-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RnMKR7v8laUCURxEq9cyEmskaYW4zlhjpGc8BwAZKlZXqZ43qnfjA8LhSEmBDxTy MDDrGkTW83XVoLfz5MjD5w== 0000927016-99-002023.txt : 19990517 0000927016-99-002023.hdr.sgml : 19990517 ACCESSION NUMBER: 0000927016-99-002023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990402 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GSI LUMONICS INC CENTRAL INDEX KEY: 0001076930 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 381859358 STATE OF INCORPORATION: A3 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25705 FILM NUMBER: 99623958 BUSINESS ADDRESS: STREET 1: 105 SCHNEIDER RD KANATA STREET 2: ONTARIO CANADA CITY: K2K 1Y3 MAIL ADDRESS: STREET 1: 105 SCHNEIDER RD KANATA STREET 2: ONTARIO CANADA CITY: K2K 1Y3 FORMER COMPANY: FORMER CONFORMED NAME: GSI LUMONICS DATE OF NAME CHANGE: 19990331 FORMER COMPANY: FORMER CONFORMED NAME: LUMONICS INC DATE OF NAME CHANGE: 19990115 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended APRIL 2, 1999 or [_] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 333-71449 ------------- GSI LUMONICS ROAD (Exact name of registrant as specified in its charter) NEW BRUNSWICK, CANADA 38-1859358 (Jurisdiction of incorporation) (I.R.S. Employer No.) 105 SCHNEIDER ROAD KANATA, ONTARIO, CANADA K2K 1Y3 (Address of principal executive officers) TELEPHONE: (613)592-1460 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [_] No [X] As of April 28, 1999, there were 34,164,225 shares of Common Stock, no par value, outstanding. GSI LUMONICS INC. Table of Contents
Page ---- Part I - Financial Information: Item 1. Financial Statements Consolidated Balance Sheets.................................... 3 Consolidated Statements of Operations.......................... 4 Consolidated Statements of Cash Flows.......................... 5 Notes to Consolidated Financial Statements..................... 6-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 13-17 Part II - Other Information.......................................................... 18-19 Signatures........................................................................... 20
2 GSI LUMONICS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN US$ THOUSANDS, EXCEPT SHARE DATA)
APRIL 2, DEC. 31, 1999 1998 ---- ---- (unaudited) ASSETS Current assets: Cash and cash equivalents............................................................. $ 37,423 $ 24,229 Short term investments................................................................ - 8,098 Accounts receivable, less allowance of $2,986 (December 31, 1998 - $311).............. 57,126 31,673 Due from related party................................................................ 3,283 3,844 Inventories........................................................................... 69,771 44,096 Deferred tax and other current assets................................................. 33,972 8,305 Current portion of swap contracts..................................................... 820 1,076 ----------- ----------- Total current assets............................................................. 202,395 121,321 ----------- ----------- Property, plant and equipment, net of accumulated depreciation of $59,620 (December 31, 1998 - $24,299)................................................ 51,101 32,209 Long term portion of swap contracts........................................................ 820 1,076 Other assets............................................................................... 3,892 964 Intangible assets, net of amortization of $4,760 (December 31, 1998 - $2,953).............. 18,992 4,072 ----------- ----------- $ 277,200 $ 159,642 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank indebtedness..................................................................... $ 13,669 $ 7,261 Accounts payable...................................................................... 14,863 5,605 Accrued expenses and income taxes..................................................... 68,846 18,937 Current portion of deferred compensation.............................................. 757 - Current portion of long term debt..................................................... 4,826 3,541 ----------- ----------- Total current liabilities........................................................ 102,961 35,344 ----------- ----------- Long-term debt due after one year 3,328 3,541 Deferred compensation, less current portion 1,430 - Commitments and contingencies (see note 10) Stockholders' equity: Capital stock, no par value; issued shares of 34,164,225 (December 31, 1998 - 17,056,001)......................... 222,513 138,871 Deficit............................................................................... (44,942) (9,451) Cumulative translation adjustment..................................................... (7,945) (8,663) Unrealized (loss) on marketable equity securities, net................................ (145) - ----------- ----------- Total stockholders' equity....................................................... 169,481 120,757 ----------- ----------- $ 277,200 $ 159,642 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 GSI LUMONICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN US$ THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED ----------------------------------- APRIL 2, MARCH 31, 1999 1998 -------------- --------------- Sales: Laser systems and components............................ $ 37,385 $ 39,065 Printers................................................ 1,209 - ------------- -------------- Total sales.......................................... 38,594 39,065 ------------- -------------- Cost of sales: Laser systems and components............................ 30,424 25,855 Printers................................................ 651 - ------------- -------------- Total cost of sales.................................. 31,075 25,855 ------------- -------------- Gross profit: Laser systems and components............................ 6,961 13,210 Printers................................................ 558 - ------------- -------------- Total gross profit................................... 7,519 13,210 ------------- -------------- Operating expenses: Research and product development........................ 3,336 3,269 Selling, general and administrative..................... 10,821 9,454 Acquired in-process research and development............ 13,000 - Restructuring and other charges......................... 19,631 - ------------- -------------- Total operating expenses............................. 46,788 12,723 ------------- -------------- Income (loss) from operations............................. (39,269) 487 Interest income (expense), net............................ 194 326 Foreign exchange transaction gains (losses)............... (787) (531) ------------- -------------- Income (loss) before income taxes......................... (39,862) 282 Income taxes provision (benefit).......................... (4,371) 132 ------------- -------------- Net income (loss)......................................... $ (35,491) $ 150 ============= ============== Foreign currency translation adjustments.................. 718 1,516 Change in unrealized gain (loss) on marketable equity securities, net......................................... (145) - ------------- -------------- Comprehensive income (loss)............................... $ (34,918) $ 1,666 ============= ============== Net income (loss) per common share: Basic................................................... $ (1.85) $ 0.01 Diluted................................................. $ (1.85) $ 0.01 ============= ============== Weighted average common shares outstanding................ 19,204 17,105 ============= ============== Weighted average common shares outstanding and dilutive potential common shares.................... 19,204 17,379 ============= ==============
