Mail Stop 6010
September 7, 2006
Valentin P. Gapontsev, Ph.D.
Chief Executive Officer and Chairman of the Board
IPG Photonics Corporation
50 Old Webster Road
Oxford, Massachusetts 01540
Re: IPG Photonics Corporation
Registration Statement on Form S-1
Filed August 11, 2006
Registration No. 333-136521
Dear Dr. Gapontsev:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. Please confirm that any preliminary prospectus you circulate
will
include all non-Rule 430A information. This includes the price
range
and related information based on a bona fide estimate of the
public
offering price within that range. We may have further comments
when
you include pricing information and related disclosure.
Cover Page
2. Please remove the caption "Joint Book-Running Managers."
Graphics
3. We note your breakdown of net sales derived from product by
different applications on page F-28. Please show us how your
graphics accurately represent your markets and applications
relative
to their contribution to your revenue.
4. Please ensure that the text at the bottom right of your
graphics
is legible. We may have comment on that text once a legible
version
is filed.
Table of Contents
5. We note your reference to the market and industry data and
forecasts included in your prospectus. Please provide us with
copies
of any market and industry data and forecast report that you cite
in
your prospectus. Clearly mark the relevant sections that support
the
data you have included in your prospectus and the page number of
your
prospectus where such data has been used. Also tell us whether
the
sources of the cited data have consented to your use of their
names
and data and whether any of the reports were commissioned by you
or
prepared specifically for your use.
Prospectus Summary, page 1
6. Please balance your summary disclosure of your growth rates
with
equally prominent disclosure of the statement on page 30 that you
do
not expect to continue to grow at those rates.
Overview, page 1
7. Please provide independent and objective support for your
statements that you are "the leading developer and manufacturer of
a
broad line of high-performance fiber lasers and amplifiers for
diverse application in numerous markets" and "pioneered the
development and commercialization of optical fiber-based lasers."
Industry Background, page 1
8. Please clarify what you mean by "disruptive technology."
9. We note the references to the benefits of your product in the
bullet points following the second paragraph. If you elect to
provide this disclosure in the summary, please provide equally
prominent disclosure of the disadvantages of your products.
Likewise, provide equally prominent, balancing disclosure to the
strengths described under "Our Strengths."
The Offering - Use of proceeds, page 4
10. Please provide a summary of the disclosure which appears in
the
second to last paragraph under "Use of Proceeds" regarding the
proceeds of your offering that will be received by TA Associates,
an
affiliate of one of your directors.
Risk Factors, page 7
We are subject to lawsuits..., page 8
11. Please clarify why you would be unaware of existing patents as
mentioned in the first paragraph.
12. Please provide more detail on how the lawsuits mentioned would
specifically affect your business, results of operations and
financial condition if the outcomes of those lawsuits were
unfavorable to you.
We depend upon internal production..., page 10
13. Please indicate the locations of your "three major
manufacturing
facilities."
We rely on the significant experience and specialized
expertise...,
page 10
14. Please clarify why your ability to attract and retain
employees
with equity compensation may be limited following the completion
of
your offering.
Because we lack long-term purchase commitments from our
customers...,
page 13
15. We note the historical inventory write-downs described in Note
3
to your financial statements. Please expand your risk factor to
include a brief discussion of those write-downs and expand your
risk
factor discussion, as necessary, to explain why these write-downs
occurred.
16. Please expand your risk factor, or add a new risk factor, to
discuss the risks inherent in your vertical integration strategy
that
are currently described in the second full paragraph on page 43.
We are subject to various environmental laws..., page 16
17. Please disclose when the WEEE directive is effective and why
you
do not know whether you will be required to register or incur
financial responsibility.
We are subject to export controls..., page 16
18. Please clarify why your products are subject to export
controls
that may be more stringent than those applicable to traditional
lasers. Also please clarify why you mention delays in obtaining
export licenses. How have you been exporting your products to
date?
Anti-takeover provisions in our charter documents and Delaware
law..., page 18
19. Please identify the "certain" stockholders whose collective
beneficial ownership levels will trigger the anti-takeover
provisions
described.
