series are a corporation, your earningsdeclared due and profitspayable because of the occurrence of any Event of Default, the amount of money and/or U.S. government obligations or foreign government obligations on deposit with the trustee will be sufficient to pay amounts due on the debt securities of that series at the time of their stated maturity but may not be sufficient to pay amounts due on the debt securities of that series at the time of the acceleration resulting from the Event of Default. However, we shall remain liable for those payments. (Section 8.4).
Conversion Rights
If applicable, the terms of the debt securities of any series that are attributableconvertible into or exchangeable for our common shares or our other securities will be described in an applicable prospectus supplement. These terms will describe whether conversion or exchange is mandatory, at the option of the holder, or at our option. These terms may include provisions pursuant to such effectively connected income (subjectwhich the number of common shares or our other securities to certain
adjustments) maybe received by the holders of debt securities would be subject to an additional branch profits tax atadjustment. Any such conversion or exchange will comply with applicable law, our Articles and By-Laws.
Governing Law
The indenture and the debt securities, including any claim or controversy arising out of or relating to the indenture or the securities, will be governed by the laws of the State of New York without regard to conflict of law principles that would result in the application of any law other than the laws of the State of New York. (Section 10.10)
Book-Entry, Delivery and Form
Unless we indicate differently in a rateprospectus supplement, the securities initially will be issued in book-entry form and represented by one or more global notes or global securities, or, collectively, global securities. The global securities will be deposited with, or on behalf of, 30% (orThe Depository Trust Company, New York, New York, as depositary, or DTC, and registered in the name of Cede & Co., the nominee of DTC. Unless and until it is exchanged for individual certificates evidencing securities under the limited circumstances described below, a global security may not be transferred except as a whole by the depositary to its nominee or by the nominee to the depositary, or by the depositary or its nominee to a successor depositary or to a nominee of the successor depositary.
DTC has advised us that it is:
a limited-purpose trust company organized under the New York Banking Law;
a “banking organization” within the meaning of the New York Banking Law;
a member of the Federal Reserve System;
a “clearing corporation” within the meaning of the New York Uniform Commercial Code; and
a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act.
DTC holds securities that its participants deposit with DTC. DTC also facilitates the settlement among its participants of securities transactions, such lower rateas transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants’ accounts, thereby eliminating the need for physical movement of securities certificates. “Direct participants” in DTC include securities brokers and dealers, including underwriters, banks, trust companies, clearing corporations and other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation, or DTCC. DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others, which we sometimes refer to as indirect participants, that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to DTC and its participants are on file with the SEC.
Purchases of securities under the DTC system must be made by or through direct participants, which will receive a credit for the securities on DTC’s records. The ownership interest of the actual purchaser of a security, which we sometimes refer to as a beneficial owner, is in turn recorded on the direct and indirect participants’ records. Beneficial owners of securities will not receive written confirmation from DTC of their purchases. However, beneficial owners are expected to receive written confirmations providing details of their transactions, as well as periodic statements of their holdings, from the direct or indirect participants through which they purchased securities. Transfers of ownership interests in global securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the global securities, except under the limited circumstances described below.
To facilitate subsequent transfers, all global securities deposited by direct participants with DTC will be registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be specifiedrequested by an authorized representative of DTC. The deposit of securities with DTC and their registration in the name of Cede & Co. or such other nominee will not change the beneficial ownership of the securities. DTC has no knowledge of the actual beneficial owners of the securities. DTC’s records reflect only the identity of the direct participants to whose accounts the securities are credited, which may or may not be the beneficial owners. The participants are responsible for keeping account of their holdings on behalf of their customers.
So long as the securities are in book-entry form, you will receive payments and may transfer securities only through the facilities of the depositary and its direct and indirect participants. We will maintain an office or agency in the location specified in the prospectus supplement for the applicable treaty).
Backup Withholdingsecurities, where notices and Information Reporting
"Backup" withholdingdemands in respect of the securities and information reportingthe indenture may be delivered to us and where certificated securities may be surrendered for payment, registration of transfer or exchange.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any legal requirements may applyin effect from time to time.
Redemption notices will be sent to DTC. If less than all of the securities of a particular series are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each direct participant in the securities of such series to be redeemed.
Neither DTC nor Cede & Co. (or such other DTC nominee) will consent or vote with respect to the securities. Under its usual procedures, DTC will mail an omnibus proxy to us as soon as possible after the record date. The omnibus proxy assigns the consenting or voting rights of Cede & Co. to those direct participants to whose accounts the securities of such series are credited on the record date, identified in a listing attached to the omnibus proxy.
So long as securities are in book-entry form, we will make payments made withinon those securities to the depositary or its nominee, as the registered owner of such securities, by wire transfer of immediately available funds. If securities are issued in definitive certificated form under the limited circumstances described below, we will have the option of making payments by check mailed to the addresses of the persons entitled to payment or by wire transfer to bank accounts in the United States designated in writing to the applicable trustee or other designated party at least 15 days before the applicable payment date by the persons entitled to payment.
Redemption proceeds, distributions and dividend payments on the securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of dividendsDTC. DTC’s practice is to credit direct participants’ accounts upon DTC’s receipt of funds and corresponding detail information from us on common stockthe payment date in accordance with their respective holdings shown on DTC records. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form or registered in “street name.” Those payments will be the responsibility of participants and not of DTC or us, subject to certainany statutory or regulatory requirements in effect from time to time. Payment of redemption proceeds, distributions and dividend payments to Cede & Co., or such other nominee as may be requested by an authorized representative of proceedsDTC, is our responsibility, disbursement of payments to direct participants is the responsibility of DTC, and disbursement of payments to the beneficial owners is the responsibility of direct and indirect participants.
Except under the limited circumstances described below, purchasers of securities will not be entitled to have securities registered in their names and will not receive physical delivery of securities. Accordingly, each beneficial owner must rely on the procedures of DTC and its participants to exercise any rights under the securities and the indenture.
The laws of some jurisdictions may require that some purchasers of securities take physical delivery of securities in definitive form. Those laws may impair the ability to transfer or pledge beneficial interests in securities.
DTC may discontinue providing its services as securities depository with respect to the securities at any time by giving reasonable notice to us. Under such circumstances, in the event that a successor depository is not obtained, securities certificates are required to be printed and delivered.
As noted above, beneficial owners of a saleparticular series of securities generally will not receive certificates representing their ownership interests in those securities. However, if:
DTC notifies us that it is unwilling or redemptionunable to continue as a depositary for the global security or securities representing such series of common shares paidsecurities or if DTC ceases to be a U.S. holder. We,clearing agency registered under the Exchange Act at a brokertime when it is required to be registered and a successor depositary is not appointed within 90 days of the notification to us or any paying agent,of our becoming aware of DTC’s ceasing to be so registered, as the case may be;
we determine, in our sole discretion, not to have such securities represented by one or more global securities; or
an Event of Default has occurred and is continuing with respect to such series of securities,
we will prepare and deliver certificates for such securities in exchange for beneficial interests in the global securities. Any beneficial interest in a global security that is exchangeable under the circumstances described in the preceding sentence will be exchangeable for securities in definitive certificated form registered in the names that the depositary directs. It is expected that these directions will be based upon directions received by the depositary from its participants with respect to ownership of beneficial interests in the global securities.
We have obtained the information in this section and elsewhere in this prospectus concerning DTC and DTC’s book-entry system from sources that are believed to be reliable, but we take no responsibility for the accuracy of this information.
We or the selling shareholder may sell the securities from time to time pursuant to underwritten public offerings, negotiated transactions, block trades or a combination of these methods. We or the selling shareholder may sell the securities separately or together:
to or through one or more underwriters, brokers or dealers in a public offering or open market transactions, including option, share lending or other derivative or hedging transactions;
through agents; and/or
directly to one or more purchasers.
We or the selling shareholder may distribute the securities from time to time in one or more transactions:
at a fixed price or prices, which may be requiredchanged;
at market prices prevailing at the time of sale;
at prices related to withhold taxsuch prevailing market prices; or
at negotiated prices.
We or the selling shareholder may solicit directly offers to purchase the securities being offered by this prospectus. We or the selling shareholder may also designate agents to solicit offers to purchase the securities from time to time. We or the selling shareholder may sell the securities being offered by this prospectus by any payment that is subjectmethod permitted by law, including sales deemed to backup withholding
at a ratebe an “at the market” offering as defined in Rule 415(a)(4) of 31%the Securities Act of such payment if1933, as amended, or the U.S. holder fails to furnishSecurities Act, including without limitation sales made directly on the U.S.
holder's taxpayer identification number, to certify that the U.S. holder is not
subject to backup withholdingNASDAQ Global Select Market, on any other existing trading market for our securities or to otherwise comply withor through a market maker. We will name in a prospectus supplement any agent involved in the applicable
requirementsoffer or sale of our securities to the extent required by law.
If we or the selling shareholder utilize a dealer in the sale of the backup withholding rules. Certain U.S. holders, including,
among others, corporations, are not subjectsecurities being offered by this prospectus, we or the selling shareholder will sell the securities to the backup withholding and
information reporting requirements. Any amounts withheld underdealer, as principal. The dealer may then resell the backup
withholding rules from a payment to a U.S. holder may generally be claimed as a
credit against such U.S. holder's United States federal income tax liability,
provided that the required information is furnishedsecurities to the IRS. Treasury
regulations, generally effective for payments made after December 31, 2000,
modify certainpublic at varying prices to be determined by the dealer at the time of resale.
If we or the selling shareholder utilize an underwriter in the sale of the certification requirements for backup withholding. It is
possible thatsecurities being offered by this prospectus, we and other withholding agents may request a new withholding
certificate from U.S. holders in order to qualify for continued exemption from
backup withholding under Treasury regulations when they become effective.
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Underwriting
GSI Lumonics andor the selling shareholders have entered intoshareholder will execute an underwriting agreement with the underwriters named below. CIBC World Markets Inc., Chase
Securities Inc.underwriter at the time of sale and Needham & Company, Inc. are acting as representativeswe will provide the name of any underwriter in the prospectus supplement that the underwriter will use to make resales of the underwriters.
The underwriting agreement provides forsecurities to the purchase of a specific number of
common shares by eachpublic. In connection with the sale of the underwriters.securities, we, the selling shareholder or the purchasers of securities for whom the underwriter may act as agent, may compensate the underwriter in the form of underwriting discounts or commissions. The underwriters' obligations are
several, which means that each underwriter ismay sell the securities to or through dealers, and the underwriter may compensate those dealers in the form of discounts, concessions or commissions.
We will provide in the applicable prospectus supplement any compensation we or the selling shareholder will pay to underwriters, dealers or agents in connection with the offering of the securities, and any discounts, concessions or commissions allowed by underwriters to participating dealers. In compliance with guidelines of the Financial Industry Regulatory Authority, or FINRA, the maximum consideration or discount to be received by any FINRA member or independent broker dealer may not exceed 8% of the aggregate amount of the securities offered pursuant to this prospectus and any applicable prospectus supplement. Underwriters, dealers and agents participating in the distribution of the securities may be deemed to be underwriters within the meaning of the Securities Act, and any discounts and commissions received by them and any profit realized by them on resale of the securities may be deemed to be underwriting discounts and commissions. We or the selling shareholder may enter into agreements to indemnify underwriters, dealers and agents against civil liabilities,
including liabilities under the Securities Act, or to contribute to payments they may be required to purchasemake in respect thereof. In the event that an offering made pursuant to this prospectus is subject to FINRA Rule 5121, the prospectus supplement will comply with the prominent disclosure provisions of that rule.
The securities may or may not be listed on a specified
numbernational securities exchange. To facilitate the offering of shares, but is not responsible forsecurities, certain persons participating in the commitment of any other
underwriter to purchase common shares. Subject tooffering may engage in transactions that stabilize, maintain or otherwise affect the terms and conditionsprice of the underwriting agreement, each underwriter has severally agreedsecurities. This may include over-allotments or short sales of the securities, which involves the sale by persons participating in the offering of more securities than we or the selling shareholder sold to them. In these circumstances, these persons would cover such over-allotments or short positions by making purchases in the open market or by exercising their over-allotment option. In addition, these persons may stabilize or maintain the price of the securities by bidding for or purchasing securities in the open market or by imposing penalty bids, whereby selling concessions allowed to dealers participating in the offering may be reclaimed if securities sold by them are repurchased in connection with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of the securities at a level above that which might otherwise prevail in the open market. These transactions may be discontinued at any time.
We or the selling shareholder may authorize underwriters, dealers or agents to solicit offers by certain purchasers to purchase the number of common shares set forth opposite its name below:
We or the selling shareholder may enter into derivative transactions with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If the applicable prospectus supplement so indicates, in connection with any derivative transaction, the third parties may sell securities covered by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use securities pledged by us or borrowed from us or others, including the selling shareholder, to settle those sales or to close out any related open borrowings of stock, and may use securities received from us or the selling shareholder in settlement of those derivatives to close out any related open borrowings of stock. The third party in such sale transactions will be an underwriter and, if not identified in this prospectus, will be identified in the applicable prospectus supplement or a post-effective amendment to the registration statement of which this prospectus is a part. In addition, we or the selling shareholder may otherwise loan or pledge securities to a financial institution or other third party that appears onin turn may sell the cover page ofsecurities short using this prospectus. Such financial institution or other third party may transfer its economic short position to investors in our securities or in connection with a concurrent offering of other securities.
The underwriters, dealers and agents may engage in transactions with us or the selling shareholder, or perform services for us or the selling shareholder, in the ordinary course of business.
In addition, the representatives
may offer some of the common shares offered pursuant to other securities dealers at such price
less a concession of $ per share. The underwriters may also allow, and such
dealers may reallow, a concession not in excess of $ per share to other
dealers. After the common shares are released for sale to the public, the
representatives may change the offering price and other selling terms at
various times.
We andthis prospectus by the selling shareholders have grantedshareholder may be sold under Rule 144 under the underwriters an over-allotment
option. This option, which is exercisable for upSecurities Act of 1933, as amended, or otherwise rather than pursuant to 30 days after the date of
this prospectus, permits the underwritersprospectus.
Pursuant to purchase a maximum of 600,000
additional common shares, 296,612 common shares to be bought from us first and
303,388 common shares from the selling shareholders to cover over-allotments.
If the underwriters exercise all or part of this option, they will purchase
common shares covered by the option at the offering price that appears on the
cover page of this prospectus, less the underwriting discount. If this option
is exercised in full, the total price to public will be $ , the total proceeds
to us will be $ and the total proceeds to the selling shareholders will be
$ . The underwriters have severally agreed that, to the extent the over-
allotment option is exercised, they will each purchase a number of additional
common shares proportionate to the underwriters' initial amounts reflected in
the foregoing table.
44
The following table provides information regarding the amount of the discount
to be paid to the underwriters by us and the selling shareholders:
Total Total
without with full
exercise exercise
of over- of over-
Per allotment allotment
Share option option
----- --------- ---------
GSI Lumonics.......................................... $ $ $
Selling shareholders..................................
------ ------
Total............................................... $ $
====== ======
We estimate that total expenses of the offering, excluding the underwriting
discount, will be approximately $ . We will pay all expenses of the offering.
GSI Lumonics and the selling shareholdersregistration rights agreement, we have agreed to indemnify the underwritersselling shareholder and certain of its affiliates against certain liabilities, including liabilities under the Securities Act of 1933, and applicable Canadian provincial securities
legislation.
GSI Lumonics, its officers and directors and Sumitomo Heavy Industries Ltd.
have agreed to a 90-day "lock up"as amended.
Latham & Watkins LLP, New York, New York will issue an opinion about certain legal matters with respect to the enforceability of the debt securities for us. Certain matters relating to New Brunswick law regarding the validity of common shares will be passed on by Stewart McKelvey, New Brunswick, Canada. In connection with any particular offering of the securities in the future, the validity of those securities may be passed upon for us by Latham & Watkins LLP, our special counsel regarding New York matters; Stewart McKelvey, our special counsel in New Brunswick; or such other counsel as may be specified in the applicable prospectus supplement. Any underwriters will be advised about the other issues relating to any offering by their own legal counsel.
The consolidated financial statements of GSI Group Inc. appearing in GSI Group Inc.’s Annual Report (Form 10-K) for the year ended December 31, 2011, and the effectiveness of GSI Group Inc.’s internal control over financial reporting as of December 31, 2011, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon, included therein, and incorporated herein by reference. Such consolidated financial statements are, and audited financial statements to be included in subsequently filed documents will be, incorporated herein in reliance upon the reports of Ernst & Young LLP pertaining to such financial statements (to the extent covered by consents filed with the Securities and Exchange Commission) given on the authority of such firm as experts in accounting and auditing.