The accompanying notes are an integral part of these consolidated financial statements. 4 GSI LUMONICS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN US$ THOUSANDS)
THREE MONTHS ENDED --------------------------------- APRIL 2, MARCH 31, 1999 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)............................................................... $ (35,491) $ 150 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Acquired in-process research and development.................................. 13,000 - Depreciation and amortization................................................. 5,071 1,274 Deferred compensation......................................................... 65 - Deferred income taxes......................................................... (4,009) (59) Unrealized currency exchange loss (gain)...................................... (70) (73) Changes in current assets and liabilities: Accounts receivable........................................................... 6,414 4,224 Inventories................................................................... 7,466 (5,641) Other current assets.......................................................... (354) (573) Accounts payable, accrued expenses, and taxes payable......................... 9,650 36 ------------ ------------ Net cash provided by (used in) operating activities............................. 1,742 (662) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Merger with General Scanning Inc.............................................. 1,451 - Additions to property, plant, and equipment, net.............................. (1,043) (2,777) Maturity of short term investments............................................ 8,208 2,062 Purchase of short term investments............................................ - (22,741) Decrease in other assets...................................................... 249 - ------------ ------------ Net cash (used in) investing activities....................................... 8,865 (23,456) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds (payments) of bank indebtedness and others, net...................... 2,017 (4,701) Payments on long-term debt.................................................... (3) - Proceeds from exercise of stock options....................................... 114 36 ------------ ------------ Net cash provided by (used in) financing activities........................... 2,128 (4,665) ------------ ------------ Effect of exchange rate changes on cash and cash equivalents.................. 459 858 ------------ ------------ Increase (decrease) in cash and cash equivalents.............................. 13,194 (27,925) Cash and cash equivalents, beginning of period................................ 24,229 56,828 ------------ ------------ Cash and cash equivalents, end of period...................................... $ 37,423 $ 28,903 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for : Interest...................................................................... $ 85 $ 258 Income taxes.................................................................. $ 432 $ 1,745
The accompanying notes are an integral part of these consolidated financial statements. 5 GSI LUMONICS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) IN U.S. DOLLARS 1. BASIS OF PRESENTATION --------------------- The unaudited interim financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and with the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements. Accordingly, these interim financial statements do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements reflect all adjustments and accruals which management considers necessary for a fair presentation of financial position and results of operations for the periods presented. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 1998, and the Form S-4 registration statement filed in February 1999. The results for the interim periods are not necessarily indicative of results to be expected for the year or any future periods. The consolidated financial statements include the accounts of GSI Lumonics Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. 2. MERGER ------ 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 have been included in the consolidated financial statements from the date of merger. The aggregate purchase price of $84 million was allocated to General Scanning net identifiable assets, in accordance with the purchase method of accounting, as follows: (in thousands) Shares purchased (a).......................... $ 83,074 Options purchased (b) & (c)................... 917 ------------ Total purchase price.......................... $ 83,991 ============ Current assets, including cash of $4,719...... 89,070 Fixed assets.................................. 21,546 Acquired technology (d)....................... 13,000 Allocated to goodwill (e)..................... 3,704 Other long term assets (f).................... 3,950 Current liabilities........................... (56,081) Long term debt................................ (28) Deferred compensation, net of $757 current portion....................................... (1,365) Transaction costs............................. (2,805) In-process research and development (g)....... 13,000 ------------ $ 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 thousand General Scanning outstanding shares of common stock, on the basis of an exchange ratio of 1.347 shares of GSI Lumonics Inc. for each one 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 equity. (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. 6 (d) Acquired technology of $13 million is being amortized on a straight line basis over the useful life of 60 months (e) Goodwill arising from the transaction of $3.7 million is being amortized on a straight-line basis over a ten year period. (f) Other long term assets includes note receivable from Robotic Vision Systems, Inc. (RVSI) of $2,250, 271,493 shares of RVSI common stock $764 thousand, and other deposits of $936 thousand. (g) Acquired in-process research and development of $13 million charged against income in 1999 results from an appraisal of General Scanning intangible assets. The allocation of purchase price may be subject to adjustment, as additional information regarding preacquisition contingencies becomes available during the year. The following unaudited 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.