20. We note that your disclosure in the last paragraph of this
risk
factor does not appear to be consistent with the disclosure in the
last paragraph of your disclosure under the caption "Section 203
of
the Delaware General Corporation Law" on page 86. Your disclosure
on
page 86 appears to indicate that Section 203 of the DGCL will not
apply to you until, among other things, Dr. Gapontsev ceases to
beneficially own 25% or more of the total voting power of your
outstanding shares. Please revise your disclosure so that it is
clear when Section 203 will apply.
Use of Proceeds, page 22
21. We note that you will use a portion of the proceeds from your
offering to repay indebtedness. If any of the indebtedness to be
discharged was incurred within one year, please describe the use
of
the proceeds of such indebtedness other than short-term borrowings
used for working capital. Refer to Instruction 4 to Item 504 of
Regulation S-K.
22. Please quantify the amount of your proceeds that you intend to
use for each purpose mentioned in the last bullet point.
Capitalization, page 24
23. Revise to remove the caption relating to cash and cash
equivalents from your presentation of capitalization.
Dilution, page 25
24. We note your discussion of the further dilution to be
experienced
by your new investors to extent your outstanding stock options are
exercised. Please also explain how the "shares purchased," "total
consideration" and "average price per share" columns in your
second
table would change if the options are exercised.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 28
Minority interests in consolidated subsidiaries, page 30
25. Please revise the last sentence of this paragraph so that this
disclosure and its effect on your financial statements will be
clear
to your investors.
Factors and Trends That Affect Our Operations and Financial
Results,
page 30
26. We note your discussion the Directives described in the second
paragraph of your risk factor entitled "We are subject to various
environmental laws and regulations..." on page 16. To the extent
material, please discuss the known effect those Directives will
have
on your operations and financial results going forward.
Stock-based compensation, page 33
27. Please clarify the reasons for the expected increased expense
mentioned in the last sentence on page 34.
Net sales, page 36
28. We note your disclosure on page 30 that your sales are
affected
by the periods in which products are adopted or qualified. Please
show the effect of this factor in your discussion of actual
results.
29. We note your reference to your product life cycle at the top
of
page 29. With a view toward disclosure, please tell us about the
current stage in the life cycle of each of your material products.
Cost of sales and gross margin, page 36
30. We note your disclosure on page 30 that your margins are
affected
by the mix of higher and lower power products sold during the
period.
Please show the effect of this mix in your discussion of actual
results.
31. Please discuss how you decreased the cost of your internally
manufactured components. Also explain how you are able to
continue
to decrease these costs over each period presented.
Liquidity and Capital Resources, page 41
32. We note from your footnote disclosure on page F-16 that
certain
covenants exist related to your U.S. Construction Loan. Please
revise the filing to discuss and quantify the terms of your debt
covenants, including all financial ratios, and discuss the
possible
impact on your financial position, operations and liquidity.
Contractual Obligations, page 44
33. The table required by Regulation S-K Item 303(a)(5) should not
be
limited to cash commitments. Please revise accordingly.
Business, page 46
Adoption of Fiber Lasers and Amplifiers, page 49
34. Please reconcile the fiber laser market figures here with the
figures in the penultimate paragraph on page 47.
Medical, page 56
35. With a view toward disclosure, please tell us about the nature
of
the FDA regulations that govern your business given your
involvement
with medical products.
Sales, Marketing and Support, page 59
36. Please tell us whether your sales and support facilities are
in
North or South Korea. Also tell us the amount of sales in each of
these countries.
Intellectual Property, page 61
37. Please dislose the scope and duration of your material
patents.
Competition, page 61
38. Please expand your disclosure to include a more robust
discussion
of your competitive position relative to your competitors who sell
or
are developing fiber lasers and amplifiers, taking into account
any
publicly available information of the status of the product
development efforts of those competitors.
Management, page 64
39. Please provide the disclosure required by Regulation S-K Item
401(c) for the members of your scientific staff who are the
subject
of the last risk factor on page 10.
Senior Executive Short-Term Incentive Plan, page 73
40. Please clarify whether the awards under this plan will be in
the
form of cash or stock-based compensation.
Principal and Selling Stockholders, page 76
41. Please identify the natural persons with voting or investment
power over the shares held by JDS Uniphase.
42. Please reconcile the number of individuals mentioned in
parentheses in the last row with the number of individuals
identified
on page 64.