ENFORCEMENT OF CIVIL LIABILITIES
The Company is a corporation existing under the laws of New Brunswick, Canada. As a result, it may be difficult for investors to effect service of process within the United States upon the Company, or to realize upon judgments of courts of the United States predicated upon civil liability of the Company under U.S. federal securities laws.
LIMITATION ON LIABILITY AND DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our by-laws require that they
beneficially own,we will indemnify our current or former directors and officers and each person who acts or acted at the Company’s request as a director or officer of a body corporate of which the Company is or was a shareholder or creditor against all costs, charges and expenses incurred by them in connection with each proceeding in which such officer, director or person is involved as a result of serving or having served at our request. Our indemnification obligation covers all costs, charges and expenses, including securitiesamounts paid to settle an action or satisfy a judgment reasonably incurred by such officer or director by reason of having been an officer or director. Indemnification is not available with respect to a proceeding as to which it has been adjudicated that such person did not act honestly and in good faith with a view to our best interests, and, with the reasonable belief that his or her action was lawful. The above provisions are convertible into shares of
common stockintended to follow and securities that are exchangeable or exercisable for common
shares. This means that, subject to certain exceptions,the limitations set forth in section 81 of the New Brunswick Business Corporations Act.
Insofar as indemnification for a period of 90 days
followingliabilities arising under the date of this prospectus, GSI LumonicsSecurities Act may be permitted to directors, officers and suchcontrolling persons may not
offer, sell, pledgepursuant to the foregoing provisions, or otherwise, dispose of these securities withoutwe have been informed that in the prior
written consent of CIBC World Markets Inc. CIBC World Markets Inc., however,
may in its sole discretion and at any time without notice, release all or any
portion of the common shares subject to these agreements.
Pursuant to policy statements of the Ontario Securities Commission and the
Commission des valeurs mobilieres du Quebec, the underwriters may not,
throughout the period of distribution, bid for or purchase our common shares.
This restriction is subject to certain exceptions, on the condition that the
bid or purchase not be engaged in for the purpose of creating actual or
apparent active trading in, or raising the price of, the common shares. These
exceptions include a bid or purchase permitted under the by-laws and rules of
The Toronto Stock Exchange relating to market stabilization and passive market
making activities and a bid or purchase made for and on behalf of a customer
where the order was not solicited during the period of distribution.
Rulesopinion of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase common shares before the distribution of
the sharessuch indemnification is completed. However, the underwriters may engageagainst public policy as expressed in the following
activities in accordance with the rules:
. Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the common
shares, so long as stabilizing bids do not exceed a specified maximum.
. Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the common shares by selling more common
shares than are set forth on the cover page of this prospectus. If a
short position is created in connection with the offering, the
representatives may engage in syndicate covering transactions by
purchasing common shares in the open market. The representatives may also
elect to reduce any short position by exercising all or part of the over-
allotment option.
. Penalty bids--If the representatives purchase common shares in the open
market in a stabilizing transaction or syndicate covering transaction,
they may reclaim a selling concession from the underwriters and selling
group members who sold those common shares as part of this offering.
. Passive market making--Market makers in the common shares who are
underwriters or prospective underwriters may make bids for or purchases
of common shares, subject to limitations, until the time, if ever, at
which a stabilizing bid is made.
45
Stabilization and syndicate covering transactions may cause the price of the
common shares to be higher than it would be in the absence of such
transactions. The imposition of a penalty bid might also have an effect on the
price of the common shares if it discourages resales of the shares.
Neither GSI Lumonics nor the underwriters make any representation or prediction
as to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market, The
Toronto Stock Exchange or otherwise. If such transactions are commenced, they
may be discontinued without notice at any time.
GSI Lumonics and the underwriters expect that the shares will be ready for
delivery on the fifth business day following the date of this prospectus. Under
Securities and Exchange commission regulations, secondary market trades are
required to settle in three business days following the trade date (commonly
referred as to "T+3"), unless the parties to the trade agree to a different
settlement cycle. As noted above, the common shares will settle in T+5.
Therefore, purchasers who wish to trade on the date of this prospectus or
during the next succeeding business day must specify an alternate settlement
cycle at the time of the trade to prevent a failed settlement. Purchasers of
the common shares who wish to trade shares on the date of this prospectus or
during the next succeeding business day should consult their own advisors.
We have a $13.1 million credit facility with an affiliate of CIBC World
Markets. The amount outstanding to the affiliate is approximately $4 million.
We are not using any part of the proceeds of the offering to repay any amount
payable to the affiliate.
46
Legal Matters
The validity of the common shares offered by this prospectus will be passed
upon for us by Stewart McKelvey Stirling Scales. Legal matters in connection
with the offering will be passed upon for the underwriters by Torys, New York,
New York.
Experts
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as at December 31, 1999 and 1998 and for each of the three
years ended December 31, 1999 included in this prospectus, as stated in their
report, and incorporated by reference in this prospectus and elsewhere in this
registration statement. Our financial statements and schedule are included and
incorporated by reference in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
The consolidated financial statements of General Scanning Inc. included in this
prospectus, to the extent and for the periods indicated in their report, have
been audited by Arthur Andersen, LLP and are included in this prospectus in
reliance on the authority of that firm as experts in giving said report.
Where You Can Find More Information
We have filed with the Securities and Exchange Commission a registration
statement on Form S-3 with the Securities and Exchange Commission in connection
with this offering. In addition, we file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy the registration statement and any other
documents filed by us at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the Public Reference Room. Our Securities and Exchange
Commission filings are also available to the public at the Securities and
Exchange Commission's internet site at "http://www.sec.gov".
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to our contracts or other documents the reference
may not be complete, and you should refer to the exhibits that are a part of
the registration statement for a copy of the contract or document.
Documents Incorporated by Reference
The Securities and Exchange Commission allows us to "incorporate by reference"
into this prospectus the information we file with it, which means that we can
disclose important information to you by referring you to those documents.
Information incorporated by reference is part of this prospectus. Later
information filed with the Securities and Exchange Commission will update
automatically and supersede this information.
We incorporate by reference the documents listed below and any future filings
made with the Securities and Exchange Commission under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 until this offering is
completed:
. Our Annual Report on Form 10-K for the year ended December 31, 1999, and
. The description of our common shares contained in our registration
statement on Form 8-A declared effective by the Securities and Exchange
Commission on April 2, 1999.
You may request a copy of these filings, at no cost, by writing or telephoning
the following address and telephone number:
GSI Lumonics Inc.
105 Schneider Road,
Kanata, Ontario, Canada
K2K 1Y3
(613) 592-1468
47
Index to Consolidated Financial Statements
GSI Lumonics Inc. Page
- ----------------- ----
Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as at December 31, 1999 and 1998.............. F-3
Consolidated Statements of Operations for the years ended December 31,
1999, 1998 and 1997...................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999......................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999...................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
General Scanning Inc.
- ---------------------
Report of Independent Public Accountants.................................. F-27
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998...................................................... F-28
Consolidated Balance Sheets as of December 31, 1997 and 1998.............. F-29
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997 and 1998......................................... F-30
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998...................................................... F-31
Notes to Consolidated Financial Statements................................ F-33
F-1
AUDITORS' REPORT
To the Stockholders of
GSI Lumonics Inc.
We have audited the consolidated balance sheets of GSI Lumonics Inc. as of
December 31, 1999 and 1998 and the consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These financial statements and the schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States and Canada. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 1999 in accordance with
accounting principles generally accepted in the United States.
Ottawa, Canada, Ernst & Young LLP
February 11, 2000 Chartered Accountants
(except with respect
to note 19, which
is as at March 17, 2000)
F-2
GSI LUMONICS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars, except share amounts)
As of December 31,
--------------------
1999 1998
--------- ---------
ASSETS
Current
Cash and cash equivalents. $ 25,272 $ 24,229
Short-term investments
(note 15)................ 7,342 8,098
Accounts receivable, less
allowance of $3,197
(1998-$311) (notes 3 and
7)....................... 80,448 31,673
Due from related party
(note 14)................ 3,235 3,844
Inventories (notes 4 and
7)....................... 72,727 44,096
Deferred tax assets (note
13)...................... 24,473 3,214
Other current assets (note
6)....................... 2,338 5,091
Current portion of swap
contracts (note 15)........ 1,411 1,076
--------- ---------
Total current assets.... 217,246 121,321
Property, plant and
equipment, net of
accumulated depreciation of
$28,024 (1998--$24,299)
(note 5)................... 45,278 32,209
Long-term portion of swap
contracts (note 15)........ -- 1,076
Other assets (note 6)....... 3,851 964
Goodwill and other
intangible assets, net of
amortization of $8,689
(1998--$2,953)............. 23,347 4,072
--------- ---------
$ 289,722 $ 159,642
========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current
Bank indebtedness (note
7)....................... $ 23,100 $ 7,261
Accounts payable.......... 28,094 5,605
Accrued compensation and
benefits................. 13,709 3,456
Other accrued expenses and
income taxes............. 43,067 15,481
Current portion of
deferred compensation
(note 9)................. 124 --
Current portion of long-
term debt (note 8)....... 5,425 3,541
--------- ---------
Total current
liabilities............ 113,519 35,344
Long-term debt due after one
year (note 8).............. -- 3,541
Deferred income tax
liability (note 13)........ 2,397 --
Deferred compensation, less
current portion (note 9)... 2,076 --
--------- ---------
Total liabilities....... 117,992 38,885
Commitments and
contingencies (note 17)
Stockholders' equity (note
10)
Capital stock, no par
value; Issued common
shares of 34,298,942
(1998--17,056,001)....... 222,865 138,871
Deficit................... (44,225) (9,451)
Accumulated other
comprehensive income..... (6,910) (8,663)
--------- ---------
Total stockholders'
equity................. 171,730 120,757
--------- ---------
$ 289,722 $ 159,642
========= =========
The accompanying notes are an integral part of these financial statements.
F-3
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of U.S. dollars, except share amounts)
Year ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
(note 2)
Sales............................................. $274,550 $144,192 $177,328
Cost of goods sold................................ 178,773 103,519 111,406
-------- -------- --------
Gross profit...................................... 95,777 40,673 65,922
Operating expenses:
Research and development........................ 28,700 12,985 11,993
Selling, general and administrative............. 64,653 38,191 37,591
Amortization of technology and other
intangibles.................................... 4,070 861 400
Acquired in-process research and development
(note 2)....................................... 14,830 -- --
Restructuring and other charges (note 16)....... 19,631 2,022 --
-------- -------- --------
Income (loss) from operations..................... (36,107) (13,386) 15,938
Gain on sale of assets (notes 2 and 10)......... 1,599 -- --
Interest income, net............................ 89 1,578 1,048
Foreign exchange transaction gains (losses)..... (2,911) 632 --
-------- -------- --------
Income (loss) before income taxes................. (37,330) (11,176) 16,986
Income taxes provision (benefit).................. (2,556) (3,260) 5,074
-------- -------- --------
Net income (loss)................................. $(34,774) $ (7,916) $ 11,912
======== ======== ========
Net income (loss) per common share: (note 10)
Basic........................................... $ (1.14) $ (0.46) $ 0.75
Diluted......................................... $ (1.14) $ (0.46) $ 0.72
Weighted average common shares outstanding
(000's).......................................... 30,442 17,079 15,989
Weighted average common shares outstanding and
dilutive potential common shares (000's)......... 30,442 17,079 16,454
The accompanying notes are an integral part of these financial statements.
F-4
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands of U.S. dollars, except share amounts)
Accumulated
Capital Stock Other
----------------- Comprehensive Comprehensive
# Shares Amount Deficit Income Income Total
-------- -------- -------- ------------- ------------- --------
(000's)
Balance, December 31,
1996................... 14,714 $101,619 $(13,360) $ 86 $ 14,138 $ 88,345
========
Net income.............. 11,912 11,912 11,912
Issuance of capital
stock
--public offering (net
of issue costs)....... 2,000 35,658 35,658
--stock options........ 387 1,901 1,901
Foreign currency
translation
adjustments............ (4,193) (4,193) (4,193)
------ -------- -------- ------- -------- --------
Balance, December 31,
1997................... 17,101 139,178 (1,448) (4,107) $ 7,719 133,623
========
Net loss................ (7,916) (7,916) (7,916)
Issuance of capital
stock
--stock options........ 50 233 233
Repurchase of capital
stock under normal
course issuer bid...... (95) (540) (87) (627)
Foreign currency
translation
adjustments............ (4,556) (4,556) (4,556)
------ -------- -------- ------- -------- --------
Balance, December 31,
1998................... 17,056 138,871 (9,451) (8,663) $(12,472) 120,757
========
Net loss................ (34,774) (34,774) (34,774)
Issuance of capital
stock
--merger with General
Scanning Inc., net.... 17,079 83,528 83,528
--stock options........ 164 466 466
Foreign currency
translation
adjustments............ 1,753 1,753 1,753
------ -------- -------- ------- -------- --------
Balance, December 31,
1999................... 34,299 $222,865 $(44,225) $(6,910) $(33,021) $171,730
====== ======== ======== ======= ======== ========
The accompanying notes are an integral part of these financial statements.
F-5
GSI LUMONICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
Year ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Net income (loss) for the year.................. $(34,774) $ (7,916) $ 11,912
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Acquired in-process research and development... 14,830 -- --
Gain on sale of assets......................... (1,599) -- --
Depreciation and amortization.................. 15,177 5,600 4,007
Deferred compensation.......................... 78 -- --
Deferred income taxes.......................... (1,704) (1,306) (434)
Unrealized currency exchange loss.............. 1,326 330 241
Changes in current assets and liabilities:
Accounts Receivable............................ (14,448) 14,408 (23,491)
Inventories.................................... 6,084 (8,343) (3,654)
Other current assets........................... 4,540 (3,321) 313
Accounts payable, accrued expenses, and taxes
payable....................................... 6,073 (6,360) 5,821
-------- -------- --------
Net cash (used in) operating activities....... (4,417) (6,908) (5,285)
-------- -------- --------
Cash flows from investing activities:
Merger with General Scanning Inc. (note 2)..... 1,451 -- --
Acquisition of Lumonics Pacific KK (note 2).... (336) -- --
Acquisition of Meteor Optics Inc. (note 2)..... -- (1,158) --
Sale of assets................................. 3,940 -- --
Additions to property, plant and equipment,
net........................................... (6,219) (13,568) (8,412)
Maturity of short-term investments............. 8,208 47,091 79,351
Purchase of short-term investments............. (7,342) (43,522) (80,185)
(Increase) in other assets..................... (609) (102) (43)
-------- -------- --------
Cash (used in) investing activities........... (907) (11,259) (9,289)
-------- -------- --------
Cash flows from financing activities:
Proceeds (payments) of bank indebtedness, net.. 7,502 (7,865) 7,741
Payments on long-term debt..................... (2,617) (2,325) (2,527)
Issue of share capital (net of issue costs).... 466 233 37,560
Repurchase of common shares.................... -- (627) --
-------- -------- --------
Cash provided by (used in) financing
activities................................... 5,351 (10,584) 42,774
Effect of exchange rates on cash and cash
equivalents.................................... 1,016 (3,848) (710)
-------- -------- --------
Increase (decrease) in cash and cash
equivalents.................................... 1,043 (32,599) 27,490
Cash and cash equivalents, beginning of year.... 24,229 56,828 29,338
-------- -------- --------
Cash and cash equivalents, end of year.......... $ 25,272 $ 24,229 $ 56,828
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-6
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
1. Significant Accounting Policies
Nature of operations
GSI Lumonics Inc. designs, develops, manufactures and markets laser-based
advanced manufacturing systems and components which are used in applications
such as cutting, welding, drilling, marking, micro-machining, inspection, gene
analysis and optical transmission. Major markets for these products include the
semiconductor, electronics, automotive, medical/biotechnology and
telecommunications industries. In addition, the Company sells to other markets
such as the aerospace and packaging industries. The Company's principal markets
are in the United States, Canada, Europe, Japan and Asia-Pacific.
Basis of presentation and change in reporting currency
These consolidated financial statements have been prepared by the Company in
United States (U.S.) dollars and in accordance with accounting principles
generally accepted in the United States, applied on a consistent basis. Prior
to 1998, the Company prepared and filed its consolidated financial statements
in Canadian dollars.
Basis of consolidation
The consolidated financial statements include the accounts of GSI Lumonics Inc.
and its wholly-owned subsidiaries (the "Company"). Intercompany transactions
and balances have been eliminated.
On March 22, 1999, the Company completed a merger of equals with General
Scanning Inc., Watertown, Massachusetts, a leading manufacturer of laser
systems and components, and printers. The merger transaction has been accounted
for as a purchase for accounting purposes and accordingly, the operations of
General Scanning Inc. have been included in the consolidated financial
statements from the date of merger (see Note 2).
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash equivalents
Cash equivalents are investments held to maturity and have original maturities
of three months or less. Cash equivalents consist principally of commercial
paper, short-term corporate debt, and banker's acceptances. Cash equivalents
are stated at cost, which approximates their fair value. The Company does not
believe it is exposed to any significant credit risk on its cash equivalents.