(in thousands except per share amounts) Pro forma combined Three months ended ------------------------ April 2, March 31, 1999 1998 ---- ---- Sales....................................... $ 59,053 $ 89,517 ======================== Net income (loss)........................... $(42,619) $ 2,032 ======================== Net income (loss) per common share: Basic $ (1.25) $ 0.06 Diluted $ (1.25) $ 0.06 ======================== Weighted average common shares outstanding 34,145 33,994 ======================== Weighted average common shares outstanding and dilutive potential common shares 34,145 34,715 ========================
3. NET INCOME (LOSS) PER SHARE OF COMMON STOCK ------------------------------------------- Basic net income (loss) per common share was computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. For diluted net income (loss) per common share, the denominator also includes dilutive outstanding stock options and warrants determined using the treasury stock method. Common and diluted per common shares amounts are calculated using the following weighted average number of shares:
(in thousands) Three months ended ---------------------- April 2, March 31, 1999 1998 ---------------------- Weighted average common shares 19,204 17,105 outstanding Dilutive potential common shares -0- 274 ---------------------- Diluted common shares 19,204 17,379 ====================== Weighted options and warrants excluded from Diluted income per common share as their effect would be anti-dilutive 2,317 512 ======================
4. CASH EQUIVALENTS ---------------- Cash equivalents, are highly liquid investments with original maturity dates of less than three months. 7 5. RELATED PARTY TRANSACTIONS -------------------------- The company recorded sales revenue from Sumitomo Heavy Industries, Ltd., a significant shareholder, of $3.4 million in the three months ended April 2, 1999 and $5.2 million in the three months ended March 31, 1998 at values 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. The Company has a long-term loan from Sumitomo, all of which is repayable in Japanese yen. 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. 6. INVENTORIES ----------- Inventories, which include materials, labor, and manufacturing overhead, are stated at the lower of cost (first-in, first-out) or market. The components of inventory are:
(thousands) April 2, Dec. 31, 1999 1998 --------- ---------- Materials $22,488 $ 9,123 Work-in-process 17,326 14,062 Finished goods 29,957 20,911 ------- ------- $69,771 $44,096 ======= =======
7. COMPREHENSIVE INCOME -------------------- Statement of Financial Accounting Standards (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 Company considers the RVSI (ROBV) common stock to be available-for-sale and, accordingly, is recording changes in its fair market value as a component of stockholders' equity and comprehensive income (loss) for the reporting periods. 8. NEW ACCOUNTING PRONOUNCEMENT ---------------------------- In June 1998, the Financial Accounting Standards Board issued 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 has not yet quantified the impact of adopting SFAS No. 133 on its financial statements and has not determined the timing of or method of adoption of SFAS No. 133. However, SFAS No. 133 could increase volatility in earnings and other comprehensive income. 9. 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. Accruals remaining as of April 2, 1999 from current and prior quarter restructuring charges are $5 million of employee severance, $5 million of leased facility costs and $10 million of merger integration costs. 8 10. COMMITMENTS AND CONTINGENCIES ----------------------------- 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 April 2, 1999 are: (in thousands) Remaining nine months of 1999 $ 4,130 2000 5,081 2001 4,372 2002 3,697 2003 2,786 Thereafter 8,199 ------- Total minimum lease payments $28,265 =======
Litigation 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 ESI 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 ESI's patent 5,473,624 was found to be invalid, and that ESI's patent 5,265,114 was valid, and awarded a $13.1 million damage judgment. The company intends to appeal the decisions on validity and damages. Electro Scientific Industries, Inc. v. General Scanning Inc. USDC Case No. 98-4027. On or about October 20, 1998, Electro Scientific commenced an action in the U.S. District Court for the Northern District of California alleging infringement of three Electro Scientific patents (U.S. Patent Nos. 5,569,398, 5,685,995 and 5,808,272) and seeking an injunction, damages and attorneys' fees. Discovery has not yet commenced, and a trial date has not been set. The referenced patents cover the use of 1.32 micron wavelength lasers in the trimming of certain semiconductor devices. To date, General Scanning Inc. has shipped only one system employing such technology for an application covered by the patents and this unit is being converted to another wavelength at the request of the customer. 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 No. 5,463,227. A trial date is scheduled for June 1, 1999. The referenced patent covers a method of inspecting the electronic interconnect leads of certain semiconductor components. 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 9 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. Robotic Vision Systems Inc. v. View Engineering, Inc. USDC Case No. 96- 2288. In June 1998, the U.S. District Court for the Central District of California found infringement by View Engineering, Inc. ("View") on a particular method of measuring substrate coplanarity of unpopulated ball grid array packages. RVSI had previously dropped all claims for damages; hence, no damages were awarded. The Court determined that View had not willfully infringed and therefore refused RVSI's claim for attorneys' fees. The Court enjoined View from infringing or inducing infringement of the patent in question, No. 5,465,152. General Scanning Inc., on behalf of View, has appealed the injunction. No date has been set for oral argument on the appeal. In settlement of separate litigation with RVSI, in June 1998, arising from the General Scanning Inc. acquisition of View in August 1996, General Scanning Inc. agreed not to compete in the field of semiconductor interconnection inspection. Systems for use in inspection of ball grid electronic interconnection and for measuring substrate coplanarity accounted for approximately 1% of total sales during the first six months of 1998. GSI Lumonics believes that RVSI's and Electro Scientific's claims in each of the above actions are without merit and GSI Lumonics Inc. is vigorously defending these proceedings. However, if RVSI or Electro Scientific prevails on one or more of its claims, there could be a material adverse effect on GSI Lumonics Inc.'s business, operating results and/or financial condition. Other. 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. 10 11. SEGMENT INFORMATION ------------------- In 1999, 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 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 legal expenses, and income taxes.