43. Please revise footnote 11 to clarify whether you have included
TA
Associates Funds` shares in the disclosure of Mr. Child`s
beneficial
ownership.
Certain Relationships and Related Party Transactions, page 78
44. Please file the agreements mentioned in this section.
45. Where you refer to "Federal" interest rates, please be more
specific regarding which rate you mean.
46. We note that your disclosure in this section relates to the
value
of transactions through December 31, 2005. Please update the
disclosure.
47. We note from the first sentence of Note 8 to your financial
statements that an aggregate of $6,736,000 was loaned to three
officers of the company; however, we see that the transactions you
have disclosed in this section do not total to that amount.
Please
tell us the details of the loans you have not described in this
section, and provide us with your analysis as to why Item 404 of
Regulation S-K does not require a description of those
transactions
to be included in this section.
48. Please provide us your analysis of why the transaction
mentioned
in the last paragraph of Note 8 to your financial statements need
not
be included in this section.
Transactions with IP Fibre Devices, page 78
49. We note your disclosure that "IPFD is a company organized to
hold
financial and other assets and does not engage in any business
that
is competitive to ours." Please elaborate on the identity of this
organization and describe how IPFD came to be the holder of
11,150,000 shares of your common stock. Please tell us the
identify
of the groups or individuals who own the remainder of IPFD.
50. We note your disclosure in the last paragraph of this
subsection
that IPFD has historically sold optical components and equipment
to
you. As such, please clarify your prior disclosure that "IPFD is
a
company organized to hold financial assets and does not engage in
any
business that is competitive to ours."
Transactions with NTO IRE-Polus, page 78
51. We note your references to future funding obligations you may
have with respect to NTO IRE-Polus. Please clarify when such
funding
will be required and whether your ownership interest in NTO IRE-
Polus
will increase as a result of those future investments.
Director and Officer Loans, page 80
52. With a view toward disclosure, please tell us the date that
Mr.
Dalton acquired the Series A preferred and the amount paid for
those
shares.
53. Please disclose the interest rate on the loan mentioned in the
last paragraph. Also disclose the amount of interest payments on
each loan. The disclosure should be reconcilable to related
disclosure, like the last bullet point on page 24.
Series B Preferred Stock, page 81
54. Please clarify how the conversion operates both before and
after
the amendment. Show clearly the differences in value of the
conversion consideration before and after the amendment. Avoid
complex sentences. For example:
* Where you disclose the minimum conversion price at the time of
the
amendment was $25 per share, does that mean that the preferred
stock
was not convertible if the offering was below $25 per share?
* What do you mean by "what the shareholders would have received
if
[you] were sold to a third party"? What were the shareholders
entitled to receive upon such a sale? Why is that relevant for
the
conversion?
* How will you value the common stock to be paid as the
"remainder"?
Please use tables or charts as necessary to explain the operation
of
the preferred stock.
Series D Preferred Stockholder, page 81
55. Please disclose here the conversion rate of the series D
preferred stock.
Stockholders Agreement, page 82
56. Please describe all of the other provisions of the
stockholders
agreements that will survive the closing of your public offering.
Description of Capital Stock, page 83
57. Please disclose the number of holders of your common stock.
Section 203 of the Delaware General Corporation Law, page 85
58. We note your disclosure in the last paragraph of this
subsection
that "Section 203 will apply to us following such time as would
apply
to us on its own terms...." Please clarify when Section 203 will
be
applicable to your company.
Underwriting, page 93
Stamp Taxes, page 95
59. Please clarify whether this disclosure is applicable to U.S.
investors.
Financial Statements, page F-1
Consolidated Statements of Operations, page F-4
60. Please revise the statement to remove the stock-based
compensation total from the table included as a footnote on the
face
of your statements of income. As indicated in SAB Topic 14-F, you
may present the related stock-based compensation expenses in a
parenthetical note to the appropriate income statement line items.
That guidance also indicates that you may present the information
in
the notes to the financial statements or within MD&A. Please also
apply this comment to your selected consolidated financial data.
Note 1 - Nature of Business and Summary of Significant Accounting
Policies, page F-7
Revenue Recognition, page F-8
61. We note from your disclosures that you sell certain products
through independent distributors. Please tell us whether sales to
distributors contain any rights of return, price protection
privileges or other compensation and, if so, explain how you
comply
with SFAS 48 and SAB 104.