Short-term investments
Short-term investments consist principally of banker's acceptances, with
original maturities greater than three months. The Company has classified these
investments as available-for-sale securities and carries them at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and reported as a component of accumulated other
comprehensive income until realized.
F-7
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Inventories
Inventories, which include materials and conversion costs, are stated at the
lower of cost (primarily first-in, first-out) or market.
Property, plant and equipment
Property, plant and equipment are stated at cost. The declining-balance and
straight-line methods determine depreciation and amortization over the
estimated useful lives of the owned assets. Estimated useful lives for
buildings and improvements range from 5 to 39 years and for machinery and
equipment from 3 to 15 years. Leasehold improvements are amortized over the
lesser of their useful lives or the lease term, including option periods
expected to be utilized.
Goodwill and other intangibles
Goodwill consists of the excess of cost over acquired net identifiable assets
for business purchase combinations. Other intangibles include assembled
workforce, trademarks and trade names.
The amortization period for goodwill and other intangibles is determined on a
separate basis for each acquisition. Goodwill and other intangibles are
amortized on a straight-line basis over periods ranging from a minimum of two
to a maximum of ten years from the date of acquisition.
Patents and purchased technology are stated at cost and are amortized on a
straight-line basis over the expected life of the asset, up to 17 years.
Impairment of long-lived assets
The Company regularly assesses the realizability of its long-lived assets in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of. Based on its review, the
Company expects full recovery.
Revenue recognition
The Company recognizes revenues generally at the time of shipment or when
services are provided. For certain long-term contracts, revenues and profits
are recognized using the percentage-of-completion method. The Company accrues
estimated potential product liability and warranty costs, based on the
Company's experience, when revenue is recognized.
Research and product development expense
Research and development costs are charged to expense as incurred and are
reduced by certain related non-refundable government assistance.
Stock based compensation
The Company has elected to continue to apply APB 25 in accounting for its stock
option plans, and immaterial amounts of compensation have been recognized.
F-8
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Foreign currency translation
The financial statements of the parent corporation and its subsidiaries outside
the U.S. have been translated into U.S. dollars in accordance with the
Financial Accounting Standards Board Statement No. 52, Foreign Currency
Translation. Assets and liabilities of foreign operations are translated from
foreign currencies into U.S. dollars at the exchange rates in effect at the
period-end. Revenues and expenses are translated at the average exchange rate
in effect for the period. The resulting translation adjustments are reported as
a separate component of other comprehensive income in stockholders' equity.
Derivative financial instruments
Foreign exchange forward contracts and local currency borrowings are used to
reduce the impact of certain foreign currency balance sheet fluctuations and
foreign currency denominated sales.
Gains and losses from forward contracts that are not hedges of firm commitments
are accrued at each balance sheet date and included in the Consolidated
Statements of Operations as foreign exchange transactions gains (losses).
In certain circumstances, the Company uses currency and interest rate swap
contracts to manage foreign currency exposures and interest rate risk. Payments
and receipts under such swap contracts are recognized as adjustments to
interest expense on a basis that matches them with the fluctuations in the
interest receipts and payments under floating rate financial assets and
liabilities.
Income taxes
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on the differences
between financial reporting and the income tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Comparative figures
Certain comparative figures have been reclassified from statements previously
presented to conform to the presentation of the 1999 financial statements.
Recent Pronouncement
In December 1999, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin #101 on revenue recognition which is effective for the
Company's fiscal period beginning January 1, 2000. The Company believes this
bulletin will not have a significant impact on reported sales.
2. Merger and Acquisitions and Dispositions
On March 22, 1999, the Company completed a merger of equals with General
Scanning Inc., Watertown, Massachusetts, a leading manufacturer of laser
systems and components. Under the terms of the merger, GSI stockholders
received 1.347 shares of common stock in the Company in exchange for each
common share of GSI stock they held. Lumonics shareholders continued to hold
shares of Lumonics Inc., which, following the merger, was renamed GSI Lumonics
Inc. Immediately following the merger, each group of shareholders owned
approximately 50% of the outstanding shares of the Company. The merger
transaction has been accounted for as a purchase and accordingly, the
operations of General Scanning have been included in the consolidated financial
statements from the date of merger. Cash flow impact of $1,451 thousand from
the GSI merger is cash acquired of $4,719 thousand, less merger costs paid of
$3,268 thousand. The aggregate purchase price of $84 million was allocated to
General Scanning net identifiable assets, based on estimated fair values, as
follows:
F-9
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Shares purchased(a)................................................ $ 83,074
Options purchased(b) & (c)......................................... 917
--------
Total purchase price............................................. $ 83,991
========
Current assets, including cash of $4,719........................... 69,883
Fixed assets....................................................... 16,110
Acquired technology(d)............................................. 20,017
Other identified intangible assets(e).............................. 4,804
Other long term assets(f).......................................... 3,949
Deferred taxes, net................................................ 14,676
Current liabilities................................................ (55,440)
Long term debt..................................................... (28)
Deferred compensation, net of $117 current portion................. (2,005)
Transaction costs.................................................. (2,805)
In-process research and development(g)............................. 14,830
--------
$ 83,991
========
- ------------------
(a) 17,079,475 common shares of GSI Lumonics Inc. valued at US$4.864 per share,
in exchange for all 12,679,640 General Scanning outstanding shares of
common stock, on the basis of an exchange ratio of 1.347 shares of GSI
Lumonics Inc. for each share of General Scanning common stock. The total
value assigned to these issued shares is $83,074 thousand. Issue and
registration costs of $463 thousand were charged against capital stock;
(b) 2,051,903 GSI Lumonics Inc. stock options valued at US$0.443 per share
option, total $909 thousand, in exchange for 1,523,314 General Scanning
outstanding stock options;
(c) 70,717 GSI Lumonics Inc. stock options valued at US$0.11 per share option,
total $8 thousand, in exchange for 52,500 General Scanning outstanding
stock warrants;
(d) Acquired technology of $20 million results from an appraisal of General
Scanning intangible assets and is being amortized on a straight line basis
over its useful life of 60 months;
(e) Assembled workforce of $3.4 million and Trademark and trade name of $1.4
million result from an appraisal of General Scanning intangible assets and
are being amortized on a straight-line basis over a ten year period;
(f) Other long term assets includes a note receivable from Robotic Vision
Systems,therefore unenforceable.
GSI Group Inc. (RVSI) of $2,250 thousand, 271,493 shares of RVSI common
stock valued at $764 thousand, and other deposits of $935 thousand;
(g) Acquired in-process research and development of $14.8 million charged
against income in 1999 results from an appraisal of General Scanning
intangible assets.
The purchase price allocation and intangible valuation was based on
management's estimates of the after-tax net cash flows, and differs from
preliminary estimates in interim statements. Specifically, the valuation gave
consideration to the following: a) a fair market premise, excluding any
Company-specific considerations which could result in estimates of investment
value for the subject assets; b) comprehensive due diligence concerning all
potential intangible assets including trademarks, trade names, patents,
copyrights, non-compete agreements, assembled workforce, customer
relationships, and sales channel; c) the value of acquired existing technology,
which was specifically addressed, with a view toward ensuring the relative
allocations to existing technology and in-process research and development were
consistent with the relative contributions of each to the final product; and d)
the allocation to in-process research and development, based on a calculation
that considered only the efforts completed as of the merger date, and only the
cash flow associated with the completed efforts for one generation of the
products currently being developed.
F-10
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
As shown above, the Company recorded a one-time charge of $14.8 million in 1999
for purchased in-process research and development related to thirty in-process
projects. The charge is related to the portion of the value of these projects,
excluding the contribution of existing technology, that were not yet
technically feasible, had no alternative future use and for which successful
development was uncertain. Management's conclusion that the in-process
development effort had no alternative future use was reached in consultation
with engineering personnel from both GSI and Lumonics.
To conform with United States generally accepted accounting principles and to
reflect the purchase accounting method used to transact the merger, results for
the first 11 weeks of 1999 and all of 1998 are those of Lumonics only.
Therefore, the results of 1998 and 1997 do not provide a meaningful basis for
comparison with 1999, although they are provided in the financial statements
attached. The following pro forma results of operations have been prepared
using the purchase method of accounting as if the merger had occurred at the
beginning of each fiscal period.
Pro forma combined
(unaudited)
Year ended December 31,
------------------------
1999 1998
----------- -----------
Sales............................................. $ 295,009 $ 325,109
=========== ===========
Net loss.......................................... $ (41,726) $ (11,233)
=========== ===========
Net loss per common share:
Basic........................................... $ (1.22) $ (0.33)
Diluted......................................... $ (1.22) $ (0.33)
Weighted average common shares outstanding........ 34,177 34,030
Weighted average common shares outstanding and
dilutive potential common shares................. 34,177 34,030
On October 4, 1999 the Company acquired all outstanding shares of Lumonics
Pacific KK, a subsidiary of Sumitomo Heavy Industries Ltd. of Tokyo Japan. The
purchase price of $1,305 thousand was comprised of a cash consideration of $439
thousand (cash flow impact of $336 thousand is net of $103 thousand in cash
acquired) that was paid upon closing, and debt of $866 thousand, plus agreed
interest. The debt will be settled in two equal installments, the first due
April 4, 2000, and the second on October 4, 2000 and is included in other
accrued expenses and income taxes as at December 31, 1999. This transaction has
been accounted for as a purchase.
In June 1998, the Company acquired, for cash consideration of $1,158 thousand,
all outstanding shares of Meteor Optics Inc., a fiber-optics manufacturer based
in the United States. This transaction has been accounted for as a purchase.
Net tangible assets had no significant value, and the purchase price has been
allocated to goodwill and is being amortized over 10 years.
In December, 1999 the Company completed the sale of the OLT precision alignment
system product line to Virtek Vision International Inc. (Virtek) of Waterloo,
Ontario. Under the terms of the sale, GSI Lumonics received cash of $2,366
thousand as well as a 10% royalty on Virtek's sales of these systems to the
aerospace industry for three years in exchange for the operating assets of the
OLT product line. GSI Lumonics recorded a gain of $699 thousand on this sale
during December 1999.
F-11
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
3. Accounts Receivable
Accounts receivable include unbilled receivables on long-term contracts of $0
(1998--$5,531 thousand).
4. Inventories
Inventories consist of the following:
December 31,
---------------
1999 1998
------- -------
Raw materials................................................ $26,011 $ 9,123
Work-in-process.............................................. 17,005 14,062
Finished goods............................................... 29,711 20,911
------- -------
Total inventories.......................................... $72,727 $44,096
======= =======
5. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
------------------
1999 1998
-------- --------
Cost:
Land, buildings and improvements....................... $ 36,435 $ 26,290
Machinery and equipment................................ 36,867 30,218
-------- --------
Total cost........................................... 73,302 56,508
Accumulated depreciation................................. (28,024) (24,299)
-------- --------
Net property, plant and equipment.................... $ 45,278 $ 32,209
======== ========
6. Other Assets
Other assets consist of the following:
December 31,
-------------
1999 1998
------ ------
Short term other assets:
Income tax recoverable....................................... $ -- $3,201
Prepaid expenses............................................. 2,338 1,890
------ ------
Total...................................................... $2,338 $5,091
====== ======
Long term other assets:
Note receivable.............................................. $2,250 $ --
Deferred income taxes........................................ -- 912
Deposits and other........................................... 1,601 52
------ ------
Total...................................................... $3,851 $ 964
====== ======
F-12
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
7. Bank Indebtedness
The Company has credit facilities of approximately $40 million which are
denominated in Canadian dollars, US dollars, Pound sterling and Japanese yen
(1998--$20 million). Actual bank indebtedness is due on demand and bears
interest based on prime which resulted in an effective average rate 4.98% for
fiscal 1999 (1998--7%). As at December 31, 1999, the Company had unused and
available demand lines of credit amounting to approximately $19 million (1998--
$9 million).
Accounts receivable and inventories have been pledged as collateral for the
bank indebtedness under general security agreements. The borrowings require,
among other things, the Company to maintain specified financial ratios and
conditions. As at December 31, 1999, the Company was in compliance with those
ratios and conditions.
8. Long-term Debt
Current portion of long-term debt
Long-term debt includes a mortgage payable at 10 3/8% interest, assumed as part
of the merger with General Scanning Inc., collateralized by the related land
and building, maturing in March 2000, at which time the remaining principal of
$1,508 thousand will be payable.
The Company has a long-term loan from Sumitomo Heavy Industries, Ltd., a
significant shareholder, all of which is repayable in Japanese yen. The
relevant foreign exchange rates were:
December
31,
-----------
1999 1998
----- -----
$1 Canadian = Japanese yen....................................... 70.3 73.8
$1 US = Japanese yen............................................. 102.1 113.0
The Company has entered into currency and interest rate swap contracts which
oblige it to pay Canadian dollars and receive Japanese yen, and pay U.S.
dollars and receive Japanese yen, on the dates principal and interest payments
are due. The terms of these contracts are described in Note 15.
Long term debt is comprised of:
1999 1998
------- -------
Sumitomo Heavy Industries, Ltd., Japanese yen term loans,
interest payable semi-annually at 5.43% with semi-annual
principal payments, maturing October 31, 2000........... $ 3,917 $ 7,082
Silicon Valley Bank, mortgage principal due March 1,
2000.................................................... 1,508 --
Less current portion..................................... (5,425) (3,541)
------- -------
Total.................................................. $ -- $ 3,541
======= =======
Total cash interest paid on all debt during the year ended December 31, 1999
was $1,155 thousand (1998--$899 thousand; 1997--$1,112 thousand).
F-13
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
9. Deferred Compensation
Certain officers and employees may defer payment of a portion of their
compensation until termination of employment or later. Interest on the
outstanding balance is credited quarterly at the prime rate, which averaged
8.01% during the year ended December 31, 1999. The portion of deferred
compensation estimated to be due within one year is included in current
liabilities.
10. Stockholders' Equity
Capital stock
The authorized capital of the Company consists of an unlimited number of common
shares without nominal or par value.
Accumulated other comprehensive income
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130") effective January 1, 1998. SFAS
No. 130 requires that all non-owner changes in equity, such as the change in
foreign currency translation adjustments, be separately classified in the
financial statements and that the accumulated balance of other comprehensive
income be reported separately from deficit in the equity section of the balance
sheet. Any unrealized holding gains and losses on securities held available-
for-sale are excluded from earnings and reported as a component of accumulated
other comprehensive income until realized, in accordance with SFAS 115.
During 1999, the Company sold securities held for sale and the realized gain of
$900 thousand has been included in the results of operations. Accumulated other
comprehensive income at end of year includes only unrealized foreign currency
translation gains and losses.
Net income (loss) per common share
Basic income (loss) per common share was computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the year.
For diluted income per common share, the denominator also includes dilutive
outstanding stock options and warrants determined using the treasury stock
method.
Common and common equivalent share disclosures are:
Year ended December
31,
--------------------
1999 1998 1997
------ ------ ------
Weighted average common shares outstanding............. 30,442 17,079 15,989
Dilutive potential common shares....................... -- -- 465
------ ------ ------
Diluted common shares.................................. 30,442 17,079 16,454
====== ====== ======
Options and warrants excluded from diluted income per
common share as their effect would be anti-dilutive... 3,978 2,004 290
====== ====== ======
F-14
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Shareholder rights plan
On April 12, 1999, the Board of Directors adopted a Shareholders Rights Plan
(the "Plan"). Under this Plan one Right has been issued in respect of each
common share outstanding as of that date and one Right has been and will be
issued in respect of each common share issued thereafter. Under the Plan, each
Right, when exercisable, entitles the holder to purchase from the Company one
common share at the exercise price of Cdn$200, subject to adjustment and
certain anti-dilution provisions (the "Exercise Price").
The Rights are not exercisable and cannot be transferred separately from the
common shares until the "Separation Time," which is defined as the eighth
business day (subject to extension by the Board) after the earlier of (a) the
"Stock Acquisition Date" which is generally the first date of public
announcement that a person or group of affiliated or associated persons
(excluding certain persons and groups) has acquired beneficial ownership of 20%
or more of the outstanding common shares, or (b) the date of commencement of,
or first public announcement of the intent of any person or group of affiliated
or associated persons to commence, a Take-over Bid. At such time as any person
or group of affiliated or associated persons becomes an "Acquiring Person" (a
"Flip-In Event"), each Right shall constitute the right to purchase from the
Company that number of common shares having an aggregate Market Price on the
date of the Flip-In Event equal to twice the Exercise Price, for the Exercise
Price (such Right being subject to anti-dilution adjustments).
So long as the Rights are not transferable separately from the common shares,
the Company will issue one Right with each new common share issued. The Rights
could have certain anti-takeover effects, in that they would cause substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Board of Directors.