(in thousands) Three months ended, ---------------------------- April 2, March 31, 1999 1998 ---------------------------- Sales to unaffiliated customers: Laser systems and components $ 37,385 $ 39,065 Printers 1,209 - Total $ 38,594 $ 39,065 ============================ Income (loss) from operations: Laser systems and components (1,2) $(37,269) $ 1,542 Printers - - Corporate expenses (2,000) (1,055) ---------------------------- Total $(39,269) $ 487 ============================ Total assets: Laser systems and components $166,180 $116,623 Printers 34,020 - Corporate assets (3) 77,000 70,000 ---------------------------- Total $277,200 $186,623 ============================ Capital expenditures: Laser systems and components $ 519 $ 2,777 Printers 524 - ---------------------------- Total $ 1,043 $ 2,777 ============================ Depreciation and amortization: Laser systems and components $ 5,052 $ 1,274 Printers 19 - ---------------------------- Total $ 5,071 $ 1,274 ============================
(1) Includes $13,000 charge for acquired in-process research and development in 1999. (2) Includes $19,631 charges for restructuring, and other charges in 1999. (3) Consists primarily of cash, cash equivalents, short-term investments, and deferred tax assets. 11 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.
(in millions) Three months ended April 2, March 31, 1999 1998 ------- --------- Revenues from external customers: USA................................. $16.1 42% $16.0 41% Canada.............................. 2.5 6% 2.0 5% Latin & South America............... 0.4 1% 0.2 1% Europe.............................. 11.9 31% 8.6 22% Japan............................... 5.2 13% 5.7 14% Asia................................ 2.5 6% 6.6 17% ------- ------- Total.......................... 38.6 100% 39.1 100% ======= ======= Long lived assets: USA................................. $22.5 $ 3.4 Canada.............................. 9.9 10.3 Europe.............................. 18.1 18.1 Japan............................... 0.1 - Asia................................ 0.5 0.4 ------- ------- Total.......................... 51.1 32.2 ======= =======
12 GSI LUMONICS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS IN U.S. DOLLARS OVERVIEW GSI Lumonics Inc. is a leading manufacturer of laser systems and components, and printers. The results of operations include post acquisition results of General Scanning of $9 million revenue, $3 million gross profit and insignificant net income. The Company sells its laser systems primarily to manufacturers of products containing advanced electronic components and circuitry. In addition, the Company produces a line of laser subsystems and components that are used in the Company's own systems, as well as sold to other manufacturers of laser systems. The Company's laser system sales have been, and are expected to continue to be, dependent upon its customers' capital expenditures which are, in turn, affected by business cycles in the markets served by those customers. The Company's strategy is to expand applications for its products into different and varied markets in order to limit dependency on any one market, but it may not always be successful in doing so. The Company also sells printers. These products have historically been sold primarily to manufacturers of medical equipment for patient care monitoring. This segment of the Company's business has not experienced significant cyclicality in the past; however, sales of certain printers used in the greeting card industry tend to increase in the third quarter in anticipation of holiday greeting card sales. Product prices experienced increased competitive pressure during the quarter, and pricing actions did have a negative effect on reported gross profit. Because substantial portions of the Company's sales, costs of sales and other expenses are denominated in Canadian dollars, U.K. pounds sterling, Japanese yen and several other currencies, the Company's results of operations are subject to the effects of exchange rate fluctuations of those currencies relative to the US dollar. Changes in currency exchange rates may also affect the relative prices at which the Company and its competition sell their products in the same markets. RESULTS OF OPERATIONS THREE MONTHS ENDED APRIL 2, 1999 AND MARCH 31, 1998 Sales. Total sales were $39 million for the three months ended April 2, 1999, unchanged compared to $39 million in total sales in the three months ended March 31, 1998. Laser systems and component sales for the three months ended April 2, 1999 decreased 4% to $37 million from $39 million in the comparable period of 1998 primarily due to slower activity in the semiconductor, automotive and aerospace sectors and decreased sales in Asia. The Company does not anticipate marked improvement in these market sectors or in the Asian markets it serves until later in the year, at the earliest. Printer sales for the three months ended April 2, 1999 compared to nil in the comparable period of 1998 due to the merger with General Scanning.
