-----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, D2pOI3TsXjIadXVRKwGogFwpEUmFL689VnZ2UNA3ubqkX59TvWckaPypxWp7/CjX ZFK+VNJkcF7DVNkPW+ZztQ== 0000927016-01-001489.txt : 20010326 0000927016-01-001489.hdr.sgml : 20010326 ACCESSION NUMBER: 0000927016-01-001489 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010323 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-K405 SEC ACT: SEC FILE NUMBER: 000-25705 FILM NUMBER: 1578046 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-K405 1 0001.txt FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 Commission File No. 333-71449 GSI Lumonics Inc. (Exact name of registrant as specified in its charter) New Brunswick, Canada 38-1859358 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 105 Schneider Road, K2K 1Y3 Kanata, Ontario, Canada (Zip Code) (Address of principal executive offices) (613) 592-1460 (Registrant's telephone number, including area code) ___________________ Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, no par value (Title of class) 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] On February 28, 2001, 40,259,434 shares of the Common Stock of GSI Lumonics Inc. were issued and outstanding. The aggregate market value of the voting stock held by non-affiliates of GSI Lumonics Inc., based on the closing price of the shares on the NASDAQ National Market on February 28, 2001 of U.S.$9.1875, was approximately U.S.$332,414,738 (assumes officers, directors, and all shareholders beneficially owning 5% or more of the outstanding Common Stock are affiliates). Documents Incorporated by Reference Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held May 8, 2001 are incorporated by reference in Part III of the Report. 1 GSI LUMONICS INC. TABLE OF CONTENTS
Item No. Page No. - -------- -------- PART I................................................................................................ 3 ITEM 1. BUSINESS OF GSI LUMONICS INC...................................................... 3 ITEM 2. PROPERTIES........................................................................ 12 ITEM 3. LEGAL PROCEEDINGS................................................................. 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................... 14 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.............................................. 14 PART II............................................................................................... 16 ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.............. 16 ITEM 6. SELECTED FINANCIAL DATA........................................................... 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................................... 18 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................ 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................... 31 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................................................................... 56 PART III.............................................................................................. 56 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISRANT................................. 56 ITEM 11. EXECUTIVE COMPENSATION............................................................ 56 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT..................... 56 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................... 56 PART IV............................................................................................... 57 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................... 57
As used in this report, the terms "we," "us," "our," "GSI Lumonics" and the "Company" mean GSI Lumonics Inc. and its subsidiaries, unless the context indicates another meaning. The following trademarks and trade names of GSI Lumonics are used in this report: WaferMark(R), LightWriter(R), ScreenCut(R), ICMARKII(TM), LuxStar(R), Laserdyne(R) and LaserMark(R). Exchange Rate Information The following table sets forth in Canadian dollars the exchange rates of the Canadian dollar to the United States dollar, determined based upon publicly available information from the Federal Reserve Bank of New York for the calendar years 1996 through 2000. For example, on December 31, 2000, one US dollar bought 1.4995 Canadian dollars.