Stock options
The Company has stock option plans providing for the issue of options to
purchase the Company's common shares. Outstanding options vest over periods of
one to four years beginning on the date of grant. The options expire over a
period of two to seven years beginning at the date of grant. Of the 4.7 million
(1998--3.7 million) options authorized under these plans, 408,178 (1998--
103,425) options were available for grant as at December 31, 1999.
The 1995 Stock Option Plan (the "1995 Plan"), as amended, provides for the
issuance of nonqualified and incentive stock options to purchase up to
2,906,000 shares of the Company's common stock, of which 408,178 were available
for future grant at December 31, 1999. Under this plan, options are granted at
the closing price of the Company's common shares on the Toronto Stock Exchange
or in lieu thereof, Nasdaq, on the trading date of the grant. The exercise
period of each option is determined by the Compensation Committee but may not
exceed 10 years. The Company's 1994 Stock Option Plan has terminated; however,
options to purchase 247,325 shares of common stock were outstanding under the
1994 Plan at December 31, 1999.
In conjunction with the merger with General Scanning Inc. the Company adopted
outstanding options held by employees under nonqualified and incentive stock
options, and issued 2,051,903 stock options in exchange.
In July 1999, the Company offered employee option holders an exchange of one
option for each two options outstanding with exercise prices over US$9.00 or
Cdn$13.32. Under this exchange 281,483 options with exercise price of US$4.63
or Cdn$6.95 per share were granted with new vesting schedule, and 562,966
options were cancelled.
F-15
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
which defines a fair value based method of accounting for employee stock
options or similar equity instruments. The Company has elected to continue to
apply APB 25 in accounting for its stock option plans, and immaterial amounts
of compensation have been recognized. Had compensation cost for these plans
been determined consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts below.
Because the method of accounting under SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
costs may not be representative of that to be expected in future years.
1999 1998 1997
-------- ------- -------
Net income (loss):
As reported..................................... $(34,774) $(7,916) $11,912
Pro forma....................................... $(36,117) $(8,976) $11,145
Basic net income (loss) per share:
As reported..................................... $ (1.14) $ (0.46) $ 0.75
Pro forma....................................... $ (1.19) $ (0.53) $ 0.70
Diluted income (loss) per share:
As reported..................................... $ (1.14) $ (0.46) $ 0.72
Pro forma....................................... $ (1.19) $ (0.53) $ 0.68
The fair value of options was estimated at the date of grant using a Black-
Scholes option-pricing model with the following assumptions:
1999 1998 1997
--------- --------- ---------
Risk-free interest rate........................ 6.7% 4.6% 5.8%
Expected dividend yield........................ -- -- --
Expected lives upon vesting.................... 1.0 years 1.2 years 1.8 years
Expected volatility............................ 60% 40% 30%
Weighted average fair value per share.......... $1.85 $1.00 $3.76
F-16
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Stock option activity for the years ended December 31, 1999, 1998 and 1997 is
presented below.
Options Weighted avg.
(thousands) exercise price
----------- --------------
Outstanding at December 31, 1996.................. 951 $ 5.71
Granted........................................... 833 18.40
Exercised......................................... (387) 4.91
Canceled.......................................... (76) 0.34
------ ------
Outstanding at December 31, 1997.................. 1,321 13.15
Granted........................................... 879 5.16
Exercised......................................... (50) 4.72
Canceled.......................................... (146) 15.63
------ ------
Outstanding at December 31, 1998.................. 2,004 9.11
Exchanged in merger with General Scanning......... 2,123 9.86
Granted........................................... 1,627 4.61
Exercised......................................... (164) 3.36
Canceled.......................................... (1,612) 12.66
------ ------
Outstanding at December 31, 1999.................. 3,978 $ 6.71
====== ======
Exercisable at December 31, 1999.................. 1,165 $ 7.64
====== ======
The following summarizes outstanding and exercisable options outstanding on
December 31, 1999:
Options outstanding Exercisable options
---------------------------------------- --------------------------
Number
Number Weighted Weighted of options Weighted
Range of of options average average exercisable average
exercise prices (000's) remaining life exercise price (000's) exercise price
--------------- ---------- -------------- -------------- ----------- --------------
$ 1.75 to $ 3.75........ 370 4.9 years $ 2.83 281 $ 2.56
$ 4.25 to $ 4.50........ 809 9.0 years $ 4.41 111 $ 4.46
$ 4.60 to $ 5.00........ 1,175 4.3 years $ 4.75 211 $ 4.85
$ 5.01 to $10.00........ 871 4.6 years $ 6.15 242 $ 8.00
$10.40 to $19.70........ 753 6.8 years $16.40 320 $14.79
----- -----
3,978 1,165
===== =====
Repurchase of common shares
On April 29, 1998, the Board of Directors authorized a program to repurchase up
to 5% of its issued and outstanding common shares. Pursuant to provisions of
the Agreement and Plan of Merger with General Scanning Inc., the Company
suspended its repurchase program in October 1998. During 1998, the Company
repurchased 94,900 common shares for approximately $627 thousand.
Warrants
In conjunction with the merger with General Scanning Inc. the Company adopted
outstanding warrants for the purchase of common stock issued to non-employee
members of the General Scanning Inc. Board of Directors.
F-17
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
The warrants are subject to vesting as determined by a committee of the Board
of Directors at the date of grant and expire ten years from the date of grant.
During the year ended December 31, 1999, none were granted, exercised or
cancelled. At December 31, 1999, 70,718 warrants, of which 57,248 are
exercisable, remain outstanding at prices ranging from $1.75 to $15.41 per
share.
11. Defined Contribution Plans
The Company has defined contribution employee savings plans in Canada, the
United Kingdom, and the United States. In the United States, the plan is
governed by the provisions of Section 401(k) of the Internal Revenue Code under
which contributions may be made by its United States employees. The Company
matches the contributions of participating employees on the basis of the
percentages specified in each plan. Company matching contributions to the plans
during 1999 were $2.3 million (1998--$1.1 million; 1997--$0.9 million).
12. Defined Benefit Pension Plan
The Company's subsidiary in the United Kingdom maintains a pension plan, known
as the GSI Lumonics Ltd. UK Pension Scheme. The plan has two components: the
Final Salary Plan, which is a defined benefit plan, and the Retirement Savings
Plan, which is a defined contribution plan. Effective April 1997, membership to
the Final Salary Plan was closed. The most recent actuarial valuation of the
plan was performed as at November 30, 1997. The extrapolation as at December 1,
1999 indicates the actuarial present value of the accrued pension benefits and
the net assets available to provide for these benefits, at market value, were
as follows:
1999 1998
------ ------
Pension fund assets............................................ 13,700 12,000
Accrued pension benefits....................................... 13,700 9,500
The assumptions used to develop the actuarial present value of the accrued
pension benefits were as follows:
1999 1998
-------- --------
Discount rate.............................................. 6.5% 8.5%
Compensation increases rate................................ 5.5% 6.5%
Investment returns assumption.............................. 6.5% 8.5%
Average remaining service life of employees................ 18 years 18 years
The estimates are based on actuarially computed best estimates of pension asset
long-term rates of return and long-term rate of obligation escalation.
Variances between these estimates and actual experience are amortized over the
employees' average remaining service life.
Pension expense under this plan during fiscal 1999 was $520 thousand (1998--
$670 thousand; 1997--$500 thousand).
F-18
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
13. Income Taxes
Details of the income tax provision (benefit) are as follows:
1999 1998 1997
------- ------- ------
Current
Canadian.......................................... $ 724 $ 1,687 $2,513
International..................................... (1,576) (3,641) 2,995
------- ------- ------
(852) (1,954) 5,508
Deferred
Canadian.......................................... (2,084) (247) 384
International..................................... 380 (1,059) (818)
------- ------- ------
(1,704) (1,306) (434)
------- ------- ------
Income tax provision (benefit)..................... $(2,556) $(3,260) $5,074
======= ======= ======
The income tax provision (benefit) reported differs from the amounts computed
by applying the Canadian rate to income (loss) before income taxes. The reasons
for this difference and the related tax effects are as follows:
1999 1998 1997
-------- ------- ------
Expected Canadian tax rate....................... 44.6% 44.6% 44.0%
Expected income tax provision (benefit).......... $(16,649) $(4,984) $7,474
Non-deductible research and development and other
expenses........................................ 4,325 -- --
International tax rate differences............... 3,461 (97) (868)
Losses and temporary timing differences the
benefit of which has not been recognized........ 5,374 1,377 577
Previously unrecognized losses and timing
differences..................................... (569) (161) (807)
Settlement of Canadian and foreign tax matters... -- (423)
Other items...................................... 1,502 605 (879)
-------- ------- ------
Reported income tax provision (benefit).......... $ (2,556) $(3,260) $5,074
======== ======= ======
F-19
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and tax
reporting purposes. Significant components of the Company's deferred tax assets
and liabilities as at December 31 are as follows:
1999 1998
------- ------
Deferred tax assets
Operating tax loss carryforwards........................... $12,468 $6,539
Compensation related deductions............................ 2,312 --
Tax credits............................................... 2,431 582
Restructuring and other accrued liabilities............... 13,452 1,312
Deferred revenue............................................ 1,834 1,231
Inventory.................................................. 3,702 734
Other...................................................... 227 535
------- ------
Total deferred tax assets................................... 36,426 10,933
Valuation allowance for deferred tax assets................. (9,756) (5,731)
------- ------
Net deferred tax assets..................................... 26,670 5,202
------- ------
Deferred tax liabilities
Book and tax differences on fixed assets................... 824 1,076
Intangibles................................................ 3,770 --
------- ------
Net deferred income tax asset............................... $22,076 $4,126
======= ======
The Company has provided a valuation allowance against losses in subsidiaries
with an inconsistent history of taxable income and loss due to the uncertainty
of their realization. In addition, the Company has provided a valuation
allowance on net operating loss carryforwards and tax credits related to its
wholly-owned subsidiary, View Engineering, Inc., due to the uncertainty of
their realizability as a result of limitations on their utilization in
accordance with certain US tax laws and regulations.
As at December 31, 1999, the Company had loss carryforwards of approximately
$34 million available to reduce future years' income for tax purposes. Of this
amount, approximately $8.5 million expires by the end of 2005 and a further
$7.5 million expires by the end of 2019, with the remainder carried forward
indefinitely.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $3,133 thousand at December 31, 1999. The Company has not
recorded a provision for withholding tax on undistributed earnings of foreign
subsidiaries, as the Company currently has no plans to repatriate those
earnings.
Income taxes paid during 1999 were $810 thousand (1998--$2,316 thousand; 1997--
$2,531 thousand).
14. Related Party Transactions
In addition to matters discussed elsewhere, the Company had the following
transactions with related parties. The Company recorded sales revenue from
Sumitomo Heavy Industries, Ltd., a significant shareholder, of $11.7 million in
the twelve months ended December 31, 1999 (1998--$15.5 million; 1997 $18.9
million) at amounts and terms approximately equivalent to third party
transactions. Transactions with Sumitomo are at normal trade terms. The balance
sheet reflects receivables from Sumitomo as due from related party.
F-20
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
15. Financial Instruments
Short-term investments
At December 31, 1999, the Company had $7,342 thousand invested in short-term
investments denominated in both U.S. and Canadian dollars with maturity dates
between January 13, 2000 and February 23, 2000. At December 31, 1998, the
Company had $8,098 thousand invested in short-term investments denominated in
Canadian dollars.
Derivative financial instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. The Company is in the
process of quantifying the impacts of adopting SFAS 133 on its financial
statements and has not determined the timing of or method of adoption of SFAS
133.
The Company does not actively trade derivative financial instruments but uses
them to manage foreign currency and interest rate positions associated with its
debt instruments. The terms of these derivative contracts match the terms of
the underlying debt instruments and are generally used to reduce financing
costs. The Company currently has three such contracts outstanding, two of which
convert yen denominated debt to U.S. dollar denominated debt and one contract
which converts a yen denominated debt into Canadian dollars.
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of the year-end fair value of significant financial instruments,
including debt. The Company believes, based upon current terms, that the
carrying value of its debt approximates its fair value.
December 31,
-------------
1999 1998
------ ------
Long term debt, including current portion:
Sumitomo Heavy Industries, Ltd., Japanese yen term loans..... $3,917 $7,082
Favorable value of swaps:
To convert 100 million yen (1998--200 million yen) to U.S.
$683, (1998--U.S. 1,365), semi-annual interest at the six-
month LIBOR less 1.56%...................................... 296 406
To convert 150 million yen (1998--300 million yen) to
Canadian $1,163 (1998--Cdn $2,326), semi-annual interest at
the three month bankers acceptance rate less 1.62%.......... 669 1,136
To convert 150 million yen (1998--300 million yen) to U.S.
$1,023 (1998--U.S. $2,046), interest payable semi-annually
at 8.20%.................................................... 446 610
------ ------
Favorable Value of swaps...................................... 1,411 2,152
------ ------
Economic Value................................................ $2,506 $4,930
====== ======
F-21
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
The Company is exposed to credit-related losses with respect to the positive
fair value of the swap contracts in the event of non-performance by the
Canadian Imperial Bank of Commerce and the Industrial Bank of Japan as
counterparties. The Company does not expect any counterparties to fail to meet
their obligations.
As of December 31, 1999 and 1998, the Company had no foreign exchange forward
contracts.
16. Restructuring and Other Charges
A charge of $19.6 million was taken during the three months ended April 2, 1999
to accrue employee severance of $5.6 million, leased facility and related costs
of $4 million associated with the closure of the plant in Oxnard, California
and redundant facilities worldwide, and costs of $10 million associated with
restructuring and integration of operations as a result of the merger. The
Oxnard manufacturing operations shut down was completed during December 1999.
Other integration activities included exit costs for some product lines,
reducing redundant resources worldwide, and abandoning redundant sales and
service facilities. During 1999, severance was paid to 130 employees in various
locations worldwide. Actual costs for employee severance for some activities
have been less than estimated in the accrual due to redeployment of personnel
and voluntary terminations. In addition, some facility exit costs and other
integration costs have been less than originally estimated. These reductions
are reflected in a $2.1 million reversal of restructuring charges during the
three months ended December 31, 1999. Offsetting this reduction is an
additional charge of $2.1 million for leased facilities costs in Oxnard, and
elsewhere worldwide, additional employee severance costs worldwide, and other
integration costs. The following table summarizes activity during the year
ended December 31, 1999.
Total Severance Facilities Integration
----- --------- ---------- -----------
(in millions)
Charge during Q1 1999... $19.6 $5.6 $4.0 $10.0
1999 actions............ (9.5) (2.4) (0.2) (6.9)
Reversals during Q4
1999................... (2.1) (0.8) (1.1) (0.2)
Charge during Q4 1999... 2.1 0.4 1.2 0.5
----- ---- ---- -----
Accrual remaining
December 31, 1999...... $10.1 $2.8 $3.9 $ 3.4
===== ==== ==== =====
The remaining accrual is for further reduction of redundant resources
worldwide, including severance for approximately 160 employees. It is expected
that most actions will be completed by end of 2000, but certain leased facility
costs will take longer to resolve due to the nature of the lease commitments.
17. Commitments and Contingencies
Operating leases
The Company leases certain equipment and facilities under operating lease
agreements that expire through 2013. The facility leases require the Company to
pay real estate taxes and other operating costs. For the year ended December
31, 1999 lease expense was approximately $4,666 thousand (1998--$1,923
thousand; 1997--$1,645 thousand).
F-22
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
Minimum lease payments under operating leases expiring subsequent to December
31, 1999 are:
2000................................................................ $ 4,849
2001................................................................ 4,041
2002................................................................ 3,327
2003................................................................ 2,595
2004................................................................ 2,535
Thereafter.......................................................... 7,602
-------
Total minimum lease payments........................................ $24,949
=======
Recourse receivables
In Japan, where it is customary to do so, the Company discounts certain
customer notes receivable at a bank with recourse. The Company's maximum
exposure was $2,961 thousand at December 31, 1999. The book value of the
recourse receivables approximates fair value. During 1999, the Company received
cash proceeds relating to the discounted receivables of $6,661 thousand.
Legal proceedings and disputes
A provision of $19 million was recorded during the three months ended April 2,
1999 to accrue damages and legal fees, through to appeal, relating to Electro
Scientific Industries, Inc. v. General Scanning Inc., USDC Case No. C-96-4628,
and is reflected as a reduction in net assets acquired at the time of merger.