(in millions) Three months ended April 2, March 31, 1999 1998 ---- ---- Revenues by market: Semiconductor........................ $ 3.7 10% $ 5.0 13% Electronics.......................... 10.0 26% 5.7 15% Automotive........................... 1.6 4% 5.1 13% Aerospace............................ 1.9 5% 5.7 15% Packaging............................ 3.2 8% 2.9 7% Emerging............................. 2.7 7% 3.4 9% Medical/Biotechnology................ 3.2 8% 1.6 4% Components........................... 3.7 10% 1.7 4% Parts & service...................... 8.6 22% 8.0 20% ------- ------- Total.............................. 38.6 100% 39.1 100% ======= =======
13 Gross profit. Total gross profit was $8 million, or 19% of sales, for the three months ended April 2, 1999, compared to $13 million, or 34% of sales, for the three-month period ended March 31, 1998. Laser systems and components gross profit decreased to 19% of sales in the three months ended April 2, 1999 from 34% of sales for the comparable three-month period of 1998. The decrease was primarily due to lower sales volume, product mix, pricing, and $3 million of inventory provisions. Printers gross profit was 46% of sales in the three months ended April 2, 1999. Research and product development. Research and product development expenses were $3 million, or 9% of total sales, for the three months ended April 2, 1999 (excluding a one time expense relating to acquired in-process research and development associated with the merger with General Scanning) compared to $3 million, or 8% of total sales, for the three months ended March 31, 1998. Selling, general and administrative. Selling, general and administrative expenses increased to $11 million in the three months ended April 2, 1999 from $9 million in the comparable period of 1998. This increase was primarily due to costs incurred after the merger. These expenses increased to 28% of total sales for the three-month period ended April 2, 1999 from 24% in the comparable period in 1998. Restructuring, litigation settlement 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. Accruals remaining as of April 2, 1999 from current and prior quarter restructuring charges are $5 million of employee severance, $5 million of leased facility costs and $10 million of merger integration costs. 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 the merger. Merger expenses. Charges of $3 million during the three months ended April 2, 1999, including brokers fees and legal and accounting costs are reflected in the cost of acquisition. Costs spent by the Company of $463 thousand, net of tax effects, related to issuance of common shares, have been included in equity. Interest. Interest income was $348 thousand for the three-month period ended April 2, 1999 compared to $662 thousand for the comparable period of 1998. Interest expense was $154 thousand for the three-month period ended April 2, 1999 compared to $336 thousand for the comparable period of 1998. There was a net decrease in cash, resulting in less interest income, and a decrease in long term debt and bank overdrafts. Foreign exchange. Foreign exchange transactions resulted in a loss of $0.8 million in the three months ended April 2, 1999 compared to a loss of $0.5 million in the comparable period of 1998. Gains and losses are incurred when the Company's net receivables denominated in various currencies, including Canadian dollar, Japanese yen, Deutsche marks, Euro and other major European currencies, are not fully hedged versus the US dollar. Income tax. The income tax recovery for the Company was $4.4 million for the three months ended April 2, 1999 compared to a provision of $132 thousand for the three months ended March 31, 1998. The low rate of recovery for the current quarter of 11% is a result of a number of factors, including permanent differences between income for accounting and income for tax purposes such as the acquired in-process research and development expense which is not deductible for tax purposes. Net income (loss). Net loss for the three months ended April 2, 1999 was $35 million, or $1.85 per share based upon 19.2 million common shares, compared to $150 thousand in net income, or $0.01 per diluted share based upon 17.4 million common and dilutive potential common shares in the first quarter of 1998. 14 Backlog. Backlog at April 2, 1999 was approximately $68 million compared to $29 million at December 31, 1998. On a pro forma basis, as if the merger had occurred at the beginning of the fiscal period, backlog was $59 million at December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents totaled $37 million on April 2, 1999 compared to $24 million on December 31, 1998. Bank indebtedness and the current portion of long- term debt increased to $18 million on April 2, 1999 from $11 million on December 31, 1998. The merger with General Scanning accounts for $6 million of this increase. During the first three months of 1999, operating activities provided cash flows of$1.7 million, investing activities provided cash flows of $8.9 million, and financing activities provided cash flows of $2.1 million. Net loss of $35 million in the first three months of 1999, offset by non-cash charges for acquired in-process research and development, depreciation, amortization, deferred taxes and deferred compensation totaling $14 million, and by net increase in working capital of $23 million, resulted in $1.7 million from operating activities. Cash flow from investing activities was primarily due to $8.2 million maturity of short-term investments. At the date of merger, General Scanning added $4.7 million in cash and cash equivalents, offset by merger costs of $3 million and capital expenditures of $1 million. The Company has credit facilities of approximately $24 million, which are denominated in Canadian dollars, US dollars, Pound sterling and Japanese yen. Borrowings under the credit facilities, of which $14 were outstanding at April 2, 1999, are due on demand and bear interest based on prime. 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 of April 2, 1999, the Company was in breach of certain covenants and the lending institutions have provided waivers. The Company believes that existing cash and investments, together with cash generated by future operations and the existing credit facilities, will be sufficient to satisfy anticipated cash needs to fund working capital and investments in manufacturing facilities and equipment for its existing businesses over the next twelve months. GSI Lumonics is reviewing and restructuring its existing lines of credit to meet the needs of the merged company. The Company may, from time to time, as market and business conditions warrant, invest in or acquire complementary businesses, products or technologies. The Company may require additional equity or debt financings to fund such activities, which could result in additional dilution to the Company's shareholders. LEGAL PROCEEDINGS 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. The company intends to appeal the decisions on validity and damages. * See Note 10 to the consolidated financial statements. 