2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- High Cdn$1.5600 Cdn$1.5302 Cdn$1.577002 Cdn$1.4398 Cdn$1.3822 Low 1.4350 1.4440 1.4075 1.3357 1.3310 End of Period 1.4995 1.4440 1.5375 1.4288 1.3697 Average (1) 1.4871 1.4827 1.4898 1.3845 1.3637
(1) The average of the exchange rate on the last business day of each month during the applicable period. Special Note Regarding Forward-Looking Statements Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements, expressed or implied by such forward-looking statements. In making these forward-looking statements, which are identified by words such as "will", "expects", "intends", "anticipates" and similar expressions, the Company claims the protection of the safe-harbor for forward-looking statements contained in the Reform Act. The Company does not assume any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements. PART I ITEM 1. BUSINESS OF GSI LUMONICS INC. Overview We design, develop, manufacture and market laser-based advanced manufacturing systems and components as enabling tools for a wide range of high-technology applications, including computer-chip memory repair processing, inspection systems for solder paste and component placement on surface-mount ("SMT") printed circuits, via drilling, hybrid circuit trim and circuit trim on silicon. We also provide precision optics for Dense Wave Division Multiplexing ("DWDM") networks. Major markets for our products include the semiconductor, electronics, and telecommunications industries. In addition, we sell to other markets such as the aerospace industry. 3 Corporate History GSI Lumonics Inc., a New Brunswick corporation, is the product of a merger of equals between General Scanning Inc. and Lumonics Inc. that was completed on March 22, 1999. Our shares trade on The Nasdaq Stock Market(R)under the symbol GSLI and on The Toronto Stock Exchange under the symbol LSI. Immediately following the merger, the General Scanning shareholders and the Lumonics shareholders each, as a group, owned approximately 50% of the combined company's common shares. General Scanning Inc. was incorporated in 1968 in Massachusetts. In its early years, General Scanning developed, manufactured and sold components and subsystems for high-speed micro positioning of laser beams. Starting in the mid-to-late 1980s, General Scanning began manufacturing complete laser-based advanced manufacturing systems for the semiconductor and electronics markets as well as a number of other applications such as aerospace assembly and medical recording and imaging. Lumonics Inc. was incorporated in 1970 for the purpose of producing lasers for scientific and research applications. It first became a public company in 1980, with its common shares listed on The Toronto Stock Exchange until 1989. In 1989, all common shares were acquired by a wholly owned subsidiary of Sumitomo Heavy Industries, Ltd., and Lumonics ceased to be a public company. On September 28, 1995, it again became a public company, and its shares were listed on The Toronto Stock Exchange. At December 31, 2000, Sumitomo owned 10.2% of the outstanding shares of GSI Lumonics. Industry Overview Industrial lasers are generally used in the semiconductor and electronics industries, with a growing number of applications in other industries as well. In the long term, subject to market cycles, 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. Some firms in the semiconductor industry have recently announced a slowdown in new orders as market conditions weaken. 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 industry where we generated 23% of our revenues during 2000. These fluctuations may continue and could have an adverse impact on our operations. The rapid and increasingly severe downturn in the United States economy in the first quarter of 2001 could affect economies in Canada, Europe and in other countries and geographic regions in which we conduct business. To the extent that this occurs, demand for our products could be negatively affected in these countries and geographic regions. IC Insights, an independent market research company, projects semiconductor capital equipment spending will increase from an actual of $32.6 billion in 1999 to $59.2 billion in 2000, $53.2 billion in 2001 and $48.8 billion in 2002. The telecommunications market has been a very fast growing area, driven primarily by growth of the Internet and digital communications. The capacity and amount of data transmitted in recent years grew by at least 100% per year and is expected to continue to grow, and will likely make fiber optics the technology of choice for high bandwidth use. GSI Lumonics, through its subsidiary, WavePrecision Inc., manufactures optical components used by industry-leading customers for selecting, shifting, switching and interleaving precise wavelengths of light to increase bandwidth and efficiency of fiber optic telecommunications networks. We see the principal market drivers to be: . the ongoing increases in functionality of computer, telecommunications devices and consumer electronics which, in turn, lead to growing technical demands on circuits and components and the equipment used to manufacture them. . the proliferation of new electronic products. . the continuing miniaturization of components with greater densities and smaller line widths that require new generations of manufacturing technology. 