In October 1998 the U.S. District Court for the Northern District of California
issued a decision on motions for summary judgment in an action filed against
General Scanning Inc. for alleged patent infringement concerning U.S. Patent
Nos. 5,265,114 and 5,473,624. The Court granted Electro Scientific's motions
for summary judgment on infringement and on the issue of whether Electro
Scientific committed inequitable conduct by intentionally failing to cite prior
art to the U.S. Patent Office in connection with one of its patents. The Court
denied General Scanning Inc.'s motion for summary judgment that the Electro
Scientific patents are invalid due to prior art. During March 1999, the Court
granted Electro Scientific's motion for partial summary judgment that upgrade
kits, sold by General Scanning for 1.3 micron laser wavelength memory repair,
infringe the Electro Scientific patents in suit. The referenced patents cover
the use of 1.32 micron wavelength lasers in the repair of memory chips and
semiconductors with imbedded memory. In April 1999 a federal court jury issued
a verdict that Electro Scientific's patent 5,473,624 was invalid, and that
Electro Scientific's patent 5,265,114 was valid, and awarded a $13.1 million
damage judgment. A federal district court judge ruled on several post-trial
matters in July 1999. The Court refused Electro Scientific's requests to
increase damages awarded by the jury in April, and for attorney fees, but
granted interest on the damages. The Court also affirmed the jury's decision to
invalidate one of the two patents asserted by Electro Scientific in the case.
The Company has appealed the decisions on infringement, the validity of the
second patent and the award of damages. The Company was required to post an
unsecured bond with the court in order to proceed with the appeal. No date has
been set for arguments. At GSI Lumonics' request, the U.S. Patent and Trademark
Office ("PTO") has agreed to reexamine ESI's Patent No. 5,265,114, indicating
in its November 18, 1999 Order that information not previously considered
raised "a substantial new question of patentability." The PTO reexamination is
a separate proceeding from GSI Lumonics' pending appeal of the ESI judgement.
GSI Lumonics intends to present evidence in the reexamination that may
invalidate ESI's 114 patent. The outcome is not determinable at this time.
Robotic Vision Systems, Inc. v. View Engineering, Inc., USDC Case No. 95-7441.
This case involves a patent infringement complaint by Robotic Vision Systems,
Inc. ("RVSI") alleging infringement of U.S. Patent
F-23
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
No. 5,463,227 by View Engineering, Inc. ("View"), a wholly-owned subsidiary of
General Scanning Inc. The matter was tried before a judge sitting in the United
States District Court for the Central District of California in November 1999,
and the parties are currently awaiting the court's decision. RVSI alleges
infringement relating to lead inspection machines sold by View and seeks
damages of $60.5 million. In settlement of separate litigation with RVSI in
June 1998, arising from General Scanning Inc.'s acquisition of View in August
1996, General Scanning Inc. agreed not to compete in the field of semiconductor
interconnection inspection. During the first six months of 1998, sales by
General Scanning Inc. of all products used in semiconductor lead
interconnection inspection which involved products relating to the alleged
infringement totaled approximately 2% of General Scanning Inc.'s total sales.
GSI Lumonics believes that RVSI's claims in the above action are without merit
and GSI Lumonics Inc. is vigorously defending these proceedings. However, if
RVSI prevails on one or more of its claims and damages are awarded, there could
be a material adverse effect on GSI Lumonics Inc.'s operating results and/or
financial condition. The outcome is not determinable at this time.
Commencement of Copyright Infringement Declaratory Judgement Action. On
December 10, 1999 GSI Lumonics Inc. filed suit in the United States District
Court for the District of Massachusetts seeking a declaration that GSI
Lumonics' QuantArray(R) Microarray Analysis Software does not infringe any
copyright owned by BioDiscovery, Inc. or its president, Soheil Shams.
BioDiscovery, Inc. is a manufacturer of microarray quantification software
under the name ImaGene(R). GSI Lumonics previously distributed ImaGene(R)
software under a non-exclusive arrangement with BioDiscovery, but subsequently
developed its own software when BioDiscovery refused to develop necessary
enhancements to stay abreast of industry trends, especially in the field of
multi-channel scanning. GSI Lumonics felt compelled to file suit to resolve
these copyright issues and is confident in its position. On December 21, 1999,
BioDiscovery and its President, Soheil Shams, responded to the GSI Lumonics'
declaratory judgement action by filing a separate suit in the Federal Court in
Los Angeles, CA, alleging that GSI Lumonics reverse engineered software and
also sued for copyright infringement. GSI Lumonics has applied to the
California court to seek the prompt dismissal of the California action in favor
of its prior pending action. In the matter before the United States District
Court for the District of Massachusetts, the court denied BioDiscovery's motion
to dismiss and has scheduled the trial for May 2000. The outcome is not
determinable at this time.
Other. As the Company has disclosed since 1994, a party has commenced legal
proceedings in the United States against a number of U.S. manufacturing
companies, including companies that have purchased systems from GSI Lumonics
Inc. The plaintiff in the proceedings has alleged that certain equipment used
by these manufacturers infringes patents claimed to be held by the claimant.
While GSI Lumonics Inc. is not a defendant in any of the proceedings, several
of GSI Lumonics Inc.'s customers have notified GSI Lumonics Inc. that, if the
party successfully pursues infringement claims against them, they may require
GSI Lumonics Inc. to indemnify them to the extent that any of their losses can
be attributed to systems sold to them by GSI Lumonics Inc. While GSI Lumonics
does not believe that the outcome of these claims will have a material adverse
effect upon GSI Lumonics, there can be no assurance that any such claims, or
any similar claims, would not have a material adverse effect upon GSI Lumonics'
financial condition or results of operations.
Risks and uncertainties
The Company has experienced, and may continue to experience, fluctuations in
operating results due to a variety of factors, including: the rate of growth of
the markets for laser systems and components; industry cycles in target
markets; market acceptance of the Company's products and those of its
competitors;
F-24
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
development and promotional expenses relating to the introductions of new
products or new versions of existing products; changes in pricing policies by
the Company and its competitors; the timing of the receipt of orders from major
customers; the timing of shipments and economic conditions in foreign markets.
Certain of the components and materials included in the Company's laser systems
and optical products are currently obtained from single source suppliers. There
can be no assurance that a disruption of this outside supply would not create
substantial manufacturing delays and additional cost to the Company.
There is no concentration of credit risk related to the Company's position in
trade accounts receivable other than the amount due from Sumitomo Heavy
Industries, Ltd., a related party. Credit risk, with respect to trade
receivables, is minimized because of the diversification of the Company's
operations, as well as its large customer base and its geographical dispersion.
18. Segment Information
GSI Lumonics Inc. designs, develops, manufactures and markets laser-based
advanced manufacturing systems and components. The laser systems and components
are used in highly automated environments for applications such as cutting,
drilling, welding, marking, micro machining, inspection and coding a wide range
of products and materials in the automotive, electronics, semiconductor,
packaging, medical and aerospace industries. The printers are used in the
medical and photo-finishing industries. The Company's principal markets are in
the United States, Canada, Europe, Japan and Asia-Pacific.
During the three months ended December 31, 1999, the Company re-evaluated its
reportable segments and concluded it has one reportable segment. In classifying
operational entities into a particular segment, the Company aggregated
businesses with similar economic characteristics, products and services,
production processes, customers and methods of distribution.
Geographic segment information
The Company attributes revenues to geographic areas on the basis of the
customer location. Long-lived assets are attributed to geographic areas in
which Company assets reside.
Year ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
Revenues from external
customers:
Canada................... $ 10,782 4% $ 8,264 6% $ 9,750 5%
USA...................... 143,034 52% 61,269 42% 91,835 52%
Europe................... 65,296 24% 40,427 28% 33,385 19%
Japan.................... 32,648 12% 15,987 11% 19,806 11%
Asia-Pacific, other...... 22,790 8% 18,245 13% 22,552 13%
-------- -------- --------
Total................... $274,550 100% $144,192 100% $177,328 100%
======== ======== ========
Long-lived assets:
Canada................... $ 7,726 $ 9,567 $ 11,307
US....................... 42,424 5,548 5,342
Europe................... 17,484 20,848 10,757
Japan.................... 591 -- --
Asia-Pacific, other...... 400 318 301
-------- -------- --------
Total................... $ 68,625 $ 36,281 $ 27,707
======== ======== ========
F-25
GSI LUMONICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 1999
(tabular amounts in thousands of U.S. dollars except share amounts)
19. Subsequent Events
On March 16, 2000, Electro Scientific Industries, Inc. filed an action for
patent infringement in the United States District Court for the Central
District of California against the Company and Dynamic Details Inc., an
unrelated party who is one of the Company's customers. Electro Scientific
alleges that the Company offers to sell and import into the United States our
GS-600 high speed laser drilling system and that Dynamic Details possesses and
uses a GS-600 System. They further allege that Dynamic Details infringes on
Electro Scientific's U.S. patent no. 5,847,960 and that the Company has
actively induced the infringement of, and contributorily infringed on, the
patent. Electro Scientific seeks an injunction, an unspecified amount of
damages, trebling of those damages, and attorney fees. The Company intends to
vigorously defend this claim and, based on its investigation of the patent to
date, it believes that it will prevail. The outcome is not determinable at this
time.
F-26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
General Scanning Inc.:
We have audited the accompanying consolidated balance sheets of General
Scanning Inc. (a Massachusetts corporation) and subsidiaries as of December 31,
1997 and 1998 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of General Scanning Inc. and
subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 1999
(except with respect to the matter
discussed in Note 12, as to which
the date is March 22, 1999, and the
matters discussed in Note 10(c), as to
which the date is November 18, 1999)
F-27
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Year ended December 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
Net sales:
Laser systems and components.......... $ 131,867 $ 154,536 $ 148,141
Printers.............................. 24,666 26,994 33,256
----------- ----------- -----------
Total sales......................... 156,533 181,530 181,397
----------- ----------- -----------
Cost of sales:
Laser systems and components.......... 71,038 79,850 78,951
Printers.............................. 13,815 14,955 18,580
----------- ----------- -----------
Total cost of sales................. 84,853 94,805 97,531
----------- ----------- -----------
Gross profit:
Laser systems and components.......... 60,829 74,686 69,190
Printers.............................. 10,851 12,039 14,676
----------- ----------- -----------
Total gross profit.................. 71,680 86,725 83,866
----------- ----------- -----------
Operating expenses:
Research and product development...... 18,400 22,302 26,873
Selling, general and administrative... 39,475 46,169 51,049
Restructuring, litigation and other
charges.............................. -- -- 7,654
Acquired in-process research and
development.......................... -- 10,600 --
----------- ----------- -----------
Total operating expenses............ 57,875 79,071 85,576
----------- ----------- -----------
Income (loss) from operations........... 13,805 7,654 (1,710)
Merger expenses......................... (1,950) -- (900)
Interest income (expense), net.......... 272 464 (454)
Foreign exchange transaction gains
(losses)............................... (159) (507) 191
----------- ----------- -----------
Income (loss) before income taxes....... 11,968 7,611 (2,873)
Income tax provision (benefit).......... 5,367 2,502 (999)
----------- ----------- -----------
Net income (loss)....................... $ 6,601 $ 5,109 $ (1,874)
----------- ----------- -----------
Foreign currency translation adjustment. (139) (305) 370
Change in unrealized gain (loss) on
marketable equity securities........... -- -- (736)
----------- ----------- -----------
Comprehensive income (loss)............. $ 6,462 $ 4,804 $ (2,240)
=========== =========== ===========
Basic income (loss) per common share.... $ 0.56 $ 0.42 $ (0.15)
=========== =========== ===========
Diluted income (loss) per common share.. $ 0.53 $ 0.40 $ (0.15)
=========== =========== ===========
Weighted average common shares
outstanding............................ 11,774,000 12,065,387 12,583,993
=========== =========== ===========
Weighted average common shares
outstanding and dilutive potential
common shares.......................... 12,476,237 12,656,763 12,583,993
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements
F-28
GENERAL SCANNING INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
As of December
31,
------------------
1997 1998
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 8,418 $ 6,145
Accounts receivable, less allowance of $1,203 in 1997 and
$2,295 in 1998........................................... 44,425 35,431
Inventories............................................... 34,051 34,887
Deferred income taxes..................................... 7,857 11,518
Other current assets...................................... 1,517 1,183
-------- --------
Total current assets..................................... 96,268 89,164
-------- --------
Property, plant and equipment, net......................... 14,611 14,973
Other assets............................................... 437 3,445
Intangible assets, net of amortization of $1,863 in 1997
and $2,239 in 1998........................................ 3,726 3,150
-------- --------
$115,042 $110,732
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks and current portion of long-term
debt..................................................... $ 4,169 $ 4,722
Current portion of deferred compensation.................. 582 757
Accounts payable.......................................... 12,775 7,667
Accrued expenses.......................................... 16,079 16,992
-------- --------
Total current liabilities................................ 33,605 30,138
-------- --------
Long-term debt due after one year.......................... 1,530 1,543
Deferred compensation, less current portion................ 1,678 1,326
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $.01 par value; authorized 1,000,000
shares; issued and outstanding--none..................... -- --
Common stock, $.01 par value; authorized 15,000,000
shares; issued 12,791,796 in 1997 and 13,032,549 in 1998. 128 130
Additional paid-in capital................................. 48,788 50,522
Retained earnings.......................................... 30,794 28,920
Cumulative translation adjustment.......................... (892) (522)
Unrealized (loss) on marketable equity securities.......... -- (736)
Treasury stock, at cost; 366,073 shares.................... (589) (589)
-------- --------
Total stockholders' equity................................ 78,229 77,725
-------- --------
$115,042 $110,732
======== ========
The accompanying notes are an integral part of these consolidated financial
statements
F-29
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Unrealized Treasury
Common Stock loss on stock
--------------- Additional Cumulative marketable ------------
$.01 Par paid-in Retained translation equity
Shares value capital earnings adjustment securities Shares Cost
------ -------- ---------- -------- ----------- ---------- ------ -----
Balance, December 31,
1995................... 11,968 $119 $41,587 $19,084 $(448) $ -- (366) $(588)
Net income.............. -- -- -- 6,601 -- -- -- --
Stock option and warrant
exercises, including
tax effects............ 278 3 2,070 -- -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (139) -- -- --
------ ---- ------- ------- ----- ----- ---- -----
Balance, December 31,
1996................... 12,246 122 43,657 25,685 (587) -- (366) (588)
Net income.............. -- -- -- 5,109 -- -- -- --
Stock option and warrant
exercises, including
tax effects............ 471 5 3,132 -- -- -- -- --
Fractional shares from
View Engineering, Inc.
merger................. -- -- -- -- -- -- -- (1)
Shares issued in
acquiring Reel-Tech,
Inc.................... 75 1 1,999 -- -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- (305) -- -- --
------ ---- ------- ------- ----- ----- ---- -----
Balance, December 31,
1997................... 12,792 128 48,788 30,794 (892) -- (366) (589)
Net loss................ -- -- -- (1,874) -- -- -- --
Stock option and warrant
exercises, including
tax effects............ 241 2 1,734 -- -- -- -- --
Unrealized loss on
marketable equity
securities............. -- -- -- -- -- (736) -- --
Cumulative translation
adjustment............. -- -- -- -- 370 -- -- --
------ ---- ------- ------- ----- ----- ---- -----
Balance, December 31,
1998................... 13,033 $130 $50,522 $28,920 $(522) $(736) (366) $(589)
====== ==== ======= ======= ===== ===== ==== =====
The accompanying notes are an integral part of these consolidated financial
statements
F-30
GENERAL SCANNING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
--------------------------
1996 1997 1998
------- -------- -------
Cash flows from operating activities:
Net income (loss).................................. $ 6,601 $ 5,109 $(1,874)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities--
Acquired in-process research and development...... -- 10,600 --
Depreciation and amortization..................... 3,180 3,941 5,113
Deferred compensation............................. 347 367 (177)
Deferred income taxes............................. (646) (3,837) (3,661)
Subordinated note and equity securities received
for non-competition agreement and technology
license pursuant to litigation settlement........ -- -- (3,750)
Changes in current assets and liabilities, net of
effects of Reel-Tech, Inc. acquisition--
Accounts receivable............................... (9,444) (13,659) 9,896
Inventories....................................... (1,119) (6,271) (683)
Other current assets.............................. 2 (42) 455
Accounts payable and accrued expenses............. (592) 6,977 (4,405)
------- -------- -------
Net cash provided by (used in) operating
activities........................................ (1,671) 3,185 914
------- -------- -------
Cash flows from investing activities:
Purchase of Reel-Tech, Inc. (1)................... -- (12,446) --
Additions to property, plant and equipment, net... (6,902) (5,335) (4,985)
Decrease (increase) in other assets............... 15 20 164
------- -------- -------
Net cash (used in) investing activities.......... (6,887) (17,761) (4,821)
------- -------- -------
Cash flows from financing activities:
Proceeds from notes payable to banks and others.... 13,633 16,662 35,859
(Payments) on notes payable to banks and others... (15,567) (15,087) (35,859)
Net (payments) on long-term debt.................. (7) (19) (19)
Stock option and warrant exercises, including tax
effects.......................................... 2,073 3,136 1,736
------- -------- -------
Net cash provided by financing activities........ 132 4,692 1,717
------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents....................................... 386 647 (83)
------- -------- -------
Increase (decrease) in cash and cash equivalents... (8,040) (9,237) (2,273)
Cash and cash equivalents, beginning of period..... 25,695 17,655 8,418
------- -------- -------
Cash and cash equivalents, end of period........... $17,655 $ 8,418 $ 6,145
======= ======== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for--
Interest.......................................... $ 862 $ 478 $ 566
======= ======== =======
Income taxes...................................... $ 4,834 $ 4,485 $ 151
======= ======== =======
(1) Acquisition of Reel-Tech, Inc.:
Net assets and in-process research and development
acquired......................................... $ -- $(14,446) $ --
Issuance of common stock.......................... -- 2,000 --
------- -------- -------
Net cash used to acquire business.................. $ -- $(12,446) $ --
======= ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
GENERAL SCANNING INC.
SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
97Q1 97Q2 97Q3 97Q4 98Q1 98Q2 98Q3 98Q4
------- ------- ------- ------- ------- ------- ------- -------
(in thousands, except per share data)
Net sales:
Laser systems and
components............ $31,109 $37,504 $40,515 $45,408 $44,504 $39,753 $31,877 $32,007
Printers............... 6,608 5,210 7,041 8,135 6,068 9,319 10,163 7,706
------- ------- ------- ------- ------- ------- ------- -------
Total sales........... 37,717 42,714 47,556 53,543 50,572 49,072 42,040 39,713
------- ------- ------- ------- ------- ------- ------- -------
Gross profit:
Laser systems and
components............ 15,012 17,527 19,810 22,337 21,757 19,377 13,561 14,495
Printers............... 3,061 2,291 3,031 3,656 2,745 3,984 4,402 3,545
------- ------- ------- ------- ------- ------- ------- -------
Total gross profit.... 18,073 19,818 22,841 25,993 24,502 23,361 17,963 18,040
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and product
development........... 4,952 4,978 6,126 6,246 7,461 7,269 6,139 6,004
Selling, general and
administrative........ 10,321 11,103 11,357 13,388 13,385 14,447 12,211 11,006
Restructuring,
litigation and other
charges............... -- -- -- -- -- 5,060 717 1,877
Acquired in-process
research and
development........... -- -- -- 10,600 -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 15,273 16,081 17,483 30,234 20,846 26,776 19,067 18,887
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. 2,800 3,737 5,358 (4,241) 3,656 (3,415) (1,104) (847)
Merger (expenses)....... -- -- -- -- -- -- -- (900)
Interest income
(expense), net......... 98 165 135 66 (34) (240) (104) (76)
Foreign exchange
transaction gains
(losses)............... (110) 11 (227) (181) (82) 62 115 96
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... 2,788 3,913 5,266 (4,356) 3,540 (3,593) (1,093) (1,727)
Income taxes............ 978 1,367 1,685 (1,528) 1,239 (1,261) (382) (595)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $ 1,810 $ 2,546 $ 3,581 $(2,828) $ 2,301 $(2,332) $ (711) $(1,132)
======= ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
common share........... $ 0.15 $ 0.21 $ 0.30 $ (0.23) $ 0.18 $ (0.19) $ (0.06) $ (0.09)
======= ======= ======= ======= ======= ======= ======= =======
Diluted income (loss)
per common share....... $ 0.15 $ 0.20 $ 0.28 $ (0.23) $ 0.18 $ (0.19) $ (0.06) $ (0.09)
======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding and
dilutive potential
common shares.......... 12,465 12,553 12,739 12,310 12,870 12,571 12,637 12,656
======= ======= ======= ======= ======= ======= ======= =======
F-32
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Significant Accounting Policies
Nature of operations
General Scanning Inc. develops, manufactures and sells its products on a
worldwide basis through two industry segments: laser systems and components;
and printers. The laser systems and components segment provides products for a
wide range of applications in the automotive, electronics, semiconductor,
medical and aircraft industries. The Company's core technological expertise
which is employed in each of these applications is high speed micropositioning
and precise power control of lasers, as well as 2D and 3D image processing. The
printer segment provides printers for the medical and photo-finishing
industries.
Basis of presentation
The consolidated financial statements include the accounts of General Scanning
Inc. and its wholly-owned subsidiaries (the "Company"). Significant
intercompany accounts and transactions have been eliminated in consolidation.
In August 1996, the Company acquired View Engineering, Inc. ("View") by issuing
1,437,060 shares of General Scanning Inc. common stock (after giving effect to
certain adjustments at the closing) in exchange for all of View's outstanding
shares of capital stock, accrued preferred dividends and the net value of
warrants and options. View uses laser image processing technology to serve
applications requiring precision inspection, measurement and process control.
The transaction has been accounted for as a pooling of interests for accounting
purposes and, accordingly, the accompanying consolidated financial statements
include the accounts of View for all periods presented. Merger expenses include
primarily brokers' fees and legal and accounting costs.
On November 28, 1997, the Company acquired the assets of Reel-Tech, Inc. for
$14.4 million, which consisted of $12.4 million of cash and 75,118 shares of
General Scanning Inc. common stock. Reel-Tech is an integrator of electronics
components handling systems for marking, lead inspection, parts sorting and
parts packaging. The transaction was accounted for as a purchase for accounting
purposes and, accordingly, the operations of Reel-Tech have been included in
the consolidated financial statements from the date of acquisition. Goodwill
arising from the transaction of $3.1 million is being amortized on a straight-
line basis over a 10-year period. Results of operations would not have changed
materially for 1997 or 1996 if Reel-Tech had been acquired on January 1, 1996.
Upon consummation of the Reel-Tech acquisition, the Company immediately
expensed $10.6 million representing purchased in-process technology that had
not yet reached technological feasibility and had no alternative future use.
The value was based on an independent appraisal and was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from such
projects, and discounting the net cash flows back to their present value. The
discount rate included a factor that took into account the uncertainty
surrounding the successful development of the purchased in-process technology.
The in-process projects were expected to be commercially viable on dates
ranging from the end of calendar year 1998 through calendar year 1999.
Expenditures to complete these projects were expected to total approximately
$3.2 million (see Note 11).
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
F-33
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Risks and uncertainties
The Company has experienced, and may continue to experience, fluctuations in
operating results due to a variety of factors, including: the rate of growth of
the markets for laser systems and components and printers; market acceptance of
the Company's products and those of its competitors; development and
promotional expenses relating to the introductions of new products or new
versions of existing products; changes in pricing policies by the Company and
its competitors; the timing of the receipt of orders from major customers; the
timing of shipments and economic conditions in foreign markets.
Certain of the components and materials included in the Company's laser systems
and optical products are currently obtained from single source suppliers. There
can be no assurance that a disruption of this outside supply would not create
substantial manufacturing delays and additional cost to the Company.
Cash and cash equivalents
Cash and cash equivalents include cash in banks and highly liquid investments
having original maturity dates not exceeding three months. The investments are
stated at cost, which approximates their fair value. The Company does not
believe it is exposed to any significant credit risk on its cash and cash
equivalents.
Inventories
Inventories, which include materials and conversion costs, are stated at the
lower of cost (primarily first-in, first-out) or market. Inventories consist of
the following:
December 31,
---------------
1997 1998
------- -------
(in thousands)
Purchased parts.............................................. $14,992 $15,901
Work-in-process.............................................. 8,127 7,358
Finished goods............................................... 10,932 11,628
------- -------
Total inventory............................................ $34,051 $34,887
======= =======
Depreciation and amortization
Depreciation and amortization are determined by the straight-line and
declining-balance methods over the estimated useful lives of the owned assets.
Estimated useful lives for buildings and improvements range from 5 to 31 years,
and for machinery and equipment from 3 to 15 years. Leasehold improvements are
amortized over the lesser of their useful lives or the lease term, including
option periods expected to be utilized.
Other Assets
Other assets at December 31, 1998 consist primarily of a subordinated note of
$2.25 million and common stock of $764 thousand, received as part of a
litigation settlement during 1998 (see Note 11). The subordinated note
F-34
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
is carried at face value, which approximates fair market value. The common
stock is considered to be available for sale and is carried at fair value based
on quoted market price. The difference between the cost and market value of the
common stock is recorded as "Unrealized gain (loss) on marketable equity
securities" in the accompanying consolidated financial statements.
Foreign currency
Assets and liabilities of foreign operations are translated from foreign
currencies into U.S. dollars at the exchange rates in effect at the period-end.
Revenues and expenses are translated at the average exchange rate in effect for
the period. The resulting translation adjustments are recorded as a component
of stockholders' equity.
Foreign exchange forward contracts and local currency borrowings are used to
reduce the impact of certain foreign currency balance sheet fluctuations. Gains
and losses from the forward contracts that are not hedges of firm commitments
are accrued at each balance sheet date and included in the Consolidated
Statements of Operations as foreign exchange transaction gains (losses). At
December 31, 1998, the Company had contracts to exchange foreign currencies
(yen, French francs and Deutsche marks) for U.S. dollars totaling $4.7 million
maturing through April, 1999. The fair value of losses from these contracts was
approximately $0.3 million at December 31, 1998, which is based on the market
price of offsetting forward exchange contracts at December 31, 1998.
To the extent the Company utilizes foreign exchange forward contracts, it
purchases them from major financial institutions for terms that have not
exceeded six months.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses
to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999. The Company is in the
process of quantifying the impacts of adopting SFAS 133 on its financial
statements and has not determined the timing of or method of adoption of SFAS
133.
Income (loss) per share of common stock
In 1997, the Company adopted SFAS No. 128, Earnings per Share. Amounts reported
herein for 1996 as "Diluted income per common share" are the same as those
reported previously as "Net income per common and common equivalent share
outstanding." Basic income (loss) per common share was computed by dividing net
income (loss) by the weighted average number of common shares outstanding
during the year. For diluted income per common share, the denominator also
includes dilutive outstanding stock options and warrants determined using the
treasury stock method.
F-35
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Common and common equivalent share disclosures are:
Year ended December
31,
--------------------
1996 1997 1998
------ ------ ------
(in thousands)
Weighted average common shares outstanding............. 11,774 12,065 12,584
Dilutive potential common shares....................... 702 592 --
------ ------ ------
Diluted common shares.................................. 12,476 12,657 12,584
====== ====== ======
Options and warrants excluded from diluted income per
common share as their effect would be antidilutive.... 76 104 1,252
====== ====== ======
Revenue recognition
The Company recognizes product revenues generally at the later of the time of
shipment or when substantially all terms and conditions of the sale have been
met. For certain long-term contracts, revenues and profits are recognized using
the percentage-of-completion method. The Company provides for estimated
warranty costs at the time of revenue recognition.
Research and product development expense
Expenditures for research and development of products and manufacturing
processes are expensed as incurred.
Interest
Interest expense in 1998 is net of $280 thousand of interest income. Interest
income in 1997 and 1996 is net of $498 thousand and $845 thousand of interest
expense, respectively.
Impairment of long-lived assets
The Company periodically assesses the realizability of its long-lived assets in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of. Based on its review, the
Company does not believe that any material impairment of its long-lived assets
has occurred.
Comprehensive income
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general-purpose financial statements. The statement is effective for fiscal
years beginning after December 15, 1997 and the Company adopted the statement
in 1998.
2. Intangible Assets
Purchase price in excess of the fair market value of tangible assets acquired
is recorded as intangible assets. Such assets arising from the acquisition of
the minority interest in Teradyne Laser Systems, Inc. in 1991 are being
amortized on a straight-line basis over their estimated useful lives of from 3
to 15 years. Goodwill arising in connection with the acquisition of the assets
of Reel-Tech in 1997 is being amortized on a straight-line basis over 10 years.
During 1998, the Company wrote off $178 thousand of net intangible assets
associated with the
F-36
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Reel-Tech assembled workforce when operations were relocated. Amortization
expense was $84 thousand in 1996, $109 thousand in 1997 and $398 thousand in
1998.
3. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
------------------
1997 1998
-------- --------
(in thousands)
Cost:
Land, buildings and improvements......................... $ 13,134 $ 13,375
Machinery and equipment.................................. 28,955 33,075
-------- --------
Total cost............................................. 42,089 46,450
Accumulated depreciation................................. (27,478) (31,477)
-------- --------
Net property, plant and equipment...................... $ 14,611 $ 14,973
======== ========
4. Accrued Expenses
Accrued expenses consists of the following:
December 31,
---------------
1997 1998
------- -------
(in thousands)
Accrued compensation and benefits........................... $ 8,448 $ 5,822
Income taxes................................................ 3,404 4,803
Other....................................................... 4,227 6,367
------- -------
Total accrued expenses.................................... $16,079 $16,992
======= =======
5. Debt
Notes payable to banks and current portion of long-term debt
Notes payable to banks and current portion of long-term debt consist of the
following:
December 31,
---------------
1997 1998
------- -------
(in thousands)
Lines of credit............................................. $ 4,150 $ 4,703
Current portion of long-term debt........................... 19 19
------- -------
Total..................................................... $ 4,169 $ 4,722
======= =======
The Company's revolving credit agreement with its lending bank was amended on
November 28, 1997. Under its amended terms, the agreement provides for
borrowings of up to $20 million and will expire on
F-37
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
December 31, 1999. Interest on outstanding borrowings is charged at the London
InterBank Offered Rate (LIBOR) plus 1.25% or prime, determined at the time of
borrowing. No such debt was outstanding at December 31, 1998 or 1997. A
commitment fee of 3/8% per annum is paid quarterly in arrears on the unused
portion. Among other restrictions, the agreement requires a minimum level of
tangible net worth and compliance with certain financial covenants.
Under the terms of the revolving credit agreement, the Company's foreign
operations may borrow up to a maximum of $6 million under lines of credit. Such
debt outstanding at December 31, 1998 was denominated in yen with a weighted
average interest rate of 1.6%.
Long-term debt
Long-term debt consists of a mortgage payable at 10 3/8% interest,
collateralized by certain land and building. Interest and principal are payable
at $14,906 per month until maturity in February 2000, at which time the
remaining principal of $1,507,516 will be payable. The portion of principal
payable within one year, which is included in current liabilities, is $19
thousand.
Fair value of financial instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of the year-end fair value of significant financial instruments,
including debt. The Company believes, based upon current terms, that the
carrying value of its debt approximates its fair value.
6. Deferred Compensation
Officers and certain employees may defer payment of their compensation until
termination of employment or later. Interest on the outstanding balance is
credited quarterly at the prime rate. The portion of deferred compensation
estimated to be due within one year is included in current liabilities.
7. Stockholders' Equity
Preferred stock
In August 1995, the stockholders approved an amendment to the Articles of
Organization which authorizes 1,000,000 shares of preferred stock, $.01 par
value. The preferred stock is divisible and issuable into one or more series.
The rights and preferences of the different series may be established by the
Board of Directors without further action by the stockholders. The Board of
Directors is authorized, with respect to each series, to fix and determine,
among other things, (i) the dividend rate, (ii) the liquidation preference,
(iii) whether such shares will be convertible into, or exchangeable for, any
other securities and (iv) whether such shares will have voting rights and, if
so, the conditions under which such shares will vote as a separate class.
Shareholder rights plan
On April 30, 1997, the Board of Directors adopted a Shareholders Rights Plan
(the "Plan") and declared a dividend distribution, payable on May 1, 1997, of
one preferred share purchase right under the Plan (each a "Right") for each
outstanding share of common stock of the Company. Under the Plan, each Right,
when exercisable, entitles the holder to purchase from the Company one ten-
thousandth of a share of the Company's Series A Junior Participating Preferred
Stock at a price of $70 per one ten-thousandth of a Preferred Share,
F-38
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
subject to adjustment and to certain exceptions. The value of the one ten-
thousandth interest in a share of Preferred Stock purchasable upon exercise of
each Right is intended to approximate the value of one share of common stock.
The rights are not exercisable and cannot be transferred separately from the
common stock until the first to occur of (a) 10 business days after a public
announcement that a person or group of affiliated or associated persons
(excluding certain persons and groups) has acquired beneficial ownership of 20%
or more of the outstanding common stock (the date of such an announcement, a
"Shares Acquisition Date"), or (b) 10 business days (subject to extension by
the Board) after the start or announcement of a tender or exchange offer, the
consummation of which would result in beneficial ownership by a person or group
of 20% or more of the outstanding common stock.
Prior to the earlier of (a) the tenth day after the Shares Acquisition Date, or
(b) the expiration of the Rights, the Company may under certain circumstances
redeem the Rights at a price of $0.001 per Right. In certain cases a Right will
entitle the holder to purchase common stock of the Company or an acquiring
company having a value of two times the exercise price of the Right. Under
certain conditions the Company may exchange the Rights for common stock or
preferred stock. The Rights expire on May 1, 2007 unless they are redeemed by
the Company.