15 YEAR 2000 The use of computer programs written using two digits rather than four to define the applicable year gives rise to what is commonly referred to as the Year 2000 problem. The major areas being addressed by the Company in regards to Year 2000 compliance are internal operating systems, the installed base of products at customer sites and third party compliance issues. The efficient operation of the Company's business is dependant, in part, on its computer software and hardware. These systems are used in several key areas of the Company's business, including sales, purchasing, engineering, inventory control, manufacturing, service and financial reporting. The Company has been evaluating its systems to identify potential Year 2000 compliance problems. These actions are necessary to ensure that the programs and systems will recognize and accurately process the Year 2000 and beyond. Evaluation and planning phases have been completed. Based on present information, the Company believes its systems for operations will be Year 2000 compliant during the second quarter of 1999. The company also continues to assess the impact of the Year 2000 issue on the operations of its products installed at customers. The installed base customers that have older products that are not Year 2000 compliant are being contacted and offered upgrade options. This effort should be complete by the third quarter of 1999. Finally, the Company is in the process of assessing its major suppliers' compliance with Year 2000 issues. This will be an ongoing effort through the next year. The Company believes that suppliers and customers present the area of greatest risk to the Company in part because of the Company's limited ability to influence actions of such third parties, and in part because of the Company's inability to estimate the level of impact of noncompliance of third parties throughout the extended supply chain. The most reasonably likely worst case scenario would involve non-performance by a supplier, which could delay production and delivery of product to customers. Independent of issues related to Year 2000, the Company began a program to select, acquire and install a new hardware and software platform to replace the current operations systems which did not have the capacity to accommodate the Company's growth plans. Recent upgrades to such systems to make them Year 2000 compliant have been made by the Company's hardware and software providers under standard maintenance contracts at no additional cost to the Company. Because the Company has been upgrading its operations systems to newer applications which are Year 2000 compliant, it is anticipated that the future costs of the Year 2000 compliance for operations will not materially impact the financial results of the Company. Separate expenditures exclusively for Year 2000 compliance have been immaterial to date. However, the effect of third party impact cannot be quantified at this time because the Company cannot accurately estimate the magnitude, duration, or ultimate impact of noncompliance by suppliers, customers and other third parties that have no direct relationship to the Company. The Company believes that its competitors face a similar risk. Going forward the Company will continue to make every effort to identify and minimize that risk. Contingency plans include identifying second source suppliers for critical components, and review of accounts receivable statements with customers and preparing to assist customers in the event their payable systems fail. Readers are cautioned that the Year 2000 section contains forward-looking information. Please see the "Outlook for 1999" for a list of some of the factors that could cause actual results to differ materially from expected results.* 16 OUTLOOK FOR 1999 The merger was completed on March 22, 1999. Integration teams continue to refine and implement plans to guide the first 12 months' integration initiatives. Cross functional, inter-company teams covering manufacturing operations, distribution, research and development, technology, customer support and administration were asked to cover many topics including customer retention, cost saving synergy, revenue enhancement opportunities and organization structure. On April 5, 1999 the Company announced measures to consolidate operations and realize cost savings. The measures include closing the Oxnard, California manufacturing facility; removing sales office redundancy in key markets outside North America and improving production capabilities for the semiconductor industry through a product rationalization and a production transfer. As a result of the changes, GSI Lumonics' facility in Wilmington, Massachusetts will begin manufacturing semiconductor wafer marking equipment that was previously produced in Oxnard. Oxnard's other marking product line will be rationalized and consolidated with a similar product line developed and manufactured at the Wilmington facility. To ensure an orderly transition, the changes are being phased in and will be completed by the summer of 1999. The costs associated with these restructuring activities were accrued in the first quarter of 1999. GSI Lumonics has implemented an organization structure to see it through at least the first 12 months. All redundant employment positions were identified in the first week following the merger and related costs were accrued in the first quarter of 1999. The information included in the above "Outlook for 1999" section, as well as in certain statements made throughout the Management's Discussion and Analysis of Financial Condition and Results of Operations that are identified by an asterisk (*) is forward-looking and involves risks and uncertainties that could result in actual results differing materially from expected results. It is not reasonably possible to itemize all of the many factors and specific events that could affect the outlook of a laser manufacturing business operating in the global economy. Some factors that could significantly impact expected revenues, costs, and net income (loss) include: capital expenditures by customers which are in turn affected by cycles in the markets served by those customers, the Asian economic environment, the impacts of the Company's merger related activities, foreign currency exchange rate fluctuations, timing and shipment of significant orders, the risk of delays by the Company's OEM customers in introducing their new products and market acceptance of those products incorporating subsystems supplied by the Company, similar risks to the Company in delays in new product introductions and market acceptance of its new products, the level of cost- reduction efforts, the general economic environment and other risks detailed in the Company's Form 10-K that has been filed in connection with its 1998 fiscal year. With respect to the forward-looking statements set forth in the "Legal Proceedings" section, some of the factors that could affect the ultimate disposition of these contingencies are the development of facts in individual cases, settlement opportunities and the actions of plaintiffs, judges and juries. Some factors that could significantly impact the Company's expected Year 2000 readiness and the estimated cost thereof include the results of the technical assessment, remediation and testing of date-sensitive systems and equipment and the ability of critical business suppliers and customers to achieve Year 2000 readiness. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information regarding GSI Lumonics' exposure to certain market risks, see item 7A, Quantitative and Qualitative Disclosures About Market Risk in GSI Lumonics' Annual Report on Form 10-K for the year 1998. Significant changes that have occurred since year end are as follows: Foreign currency risk - as of April 2, 1999, the Company had two forward currency exchange contracts:
Notional Contract Estimated fair value (In thousands except contract rates) Amount Rate Delivery Date as of April 2, 1999 -------- -------- -------------------- ------------------- Deliver Japanese Yen $ 1,000 118.68 April 9, 1999 $ 14 Deliver Deutsche Marks $ 1,000 1.65 April 29, 1999 $ 88
17 GSI LUMONICS INC. PART II. OTHER INFORMATION Item 1. Changes in legal proceedings and arbitration -------------------------------------------- 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 the merger between the Company and General Scanning. 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 ESI 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 ESI's patent 5,473,624 was invalid, and that ESI's patent 5,265,114 was valid, and awarded a $13.1 million damage judgment against General Scanning. The Company intends to appeal the decisions on validity and damages. Item 2. Changes in Securities --------------------- (a) On March 22, 1999 the merger of Lumonics Inc. and General Scanning Inc. was completed, and the Company changed its name to GSI Lumonics Inc. In connection with the merger GSI Lumonics Inc. was continued into the Province of New Brunswick. Differences between the laws of Ontario and laws of New Brunswick in respect of the common shares are described in Exhibit 99 hereto. (b) At various times during the three months ended April 2, 1999, a total of 28,750 common shares of the Company were issued pursuant to the exercises of stock options held by directors, officers and employees of the company. All issuances were exempt pursuant to Section 4(2) of the United States Securities Act of 1933 or Regulation S or Rule 701 thereunder. The total consideration received by the company on the exercise of such options was Cdn. $171,500 which funds have been or will be used for general corporate purposes. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On March 12, 1999, the company's shareholders voted at a special meeting on (i) the merger with General Scanning and related share issuances, (ii) the continuance into the Province of New Brunswick, (iii) the confirmation of a new general By-Law conforming to the laws of New Brunswick and (iv) the change of the Company's name to "GSI Lumonics Inc.". 18 All motions were passed with the following results:
For Against ---------- ------- (i) Merger 13,257,854 58,875 (ii) Continuance 13,109,334 207,695 (iii) By-Law 13,109,334 207,695 (iv) Name Change 13,257,554 59,475
There were no broker non-votes or abstentions on any motion. Item 6. Exhibits and Reports on Form 8-K -------------------------------- a) Exhibits -------------- 3. Articles of Continuance and By-Law Incorporated by reference to Annex H to the Company's Management Information Statement and Prospectus dated February 11, 1999 as filed on Form S-4, registration statement No. 333-71449. 27. Financial Data Schedule. 99. Description of differences between the law of Ontario and New Brunswick. b) Reports on Form 8-K ------------------------- A report on Form 8-K was filed on March 31, 1999 in connection with the completion of the merger with General Scanning reporting Item 2 "Acquisition or Disposition of Assets" and Item 7 "Financial Statements, Pro Forma Financial Information and Exhibits" 19 GSI LUMONICS INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GSI Lumonics Inc. /s/ Charles D. Winston Date: May 5, 1999 - ---------------------- Charles D. Winston Chief Executive Officer /s/ Desmond J. Bradley Date: May 5, 1999 - ---------------------- Desmond J. Bradley Vice President Finance and Chief Financial Officer 20 EX-99 2 DESCRIPTION OF DIFFERENCE EXHIBIT 99 DESCRIPTION OF DIFFERENCES BETWEEN THE LAW OF ONTARIO AND NEW BRUNSWICK ONTARIO VS. NEW BRUNSWICK Upon the issuance of a certificate of continuance under New Brunswick law, the shareholders of GSI Lumonics, became shareholders of a corporation continued under the laws of the province of New Brunswick. Generally Ontario and New Brunswick law provide substantially similar rights to shareholders of a corporation existing under either of those jurisdictions. New Brunswick law contains derivative action, oppression, and dissent and appraisal rights similar to those prescribed by Ontario law. There are, however, differences between Ontario and New Brunswick law which will result in various changes to the rights of shareholders of GSI Lumonics. The following is a summary of the significant differences between Ontario and New Brunswick law insofar as they may be regarded as affecting the rights of shareholders of GSI Lumonics. The following is a summary only and does not purport to be a comprehensive statement of the particulars of the actual statutory provisions to which reference is made. Residency and qualifications of Directors. There is no requirement under New Brunswick law that directors be residents or citizens of Canada. Accordingly, following the continuance, GSI Lumonics will not be required to have a majority of directors who are resident Canadians on the board of directors of Luminous, or any committee thereof, as currently required under Ontario law. Cumulative Voting. Under New Brunswick law, shareholders have cumulative voting rights in the election of directors. Ontario law permits, but does not require, such cumulative voting rights. Cumulative voting rights permit each shareholder entitled to vote at a meeting of shareholders to cast a number of votes equal to the number of shares held by the shareholder multiplied by that number of directors to be elected. The shareholder is entitled to cast all such votes in favour of one candidate for director or distribute them among the candidates in any manner. The Articles of Continuance, however, provide that, subject to applicable law, the shareholders of GSI Lumonics will not have cumulative voting rights. Such provision has been included in the Articles of Continuance to anticipate any potential future amendment of New Brunswick law, should New Brunswick law be amended to permit articles to provide that such cumulative voting rights will not be available to shareholders of GSI Lumonics subject to New Brunswick law. Shareholders of GSI Lumonics should note, however, that New Brunswick law does not currently contain any such provision permitting articles to provide that such cumulative voting rights