4 . the Internet and its ever-increasing usage in all areas of society. . the growing use of wireless technology in personal and business applications. . advances in process technology that are creating new opportunities for advanced manufacturing systems. Corporate Strategy During fiscal 2000, we accomplished the major portion of a strategic repositioning of the Company through a series of divestitures, one acquisition and reassignment of resources. Our intentions are to accelerate growth and increase market share. The key elements of our strategy include: . Invest in laser-based technologies, products and capabilities which position us as one of the leading competitors in markets that offer strong profitable growth opportunities, specifically semiconductor and electronics; . Concentrate on high value-added systems that have a global market; . Enhance our capabilities to supply parts on precision optical components used in DWDM for fiber optic telecommunications networks; . Further strengthen our competencies in technology, manufacturing and distribution; and . Acquire complementary products and technologies. Consistent with our strategy, we have divested product lines that were no longer strategic. These actions allowed us to redirect capital to opportunities in our strategic markets including semiconductor, electronics, and telecommunications. In 2000, we took specific actions to strengthen our position in our strategic markets: . Semiconductors. We introduced a new technology platform for memory repair, an application for our manufacturing systems. We estimate the annual market for memory repair systems is greater than $100 million of which we currently have less than a 10% share. . Electronics. We enhanced our market position in printed circuit board manufacturing processes, including solder paste inspection, via drilling and thick film trimming, by investing significantly in research and development. We believe that demand for products such as telecommunications equipment, cell phones and pagers will drive demand for our newly developed products. . Telecommunications. With the recent acceleration in the construction of fiber optic networks, demand for our precision optic products has increased significantly. In 1999, we began to enhance our capability to supply precision optical components used in DWDM for fiber optic telecommunication networks. In early 2001, we formally incorporated our optics business unit under the name WavePrecision Inc. Currently, approximately 60% of WavePrecision revenues are to the telecom industry, with the balance to medical, aerospace, semiconductor and other specialty applications. Products and Services Semiconductor Market Our laser systems are used in numerous production process steps within the semiconductor industry, which is characterized by ever increasing demands on throughput, reduced device size and increased device complexity, performance, traceability and quality. Semiconductor devices are used in a variety of products including electronics, consumer products, personal computers, communications products, appliances and medical instruments. Laser Trim and Test Systems. These systems enable production of electronic circuits by precisely tuning the performance of linear and mixed signal devices. Tuning is accomplished by adjusting various component 5 parameters with selective laser cuts, while the circuit is under test, thereby achieving the desired electrical performance. These systems combine material handling, test stimulus, temperature control and laser trim subsystems to form turnkey production process packages. Permanent Marking Systems. We provide products to support the product marking requirements of the semiconductor industry. WaferMark laser systems are used for the marking of silicon wafers at the front end of the semiconductor process, aiding process control and device traceability. These systems incorporate advanced robotics and proprietary process control technology to provide debris free marking of high-density silicon wafers along automated production lines. We also supply systems for die marking of wafers. Our automated wafer marking system supports individual bare die traceability marks. The system incorporates a tightly coupled vision system for automated wafer identification and mark alignment on each die. Complete system operation is managed with software for intuitive process monitoring and automated wafer map downloading through a single graphical user interface. In addition, at the back end of the semiconductor process, our HM, LM, and LightWriter series of laser marker products support additional semiconductor device marking capabilities, such as in-tray marking of integrated circuits. Memory Repair Systems. Dynamic random access memory chips are critical components in the active memory portion of computers and a broad range of other digital electronic products. First-pass manufacturing yields are typically low at the start of production of a new generation of higher capacity devices. Laser processing is used to raise production yields to acceptable economic levels. Our memory repair laser systems allow semiconductor manufacturers to effectively disconnect defective or redundant circuits in a memory chip with accurately positioned and power modulated laser pulses. This improves the yield of usable components per treated wafer, effectively lowering the cost per unit produced. Electronics Market Producers of electronic components and assemblies, particularly surface mount technology assemblies, have a number of our laser systems available to support their process requirements. Features of these systems include precision laser spot size, laser power control, high-speed parts handling, and applications adaptability. Printed Circuit Board Processing Systems. Our laser systems are used in various process steps in the production of printed circuit boards and flex circuits. Our GS series of products, which is capable of drilling micro vias at very high speeds in every type of material commonly used for printed circuit board fabrication, supports the miniaturization trend within the industry. Our ScreenCut