So long as the Rights are not transferable separately from the common stock,
the Company will issue one Right with each new share of common stock issued.
The Rights could have certain anti-takeover effects, in that they would cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors.
Stock options
The 1992 Stock Option Plan, as amended in April 1998, provides for the issuance
of nonqualified and incentive stock options to purchase up to 2,000,000 shares
of the Company's common stock, of which 271,194 were available for future grant
at December 31, 1998. Under this plan, options are granted at the fair value
per share as determined by the Board of Directors at the date of grant.
Outstanding options vest over periods of three or four years beginning on the
date of grant and expire ten years from the date of grant. The Company's 1981
Stock Option Plan has terminated; however, options to purchase 72,750 shares of
common stock were outstanding under the 1981 Plan at December 31, 1998.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
which defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation costs for
those plans using the method of accounting prescribed by APB 25. Entities
electing to remain with the accounting in APB 25 must make pro forma
disclosures of net income and, if presented, earnings per share as if the fair
value based method of accounting defined in the statement had been applied.
The Company has elected to account for its stock-based compensation plans under
APB 25, under which immaterial amounts of compensation have been recognized.
Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts below. Because the method of accounting under SFAS No.
123 has not been applied to options granted prior to January 1, 1995, the
resulting pro forma compensation costs may not be representative of that to be
expected in future years.
F-39
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
1996 1997 1998
------ ------ -------
Net income (loss) (in thousands): As reported $6,601 $5,109 $(1,874)
Pro forma $6,354 $4,410 $(3,351)
Diluted income (loss) per share: As reported $ 0.53 $ 0.40 $ (0.15)
Pro forma $ 0.51 $ 0.35 $ (0.27)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.3% in 1996, 5.5% in 1997 and 4.7% in
1998; expected dividend yield of zero; expected lives upon vesting of 2 years
in 1998, 4 years in 1997 and 1996; and expected volatility of 50%. The weighted
average fair value per share of options granted was $4.47 in 1996, $6.74 in
1997 and $5.86 in 1998.
Stock option activity for the years ended December 31, 1996, 1997 and 1998 is
presented below.
Wtd. Avg.
Options Ex. Price
--------- ---------
Outstanding at December 31, 1995........................ 1,080,974 2.81
Granted................................................ 166,250 14.33
Exercised.............................................. (212,810) 2.32
Canceled............................................... (6,250) 7.65
--------- ------
Outstanding at December 31, 1996........................ 1,028,164 4.75
Granted................................................ 287,000 14.78
Exercised.............................................. (449,523) 2.71
Canceled............................................... (11,065) 10.97
--------- ------
Outstanding at December 31, 1997........................ 854,576 9.10
Granted................................................ 973,950 14.56
Exercised.............................................. (215,753) 2.75
Canceled............................................... (70,533) 14.41
--------- ------
Outstanding at December 31, 1998........................ 1,542,240 $13.19
========= ======
Exercisable at December 31, 1998........................ 512,809 $10.48
========= ======
Additional information regarding the options outstanding at December 31, 1998
follows:
Range of
Exercise No. of Wtd. avg. Wtd. avg. Number Wtd. avg.
prices options exercise price remaining life exercisable exercise price
-------- ------- -------------- -------------- ----------- --------------
$2.24-
$5.00 275,425 $ 3.91 6.8 years 157,825 $ 3.13
$ 6.00-
$10.00 311,445 $ 6.53 9.1 years 104,216 $ 6.90
$10.88-
$15.00 327,580 $13.88 8.1 years 155,228 $14.00
$15.13-
$20.00 446,180 $19.76 7.9 years 51,650 $19.73
$20.31-
$32.63 181,610 $21.32 9.3 years 43,890 $22.10
Warrants
The Company has issued warrants for the purchase of common stock to the
nonemployee members of the Board of Directors. Warrants issued through 1995
vested over periods of three or four years, beginning on the
F-40
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
date of grant, and expire ten years from the date of grant. In 1996, 65,000 of
such warrants were exercised at prices ranging from $1.75 to $2.50 per share,
in 1997, 17,500 of such warrants were exercised at $1.75 per share, and in
1998, 25,000 of such warrants were exercised at prices ranging from $2.36 to
$2.50 per share. At December 31, 1998, 12,500 of such warrants, all of which
are exercisable, remain outstanding at $2.36 per share.
During 1995, the stockholders adopted the 1995 Directors' Warrant Plan and
reserved 100,000 shares for future issuance of warrants to nonemployee
directors under the Plan. The exercise price of such warrants is the fair
market value per share as determined by a committee of the Board of Directors
at the date of grant. The warrants are subject to vesting as determined by such
committee and expire ten years from the date of grant. In 1996, 8,000 such
warrants were granted at an exercise price of $20.75 per share, in 1997, 8,000
such warrants were granted at an exercise price of $13.00 per share, and in
1998, 32,000 such warrants were granted at exercise prices ranging from $14.13
to $20.44 per share. In 1997, 4,000 such warrants were exercised at prices
ranging from $13.00 to $20.75 per share. At December 31, 1998, 40,000 of such
warrants, all of which are exercisable, remain outstanding at exercise prices
ranging from $13.00 to $20.75 per share.
8. Defined Contribution Plan
The Company has a defined contribution employee savings plan under the
provisions of Section 401(k) of the Internal Revenue Code under which
contributions may be made by its domestic employees. The Company matches the
contributions of participating employees on the basis of the percentages
specified in the plan. Company matching contributions to the plan were $1,080
thousand, $1,379 thousand and $1,444 thousand for the years ended December 31,
1996, 1997 and 1998, respectively.
9. Income Taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using the currently enacted tax rates.
The components of income (loss) before income taxes for the years ended
December 31 are as follows:
Year ended December
31,
----------------------
1996 1997 1998
------- ------ -------
(in thousands)
United States........................................ $10,348 $3,860 $(4,095)
Foreign.............................................. 1,620 3,751 1,222
------- ------ -------
Total.............................................. $11,968 $7,611 $(2,873)
======= ====== =======
F-41
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
The provision (benefit) for income taxes for the years ended December 31
consists of the following:
Year ended December
31,
------------------------
1996 1997 1998
------ ------- -------
(in thousands)
Current:
Federal and State................................. $5,209 $ 4,165 $ 1,076
Foreign........................................... 804 2,174 1,586
------ ------- -------
Total current.................................... 6,013 6,339 2,662
Deferred.......................................... (646) (3,837) (3,661)
------ ------- -------
Total............................................ $5,367 $ 2,502 $ (999)
====== ======= =======
The income tax provision (benefit) for the years ended December 31 is different
from that which would be computed by applying the U.S. federal income tax rate
to income (loss) before taxes as follows:
Year ended
December 31,
------------------
1996 1997 1998
---- ----- -----
U.S. federal statutory tax rate........................ 34.0% 34.0% (34.0)%
State income taxes, net................................ 3.9 6.0 (6.0)
Foreign sales corporation.............................. (3.0) (5.0) (14.9)
Research and development credits....................... (3.3) (10.5) (17.2)
Foreign tax rate differential.......................... 2.1 12.5 28.3
Foreign loss not benefited............................. -- -- 8.9
Merger expenses not deductible for tax purposes........ 4.0 -- 8.9
Change in valuation allowance for View pre-acquisition
losses................................................ 6.8 (6.0) --
Other, net............................................. 0.3 1.9 (8.8)
---- ----- -----
Effective tax rate..................................... 44.8% 32.9% (34.8)%
==== ===== =====
F-42
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Significant components of deferred income tax assets as of December 31 are as
follows:
December 31,
----------------
1997 1998
------- -------
(in thousands)
Deferred compensation...................................... $ 814 $ 496
Vacation and sick pay benefit.............................. 576 535
Inventory valuation........................................ 1,577 2,858
Warranty costs............................................. 357 474
Depreciation............................................... (260) (273)
Deferred revenue........................................... -- 411
Operating loss and tax credit carryforwards................ 2,248 3,698
Acquired in-process research and development............... 3,816 3,583
Accounts receivable valuation.............................. 356 1,179
Other...................................................... 621 805
------- -------
Total deferred income tax assets........................... 10,105 13,766
Less valuation allowance................................... (2,248) (2,248)
------- -------
Net deferred income tax assets............................. $ 7,857 $11,518
======= =======
The Company has provided a valuation allowance of $2,248 thousand as of
December 31, 1997 and 1998 on the net operating loss and tax credit
carryforwards related to its wholly-owned subsidiary, View Engineering, Inc.,
due to the uncertainty of their realizability as a result of limitations on
their utilization in accordance with certain tax laws and regulations. The
operating loss carryforwards expire from 2005 through 2011 and the tax credit
carryforwards expire in 1999 and 2000. Utilization of these operating loss and
tax credit carryforwards is limited to approximately $1.2 million per year. In
addition, the Company has other federal and state tax credit carryforwards of
$1,450 thousand at December 31, 1998 which expire from 2002 through 2013.
10. Commitments and Contingencies
(a) Operating leases
The Company leases certain equipment and facilities under operating lease
agreements that expire through 2008. The facility leases require the Company to
pay real estate taxes and other operating costs. For the years ended December
31, 1996, 1997 and 1998, lease expense was approximately $1,787 thousand,
$1,948 thousand and $2,717 thousand, respectively.
Minimum lease payments under operating leases expiring subsequent to December
31, 1998 are:
(in thousands)
1999.......................................................... $ 2,654
2000.......................................................... 2,178
2001.......................................................... 1,741
2002.......................................................... 1,590
2003.......................................................... 1,140
Thereafter.................................................... 3,491
-------
Total minimum lease payments.................................. $12,794
=======
F-43
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(b) Recourse receivables
In Japan, where it is customary to do so, the Company discounts certain notes
receivable at a bank with recourse. The Company's maximum exposure was $5,668
thousand at December 31, 1998. The fair value of the recourse receivables was
not determinable. The Company received cash proceeds relating to the discounted
receivables of $4,144 thousand, $5,262 thousand and $11,203 thousand during the
years ended December 31, 1996, 1997 and 1998, respectively.
(c) Legal proceedings and disputes, including subsequent events
During April 1999, the Company recorded a provision of $19 million to accrue
damages and legal fees, through to appeal, relating to Electro Scientific
Industries, Inc. v. General Scanning Inc. USDC Case No. C-96-4628. This amount
is not reflected in the Company's consolidated financial statements as of and
for the year ended December 31, 1998.
In September 1998, the U.S. District Court for the Northern District of
California granted Electro Scientific's motions for summary judgment against
General Scanning Inc. in this case on a claim of patent infringement and on the
issue of whether Electro Scientific committed inequitable conduct by
intentionally failing to cite prior art to the U.S. Patent Office in connection
with one of its patents. The court denied the Company's motion for summary
judgment that the patents are invalid due to prior art. During March 1999, the
Court granted Electro Scientific's motion for partial summary judgment that
upgrade kits, sold by General Scanning Inc. for 1.3 micron laser wavelength
memory repair, infringe the patents in suit. In April 1999, a federal court
jury issued a verdict that Electro Scientific's patent 5,473,624 was invalid,
and that Electro Scientific's patent 5,265,114 was valid, and awarded a $13.1
million damage judgment against the Company. In July 1999, the court refused
Electro Scientific's requests to increase damages awarded by the jury in April,
and for attorney's fees, but granted interest on the damages. The court also
affirmed the jury's decision to invalidate one of the two patents asserted by
Electro Scientific in the case. The Company has appealed the decisions on
infringement, the validity of the second patent and the award of damages. The
Company was required to post an unsecured bond with the court in order to
proceed with the appeal. No date has been set for arguments.
Robotic Vision Systems, Inc. v. View Engineering Inc., involves a complaint by
Robotic Vision Systems, Inc. ("RVSI") alleging infringement of a patent by View
Engineering, Inc., a wholly-owned subsidiary of General Scanning Inc. The
matter was tried before a judge sitting in the U.S. District Court for the
Central District of California in November 1999, and the Company is currently
awaiting the court's decision. RVSI alleges infringement relating to lead
inspection machines formerly sold by View and seeks damages of $60.5 million.
In settlement of separate litigation with RVSI in June 1998, arising from
General Scanning Inc.'s acquisition of View in August 1996, General Scanning
Inc. agreed not to compete in the field of semiconductor interconnection
inspections. (See Note 11).
The Company believes that the claims in this action are without merit and are
vigorously defending these proceedings. However, if the Company loses on one or
more of these claims and damages are awarded, there could be a material adverse
effect on the Company's operating results and/or financial condition.
Voxel, a prior customer of the Company, asserted in December 1996 that the
Company may not have met certain product specifications. The Company believes
its product has met the necessary specifications. Pursuant to the dispute
resolution section in the Development Agreement between Voxel and the Company,
the matter was submitted to binding arbitration. In May 1998, a three-member
panel of the American Arbitration Association decided in favor of the Company
with respect to the dispute with Voxel and awarded the Company $1.9 million
plus applicable post-judgement interest. Following the arbitration decision
Voxel filed a voluntary
F-44
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
petition under Chapter 11, which was subsequently converted to a proceeding
under Chapter 7 of the Federal Bankruptcy Code. Net accounts receivable at
December 31, 1997 included approximately $1,012 thousand of billed and unbilled
amounts due from Voxel. As of December 31, 1998, this amount has been written
off.
During 1998, a party commenced legal proceedings in the U.S. District Court for
the District of Arizona against a number of U.S. semiconductor manufacturing
companies, including companies that have purchased systems from the Company.
The complaint alleges that methods used by these manufacturers infringe patents
held by this party. While the Company is not named as a defendant in any of the
proceedings, several of the Company's customers are involved. A few of these
customers have notified the Company of the allegations and have asked the
Company about the actions the Company plans to take in light of patent
indemnification provisions under which the Company's equipment was purchased
for the operations involved in the alleged infringements.
The Company has certain other contingent liabilities resulting from litigation
and claims incidental to its business, including patent infringement suits
relating to products currently sold or expected to be sold by the Company.
Management believes that the probable resolution of such contingencies will not
have a materially adverse effect on the Company's results of operations or
financial position.
11. Restructuring, Litigation and Other Charges
The $7.7 million restructuring, litigation and other charges in 1998 include
$3.7 million relating to the settlement with Robotic Vision Systems, Inc.
("RVSI") and $4.0 million relating to reductions in the Company's cost
structure.
In August 1996, RVSI commenced an action against General Scanning in the United
States District Court for the Eastern District of New York. RVSI claimed that
General Scanning improperly obtained proprietary information from RVSI for the
purpose of obtaining ownership of View and of thwarting RVSI's attempts to
acquire View. The plaintiff was seeking compensatory and punitive damages in an
unspecified amount. In September 1997 and January 1998, that same Court issued
a series of decisions on General Scanning's motion for summary judgment. Claims
were dismissed for: (1) breach of contract, (2) breach of the implied covenant
of good faith and fair dealing, and (3) violations under the Massachusetts
Unfair and Deceptive Business Practices Statute. Claims were not dismissed for:
(1) tortious interference with business relations, (2) fraud of confidential
business information, and (3) unfair competition in contravention of New York
common law.
In June 1998, the Company settled the remaining litigation claims with RVSI.
Under the terms of the settlement, the Company has agreed not to compete and
has granted an exclusive technology license to RVSI in the field of
semiconductor interconnection inspection. RVSI agreed not to compete in the
field of solder paste inspection.
Costs associated with the RVSI settlement were $7.4 million including
unsaleable inventory of $5.1 million, legal fees of $1.3 million, employee
severance of $210 thousand, leased facility costs of $188 thousand and other
related costs of $602 thousand. Partially offsetting these costs is $3.75
million consideration RVSI agreed to pay the Company for the non-competition
agreement and technology license. The consideration consists of a subordinated
note of $2.25 million and 271,493 shares of RVSI common stock valued at $1.5
million at the settlement date based on quoted market price. The subordinated
note bears interest at the prime rate with quarterly pro-rata principal
payments from September 2001 through June 2003. The Company considers the
common stock to be available-for-sale and, accordingly, is recording changes in
its fair market value as a component of stockholders' equity.
F-45
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
In addition, as a result of the RVSI settlement, the Company has not achieved
the expected economic benefits from the purchase of Reel-Tech's in-process
research and development. The Company's original objective in acquiring the
assets of Reel-Tech was to implement a strategy of combining certain functions
performed at the back end of the semiconductor component manufacturing process,
specifically marking, inspection and packaging. The Company planned to combine
its laser marking capability and View Engineering's vision inspection
technology with Reel-Tech's new component parts handling/packaging systems. The
settlement agreement with RVSI limits the Company's ability to offer certain of
these features to its customers. As a result, the in-process research and
development projects at Reel-Tech were discontinued. The resulting impact is
included in the Company's restructuring charges recorded during 1998. The
Company does not expect any future revenue or cash flow from Reel-Tech's in-
process research and development.