will not apply. Place of Meetings of Shareholders. Under Ontario law, meetings of shareholders may be held at such place in or outside Ontario as the directors determine, or, in the absence of such determination, at the place where the registered office of GSI Lumonics is located. The by-laws of GSI Lumonics previously permitted the directors to determine the location of shareholders meetings. Under New Brunswick law, there is no mandatory requirement to hold shareholders' meetings within New Brunswick or within Canada. The GSI Lumonics Articles provide that shareholders' meetings may be held at any one or more locations throughout the world, including without limitation, locations specifically identified in such articles. Auditors and Financial Statements. GSI Lumonics intends to prepare and deliver quarterly audited annual financial statements in accordance with US GAAP. As described above, GSI Lumonics notwithstanding continuance under New Brunswick law, will continue to be subject to applicable securities laws in Canada and the rules of The Toronto Stock Exchange will provide for comprehensive financial reporting and audit requirements including, for example, preparation and delivery of audited financial statements in accordance with Canadian GAAP and the appointment of an audit committee. Accordingly, the following differences between the Ontario and New Brunswick law will not impact upon the financial statements and audit requirements currently imposed upon GSI Lumonics by such securities laws and stock exchange rules. New Brunswick law does not require GSI Lumonics to appoint an auditor or that financial statements be subject to audit. Further, under New Brunswick law financial statements can be prepared in accordance with generally accepted accounting principles applicable in non-Canadian jurisdictions. Under Ontario law a public company is required to appoint an auditor and to deliver audited financial statements to shareholders and t the Director under the Ontario Act. Such financial statements, under the Ontario Act, are required to be prepared in accordance with standards of the Canadian Institute of chartered Accountants. Further, under Ontario law, GSI Lumonics is required to appoint an audit committee. New Brunswick law does not contain a similar requirement. Capital. Under New Brunswick law, share capital may be specified as having a par value or no par value. Under Ontario law, there is no provision for par value shares. However, the GSI Lumonics Articles continue to provide for only non-par value shares. Pre-Emptive Rights. Under New Brunswick law, unless otherwise provided in the articles of a corporation, shareholders have pre-emptive rights in respect of the issuance of certain securities of the corporation. However, New Brunswick law provides that a corporation which has its shares listed on a prescribed stock exchange including The Toronto Stock Exchange is not subject to the otherwise applicable pre-emptive rights provisions in the New Brunswick Act. Furthermore, the GSI Lumonics Articles specifically provide that such pre- emptive rights will not be available to shareholders of the corporation. Under Ontario law, the granting of pre-emptive rights is permissive rather than mandatory and, at present, there is no provision in the articles of GSI Lumonics for pre-emptive rights. Take-Over Bid Rules. Ontario law does not prescribe take-over bid rules and requirements. Applicable securities law, however, contain comprehensive take-over bid rules which stipulate a 20% threshold for their application to an offer to acquire shares. Generally stated, these rules provide that any person or company which offers to acquire shares which result in such person or company holding more than 20% of the outstanding shares of GSI Lumonics, must, with certain exceptions, make an identical offer to all the shareholders of GSI Lumonics. The corresponding percentage under New Brunswick law is 50%; however the 20% threshold under applicable securities laws will continue to apply to GSI Lumonics. Financial Assistance. Under New Brunswick law the articles of GSI Lumonics may provide that financial assistance may be given to certain persons and related corporations notwithstanding solvency tests otherwise prescribed in New Brunswick law. The GSI Lumonics Articles do not so provide. Ontario law subjects financial assistance to prescribed solvency tests, which cannot be removed by provision in the articles of GSI Lumonics. Shareholder Proposals. New Brunswick law provides that holders of not less than 10% of the voting shares of GSI Lumonics may submit a proposal with respect to the election of directors. Under Ontario law the corresponding threshold is 5%. However, the Articles of Continuance specifically provide that holders of not less than 5% of the voting shares of GSI Lumonics may submit a proposal with respect to the election of directors. Mandatory Solicitation of Proxies. As described above, GSI Lumonics, notwithstanding continuance under New Brunswick law will continue to be subject to applicable securities laws and The Toronto Stock Exchange rules which provide for comprehensive mandatory proxy solicitation rules. Accordingly, the following differences between New Brunswick and Ontario law will not impact upon the requirement for the mandatory solicitation of proxies by GSI Lumonics currently imposed upon GSI Lumonics by such securities laws and stock exchange rules. New Brunswick law contains no provisions relating to the mandatory solicitation of proxies. Ontario law provides that, in the event a corporation offers its securities to the public, management must, in respect of any meeting of shareholders, provide a form of proxy together with the giving of notice of such meeting to each shareholder who is entitled at that time to receive notice of the meeting. Under Ontario law, proxies cannot be solicited without the delivery of either a management proxy circular or a dissident's proxy circular. Requisition of Meeting by Shareholders. New Brunswick law provides that holders of not less than 10% of the voting shares of GSI Lumonics may require the directors to call a meeting of shareholders. Under Ontario law, the corresponding threshold is 5%. The Articles of Continuance specifically provide that the holders of not less than 10% of the voting shares of GSI Lumonics may require the directors to call a meeting of shareholders. Investigations of GSI Lumonics. Under the New Brunswick Act, the holders of not less than 10% of the issued shares of any class of a corporation may apply to the Court for an order requiring that an investigation be made of a corporation or of any affiliated corporation. Under Ontario law, any security holder (which term includes any shareholder), may make such an application. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 APR-02-1999 37,423 0 63,395 2,986 69,771 202,395 110,721 59,620 277,200 102,961 0 0 0 222,513 (53,032) 277,200 38,594 38,594 31,075 31,075 47,575 0 (194) (39,862) (4,371) (35,491) 0 0 0 (35,491) (1.85) (1.85)
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