systems are used for cutting stencils as an alternative or, in some cases, a complement to the traditional photochemical machining process. Surface Mount Measurement Systems. Our surface mount measurement products are used in the manufacture of printed circuit board assemblies. In the manufacture process, surface-mount solder, in paste form, is stenciled onto the circuit board with a screen printer, and components are then placed in their respective positions on the board by automated equipment. Our systems use our patented three-dimensional scanning laser data acquisition technology to inspect either solder paste depositions or component placement accuracy. Thick Film Laser Processing Systems. Our laser systems are used in the production of thick film resistive components for surface mount technology electronic circuits, known as chip resistors, as well as more general-purpose hybrid thick film electronic circuits. Permanent Marking Systems. We offer a broad line of laser marking systems for printed circuit boards and other electronic components. These systems place permanent high-contrast marks in any combination of text, barcodes, or 2D cell codes on even the highest density circuit boards using an industry standard interface. We manufacture many other component marking systems that have found wide acceptance in the electronics market. Among the features offered by these systems are speed, accuracy, power control, wide field marking and application specific control software. 6 Industrial Markets We manufacture laser systems for the aerospace and other industrial markets for advanced manufacturing applications. Our laser systems can be controlled and directed with precision and used in a wide spectrum of applications. Lasers offer lower production costs, fast solutions and flexibility on the production line. In addition to lasers, systems may include precision optics, fiber optics, control software, robotics, machine vision, motion control and parts handling. Our JK Series laser systems incorporate advanced solid-state laser technology to produce efficient, reliable, dependable and accurate production systems. These systems operate at uniform energy density, offer improved process efficiency and require less energy. These systems use our patented power supply, allowing a wide range of applications, including drilling cooling holes in jet engine turbo fans. They also permit high speed, repetitive processing which maximizes production rates. Our JK Series can be readily linked with robotics systems to provide manufacturers with a flexible production tool. Permanent Marking Systems. Our LaserMark and HM systems provide marking capabilities for aerospace and other industrial markets. Optical and Other Components Telecommunications. We design and manufacture precision optical components used in DWDM technology for increasing the bandwidth of fiber optic networks. These networks have been used mostly for `long-haul' inter-city applications and, more recently, over short-range `metro' applications using optical add drop multiplexing. Our products select, shift or interleave very precise wavelengths of light, thereby increasing the bandwidth and efficiency of DWDM systems. These products require highly precise polishing and measurement technology to produce components to exact specifications that are critical to their performance. Specialty Optical Components. Our specialty optical components are used primarily for high performance lasers used in lithography, industrial processing and medical applications. Scanning Components and Subsystems. We produce optical scanners, scanner subsystems, and diode-pumped solid state lasers. These are used in a variety of applications including materials processing, test and measurement, alignment, inspection, displays, graphics, vision, rapid prototyping, and medical applications such as dermatology and ophthalmology. Other Markets and Products Printing Products. We produce a variety of printing products. Thermal printers are used in end products such as defibrillators, patient care monitors, and cardiac pacemaker programmers. We also produce specialty-printing products. Film Imaging Systems. We produce laser imaging and digitizing equipment for use with data sets from computer assisted tomography, magnetic resonance imaging or nuclear medicine equipment. 7 Customers We have over 1,000 customers, many of whom are among the largest global participants in their industries. Many of our customers participate in several market segments. These customers include: Semiconductor Electronics Other -------------- ----------- ----- Anadigics A.T.&S. 3M Analog Devices Bosch AB Dick Cypress Semiconductor Celestica Cardiac Pacemakers Dominion Semiconductor Ericsson Ciba Flip Chip Semiconductor Hewlett Packard Corning IBM IBM General Electric Intel Jabil Circuits Gillette Maxim Kyocera Glaxo Micron Lucent JDS Uniphase Mitsubishi Matsushita Kodak Motorola Motorola Medtronic National Semiconductor Nippon Denso Pratt & Whitney Powerchip Semiconductor Nortel Rolls Royce Samsung Philips Vickers Texas Instruments SDL Toshiba Seagate SGS Thomson Siemens Toshiba Vishay Marketing, Sales and Customer Support We believe that our marketing, sales and customer support organizations are important to our long-term growth and give us the ability to respond rapidly to the needs of our customers. Our product line managers have worldwide responsibility for determining product strategy based on their knowledge of the industry, customer requirements and product performance. These managers have direct contact with customers and, working with the sales and customer service organizations, develop and implement strategic and tactical plans aimed at serving the needs of existing customers as well as identifying