Charges of $4.0 million relating to reductions in the Company's cost structure
include $1.4 million of leased facility costs, $178 thousand write-off of net
intangible asset from acquisition of Reel-Tech assembled workforce and $2.4
million for severance of 230 employees. Accruals remaining on the balance sheet
as of December 31, 1998 include $710 thousand for leased facility costs and
$748 thousand related to employee severance.
12. Merger Agreement
On October 27, 1998 the Company and Lumonics Inc. ("Lumonics") entered into an
Agreement and Plan of Merger (the "Agreement") to combine the companies in a
merger of equals transaction. The merger was approved by the stockholders of
each company on March 17, 1999 and was consummated on March 22, 1999. Pursuant
to the terms of the Agreement, a wholly-owned subsidiary of Lumonics was merged
with and into the Company and each outstanding share of the Company was
exchanged for 1.347 shares of GSI Lumonics stock. Upon consummation of the
transaction, the stockholders of General Scanning own approximately 50% of the
combined company.
13. Related Party Transaction
In 1992, the Company's Board of Directors authorized a loan to an officer in
the amount of $160 thousand as a reimbursement for certain relocation expenses.
Under the agreement, as amended, the loan has been forgiven and charged as
compensation expense on a pro-rata basis over the five years ended December 31,
1997.
14. Segment Information
In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The new disclosure requirements established
revised standards for public companies relating to the reporting of financial
and descriptive information in financial statements about their operating
segments.
Business segment information
The Company has two reportable segments as set forth in the table below. In
classifying operational entities into a particular segment, the Company
aggregated businesses with similar economic characteristics, products and
services, production processes, customers and methods of distribution. The
accounting policies for segments are the same as the Company's accounting
policies as described in Note 1. There are no transfers
F-46
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
between segments. Management evaluates segment performance based on segment
income (loss) from operations before interest income and expense, foreign
exchange transaction gains (losses), certain non-recurring items such as merger
expenses, and income taxes.
Year ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
(in thousands)
Sales to unaffiliated customers:
Laser systems and components................. $131,867 $154,536 $148,141
Printers..................................... 24,666 26,994 33,256
-------- -------- --------
Total....................................... $156,533 $181,530 $181,397
======== ======== ========
Income (loss) from operations:
Laser systems and components (1,2)........... $ 11,967 $ 6,075 $ (3,927)
Printers..................................... 4,321 5,034 5,825
Corporate expenses........................... (2,483) (3,455) (3,608)
-------- -------- --------
Total....................................... $ 13,805 $ 7,654 $ (1,710)
======== ======== ========
Total assets:
Laser systems and components................. $ 64,836 $ 91,923 $ 84,795
Printers..................................... 8,150 6,844 8,274
Corporate assets (3)......................... 22,587 16,275 17,663
-------- -------- --------
Total....................................... $ 95,573 $115,042 $110,732
======== ======== ========
Capital expenditures:
Laser systems and components................. $ 5,704 $ 5,244 $ 4,359
Printers..................................... 1,198 91 626
-------- -------- --------
Total....................................... $ 6,902 $ 5,335 $ 4,985
======== ======== ========
Depreciation and amortization:
Laser systems and components................. $ 2,773 $ 3,459 $ 4,707
Printers..................................... 407 482 406
-------- -------- --------
Total....................................... $ 3,180 $ 3,941 $ 5,113
======== ======== ========
- ------------------
(1) Includes $10,600 charge for acquired in-process research and development in
1997.
(2) Includes $7,654 charges for restructuring, litigation and other charges in
1998.
(3) Consists primarily of cash, cash equivalents and deferred tax assets.
F-47
GENERAL SCANNING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Geographic segment information
The Company attributes revenues to geographic areas on the basis of the
customer bill to location. Long-lived assets are attributed to geographic areas
in which Company assets reside.
Year ended December 31,
--------------------------
1996 1997 1998
-------- -------- --------
(in thousands)
Sales to unaffiliated customers:
US.............................................. $ 91,833 $101,685 $108,677
Europe.......................................... 25,900 30,754 36,120
Japan........................................... 22,100 25,523 19,955
Asia, other..................................... 16,700 23,568 16,645
-------- -------- --------
Total.......................................... $156,533 $181,530 $181,397
======== ======== ========
Long-lived assets:
US.............................................. $ 12,491 $ 13,960 $ 14,338
Europe.......................................... 334 382 370
Japan........................................... 97 78 62
Asia, other..................................... -- 191 203
-------- -------- --------
Total.......................................... $ 12,922 $ 14,611 $ 14,973
======== ======== ========
Major customers
The Company has revenues in 1998 from two divisions of one customer that
represent $19.6 million or 10.8% of consolidated revenues. The printer and
laser systems/components segments serve these divisions.
F-48
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
- ---------------------------------------------------------------
4,000,000
Common Shares
--------------
Debt Securities
PROSPECTUS
--------------
March
, 2000
CIBC World Markets
Chase H&Q
Needham & Company, Inc.
- ---------------------------------------------------------------
You should rely only on the information contained or
incorporated by reference in this prospectus. No dealer,
salesperson or other person is authorized to give
information that is not contained in this prospectus. This
prospectus is not an offer to sell nor is it seeking an
offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained
in this prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other expenses of issuance and distribution
| Item 14. | Other expenses of issuance and distribution. |
The following table sets forth the estimated costs and expenses, other than the
underwriting discounts and commissions,fees payable by GSI Group Inc. in connection with the sale of the common stocksecurities being registered allhereby. The expenses of whichregistration of the common shares offered by the selling shareholder will be paidborne by us in accordance with the registrant.
registration rights agreement. With the exception of the Securities and Exchange Commission registration fee, all amounts shown are estimates.
Securities and Exchange Commission registration fee | $ | 26,571.61 | ||
Blue sky qualification fees and expenses | $ | 5,000.00 | ||
Printing and engraving expenses | $ | 10,000.00 | ||
Legal fees and expenses | $ | 200,000.00 | ||
Accounting fees and expenses | $ | 100,000.00 | ||
Transfer agent and listing fees | $ | 10,000.00 | ||
Trustee fees and expenses | $ | 5,000.00 | ||
Miscellaneous expenses | $ | 5,000.00 | ||
|
| |||
Total | $ | 361,571.61 |
| Item 15. | Indemnifications of directors and |
Our by-laws require that we indemnify current or former directors and officers Subjectagainst expenses incurred by them in connection with each proceeding in which such officer or director is involved as a result of serving or having served at our request. Our indemnification obligation covers all costs, charges and expenses, including amounts paid to settle an action or satisfy a judgment reasonably incurred by such officer or director by reason of having been an officer or director. Indemnification is not available with respect to a proceeding as to which it has been adjudicated that such person did not act honestly and in good faith with a view to our best interests, and, with the reasonable belief that his or her action was lawful. The above provisions are intended to follow and are subject to the limitations set forth in section 81 of the New Brunswick Business Corporations Act New Brunswick, as from
time to time amended,(“NB BCA”).
Section 81(1) of the NB BCA provides that except in respect of an action by or on behalf of the
registrantus or Another Body Corporate (as defined below)a body corporate to procure a judgment in its favor, the registrant mustwe may indemnify eacha former or current director andor officer and each
former director and officer and eachor other person who acts or acted at the
registrant'sour request as a director or officer of Another Body Corporate,a body corporate of which we are or were a shareholder or creditor, and histhat person’s heirs and legal representatives, against all costs, charges and expenses, including anyan amount paid to settle an action or satisfy a judgment, reasonably incurred by that person in respect of any civil, criminal or administrative action or proceeding to which that person is made a party by reason of being or having been a director or officer of the Company or body corporate, if (a) that person acted honestly and in good faith with a view to our best interests, and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, that person had reasonable grounds for believing that that person’s conduct was lawful.
Section 81(2) of the NB BCA provides that we may with court approval indemnify a former or current director or officer or other person who acts or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor, and that person’s heirs and legal representatives in respect of an action by or on behalf of us or body corporate to procure a judgment in its favor, to which he is made a party by reason of being or having been a director or an officer of the Company or body corporate, against all costs, charges and expenses reasonably incurred by him in connection with such action if (a) that person acted honestly and in good faith with a view to our best interests, and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, that person had reasonable grounds for believing that that person’s conduct was lawful.
II-1
Section 81(3) of the NB BCA provides that notwithstanding anything in section 81 of the NB BCA, a former or current director or officer or other person who acts or acted at our request as a director or officer of a body corporate of which we are or were a shareholder or creditor, and that person’s heirs and legal representatives is entitled to indemnity from us in respect of all costs, charges and expenses reasonably incurred by him in connection with the defense of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the CorporationCompany or Another Body Corporate, asbody corporate, if the case
may be, ifperson seeking indemnity (a) hewas substantially successful on the merits of his defense of the action or proceeding, (b) acted honestly and in good faith with a view to theour best interests, of the registrant; and
(b)(c) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that histhat person’s conduct was lawful.
"Another Body Corporate"lawful and (d) is fairly and reasonably entitled to indemnity.
Section 81(4) of the NB BCA provides that we may purchase and maintain insurance for the benefit of any former or current director or officer or other person who acts or acted at our request as used herein meansa director or officer of a body corporate of which the
registrant iswe are or waswere a shareholder or creditor.
creditor, and that person’s heirs and legal representatives against any liability incurred by him (a) in his capacity as our director or officer, except where the liability relates to his failure to act honestly and in good faith with a view to our best interests; or (b) in his capacity as a director or officer of another body corporate if he acts or acted in that capacity at our request, except where the liability relates to his failure to act honestly and in good faith with a view to the best interests of that body corporate.
We maintain directors' and officers' liabilityour wholly owned subsidiary, GSI Group Corporation, have also entered into indemnification agreements with our chief executive officer and chief financial officer. The indemnification agreements provide that we will indemnify such persons if they are, or are threatened to be made, a party to or a participant in any proceeding, other than a proceeding by or in the right of us to procure a judgment in our favor. Such persons are indemnified to the fullest extent permitted by applicable law against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by them or on their behalf in connection with such proceeding or any claim, issue or matter therein, if they acted honestly and in good faith with a view to our best interests, and in the case of a criminal or administrative proceeding that is enforced by a monetary penalty, such persons had reasonable grounds for believing that their conduct was lawful. With the leave of the court, we also indemnify such persons to the fullest extent permitted by applicable law against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by them or on their behalf if they are, or are threatened to be made, a party to or a participant in any proceeding by us or in our right to procure a judgment in our favor, provided that such persons acted honestly and in good faith with a view to our best interests, and in the case of a criminal or administrative proceeding that is enforced by a monetary penalty, such persons had reasonable grounds for believing that their conduct was lawful. To the extent that such persons are a party to or a participant in and are successful (on the merits or otherwise) in defense of any proceeding or any claim, issue or matter therein, we will indemnify them against all expenses actually and reasonably incurred in connection with the proceedings. To the extent permitted by applicable law, if such persons are not wholly successful in such proceeding but are successful, on the merits or otherwise, in defense of one or more but less than all claims, issues or matters in such proceeding, we will indemnify them against all expenses actually and reasonably incurred in connection with (a) each successfully resolved claim, issue or matter and (b) any claim, issue or matter related to any such successfully resolved claim, issuer or matter.
We also have director and officer insurance policies that will insure our officers and directors against unindemnifiable costs, charges and expenses, and may also enable us to recover some or all of any future amounts paid pursuant to our indemnity obligations.
| Item 16. | Exhibits. |
The attached Exhibit Index is incorporated herein by reference.
II-2
| Item 17. | Undertakings. |
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, principal amountrepresent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of $35,000,000 subjectsecurities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in this registration statement.
Provided,however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) above do not apply if the registration statement is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement or is contained in a form of prospectus filed pursuant to Rule 424(b) that is a part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby further undertakes that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(1) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(2) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.Provided,however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated
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or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a $1,000,000 deductible per loss
payablepurchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(c) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by us.means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The premium payable for such insuranceportion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is currently $104,000 per
year which is paidan offer in the offering made by us.
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Item 16. Exhibits
See Exhibit Index following the Signatures page which is incorporated into this
prospectus by reference.
Item 17. Undertakingsundersigned registrant to the purchaser.
(d) The undersigned registrant hereby undertakes that: (1) For(i) for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of thisthe registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act of 1933, shall be deemed to be part of thisthe registration statement as of the time it was declared effective.
(2) Foreffective; and (ii) for the purpose of determining any liability under the Securities Act, of
1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(e) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant'sregistrant’s annual report pursuant to sectionSection 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
Insofar as indemnification
(f) If and when applicable, the undersigned registrant, hereby undertakes to file an application for liabilities arising under the Securities Actpurpose of 1933 may be permitted to directors, officers and controlling personsdetermining the eligibility of the registrant pursuanttrustee to act under subsection (a) of Section 310 of the foregoing provisions, or otherwise,Trust Indenture Act in accordance with the registrant
has been advised that in the opinion ofrules and regulations prescribed by the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling personunder Section 305(b)(2) of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Citycity of Ottawa, ProvinceBedford, state of Ontario,Massachusetts, on March 21, 2000.
GSI Lumonics Inc.
/s/ Charles D. Winston
By: _________________________________
Name: Charles D. Winston
Title: Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents that each individual whose signature appears
below hereby constitutes and appoints each of Desmond J. Bradley and Charles J.
Gardner, or any of them, each acting alone, such person's true and lawful
attorney-in-fact and agent, with full power of substitution for him and in his
name to sign for such person and in such person's name and capacity indicated
below, in connection with this registrant's registration statement on Form S-3,
including to sign this registration statement and any and all amendments to
this registration statement, including post-effective amendments, and any
registration statement for the same offering that is to be effective on filing
pursuant to Rule 462(b) under the Securities Act, and to file the same with the
Securities and Exchange Commission, hereby ratifying and confirming such
person's signature as it may be signed by said attorneys-in-fact to any and all
amendments.
April 3, 2012.
| GSI GROUP INC. | ||
| By: | /s/ ROBERT J. BUCKLEY | |
| Name: | Robert J. Buckley | |
| Title: | Chief Financial Officer | |
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Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
indicated:
Signature | Title | Date | ||
* Stephen W. Bershad | Chairman of the Board of Directors | April 3, 2012 | ||
/s/ JOHN A. ROUSH John A. Roush | Director, Chief Executive Officer (Principal Executive Officer) | April 3, 2012 | ||
/S/ ROBERT J. BUCKLEY Robert J. Buckley | Chief Financial Officer (Principal Financial Officer) | April 3, 2012 | ||
/S/ PETER L. CHANG Peter L. Chang | Vice President, Corporate Controller (Principal Accounting Officer) | April 3, 2012 | ||
* Eugene I. Davis | Director | April 3, 2012 | ||
* Dennis J. Fortino | Director | April 3, 2012 | ||
* Ira J. Lamel | Director | April 3, 2012 | ||
* Byron O. Pond | Director | April 3, 2012 | ||
| *By: | /s/ ROBERT J. BUCKLEY | |||
| Robert J. Buckley | ||||
| Attorney-in-fact |
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EXHIBIT INDEX
Exhibit | Description | |
| 1.1* | Form of Underwriting Agreement | |
| 2.1 | Agreement and | |
| 2.2 | Asset Purchase Agreement, by and between GSI Group Corporation and Gooch & Housego (California) LLC., dated July 3, 2008 (incorporated by reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q filed on April 13, 2010). | |
| 2.3 | Final Fourth Modified Joint Chapter 11 Plan of Reorganization for the Registrant, GSI Group Corporation, and MES International, Inc., dated as of May 24, 2010, as supplemented on May 27, 2010, and as confirmed by the United States | |
| 3.1† | Certificate and Articles of Continuance of the Registrant, dated March | |
| 3.2† | Articles of Amendment of the Registrant, dated May 26, 2005. | |
| 3.3 | Articles of Reorganization of the Registrant, dated July 23, 2010 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on July 23, 2010). | |
| 3.4 | Articles of Amendment of the Registrant, dated December 29, 2010 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on December 29, 2010). | |
| 3.5 | By-Laws of the Registrant, as amended (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q filed on April 13, 2010). | |
| 4.1 | Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and | |
| 4.2† | Form of | |
| 4.3† | Form of Indenture, to be entered into between GSI Group Inc. and Wilmington Trust, National Association. | |
| 4.4* | Form of Debt Security. | |
| 5.1+ | Opinion of Stewart | |
| 5.2† | Opinion of | |
| 12.1† | Statement regarding computation of ratio of earnings to | |
| 23.1† | Consent of Ernst & Young | |
| 23.2+ | Consent of | |
| 23.3† | Consent of Latham & Watkins LLP | |
| 24.1† | Power of Attorney (included on the signature page of this registration statement). | |
| 25.1† | Statement of Eligibility of Trustee on Form T-1 | |