62. We see that you account for certain sales on a multiple
element
basis. Please describe the nature and significant terms of these
transactions and the manner in which you value and account for
them.
Please tell us how you apply EITF 00-21 when recognizing revenue.
Note 7 - Convertible Redeemable Preferred Stock, Preferred Stock
and
Warrants, page F-17
63. We note that you currently have three classes of preferred
stock
outstanding. To help us better understand your classification and
accounting for each class of preferred stock, please address the
following:
* Describe all the material terms of the convertible preferred
stock,
including but not limited to, the conditions under which the
company
or the holder may convert into common shares, the conversion rate
and
all conditions that may result in adjustments to that rate, any
conditions under which the company or the holder may redeem the
stock, and the dividend rates and any adjustments thereto. Please
clearly describe the material terms of all related agreements,
such
as registration rights agreements.
* Describe clearly how you have accounted for each class of
convertible preferred stock, including any embedded derivatives
requiring bifurcation pursuant to SFAS 133 and EITF 00-19.
In this regard, as applicable, please refer to the guidance
provided
in SFAS 150, EITF 05-04, EITF 00-19 and the Division of
Corporation
Finance`s Current Accounting and Disclosure Issues Outline at
http://www.sec.gov/divisions/corpfin/acctdis120105.pdf.
64. Additionally we note that you have concluded that the warrants
issued in conjunction with the Series B preferred stock are
subject
to derivative accounting. Please revise to disclose the
methodology
and significant estimates and assumptions used to value your
warrant
liability at each balance sheet date.
65. We note that upon a qualified public offering, all of your
Series
B preferred stock automatically converts into subordinated debt
and
common shares. Please tell us more about the terms associated
with
the conversion of the Series B preferred stock into debt. Tell us
how you are required to account for the pending conversion of the
security to debt. Please provide references to the authoritative
accounting literature that supports your conclusions. We may have
additional comments after reviewing your response.
Minority Interests, page F-20
66. We note from disclosures on page 18 that you own 51.0% of NTO
IRE-Polus, your Russian subsidiary. We also note you indicate
under
Russian law and NTO IRE-Polus` charter, supermajority or unanimous
stockholder approval is required to take certain significant non-
operational actions, such as amending NTO IRE-Polus` charter,
electing the executive body or altering certain fundamental
stockholder rights. Tell us more about the nature of the "non-
operational" actions that require supermajority or unanimous
stockholder approval. Also, please tell us how the requirement
for
supermajority or unanimous stockholder approval (in certain cases)
impacts your required accounting for and presentation of your
investment in NTO IRE-Polus in your consolidated financial
statements. Please address your consideration of the guidance at
EITF 96-16 in your response. We may have additional comments
after
reviewing your response.
Part II
Item 15. Recent Sales of Unregistered Securities, page II-3
67. For each of the transactions described, please briefly state
the
facts relied upon to make the exemption available. Refer to Item
701(d) of Regulation S-K.
Item 17. Undertakings, page II-3
68. Please note that due, in part, to the language of Securities
Act
Rule 430C(d), the undertakings included in Item 512(a)(5)(ii) and
512(a)(6) of Regulation S-K should be included in filings for
initial
public offerings. Please revise your filing to include those
undertakings.
Signatures
69. Please do not alter the language required on the Signatures
page.
We note, for example, your revisions to the required second
paragraph.
* * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that they
have
provided all information required for an informed investment
decision. Since the company and its management are in possession
of
all facts relating to a company`s disclosure, they are responsible
for the accuracy and adequacy of the disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any registration statement for
further review before submitting a request for acceleration.
Please
provide this request at least two business days in advance of the
requested effective date.
You may contact Eric Atallah at (202) 551-3663 or Jay Webb
at
(202) 551-3603 if you have questions regarding comments on the
financial statements and related matters. Please contact Tim
Buchmiller at (202) 551-3635 or me at (202) 551-3617 with any
other
questions.
Sincerely,
Russell Mancuso
Branch Chief
cc (via fax): Robert W. Ericson, Esq.
David A. Sakowitz, Esq.
Valentin P. Gapontsev, Ph.D.
IPG Photonics Corporation
September 7, 2006
Page 13