new opportunities based on the market's medium-to-long term requirements. We direct our worldwide advanced manufacturing systems sales activities from the United States. Sales management for components is based in Massachusetts. Field offices are located close to key customers to maximize sales and support effectiveness. In Europe, we maintain offices in the United Kingdom, Germany, France and Italy, and in the Asia-Pacific region, in Hong Kong, Japan, Korea, Malaysia, the Philippines, Singapore and Taiwan. Selected independent distributors and agents, who sell our products in areas such as Eastern Europe, Australia and Latin America, augment our direct sales organization. We provide 24-hour, 365-day-a-year service support to our advanced manufacturing systems customers. Our service support organization is based in Farmington Hills, Michigan, Munich and Hong Kong for the North American, European, and Asia-Pacific regions, respectively. This support includes field service personnel who reside close to concentrations of customer sites. These field service and in-house technical support personnel receive ongoing training with respect to our laser-based systems, maintenance procedures, laser-operating techniques and processing technology. Many of our distributors also provide customer service and support. In order to minimize disruption to customers' manufacturing operations, we provide same or next day delivery of replacement parts worldwide from three regional replacement parts logistics centers. 8 Competition We face substantial competition in several markets from both established competitors and potential new market entrants. Significant competitive factors include product functionality, performance, size, flexibility, price, market presence, customer satisfaction, customer support capabilities and breadth of product line. We believe that we compete favorably on the basis of each of these factors. Competition for our products is concentrated in certain markets and fragmented in others. In laser-based processing systems for the semiconductor and electronics markets, we compete primarily with a few large companies such as Electro Scientific Industries and NEC. In laser-based marking systems there are several significant competitors, such as Excel Technology and Rofin-Sinar, as well as a large number of smaller companies that compete with us on a limited geographic, industry-specific or application-specific basis. In industrial markets, we compete with Trumpf-Haas, Prima, Robomatix, and Unitek. In other markets, we compete with CTI, a unit of Excel Technology, in scanning components and with several companies in optical components. We expect our competitors to continue to improve the design and performance of their products. There is a risk that our competitors will develop enhancements to, or future generations of, competitive products that will offer superior price or performance features, or that new processes or technologies will emerge that render our products less competitive or obsolete. Increased competitive pressure could lead to lower prices for our products, adversely affecting sales and profitability. Manufacturing We perform internally those manufacturing functions that enable us to add value and to maintain control over critical portions of the production process and outsource other portions of the production process. This approach has led to changes in our manufacturing organization as we move attention from the management of internal production processes to the management of supplier quality and production. The retained internal activity is focused on module integration and testing with particular emphasis on our customers' applications. We believe we achieve a number of competitive advantages from this integration, including the ability to achieve lower costs and higher quality, bring new products and product enhancements more quickly and reliably to market, and produce sophisticated component parts not available from other sources. We manufacture at eight facilities in North America and Europe. Each of our manufacturing facilities has co-located manufacturing, manufacturing engineering, marketing and product design personnel. We believe that this organizational proximity greatly accelerates development and entry into production of new products and aids economical manufacturing. Many of our products are manufactured under ISO 9001 certification. During fiscal 2000, we sold our metrology product line and Simi Valley, California facility. We also sold our Watertown, Massachusetts facility in the United States and moved that production to our other existing facilities in the Boston area. We no longer occupy our Hull, England and Phoenix, Arizona facilities because of the sale of those operations. During the fourth quarter of fiscal 2000, the Company decided to take steps to reduce the space we occupy at our Rugby, United Kingdom facility and three leased facility locations in the United States and Germany. We are subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile, or otherwise hazardous chemicals used on our premises. We believe we are in material compliance with these regulations and have obtained all necessary environmental permits to conduct our business. 9 Research and Development During 2000, 1999 and 1998, we spent $33.9 million, $28.7 million and $13.0 million, respectively, on development programs directed at creating new products, product enhancements and new applications for existing products, as well as funding research into future market opportunities. The markets we serve are generally characterized by rapid technological change and product innovation. We believe that continued timely development of new products and product enhancements to serve both existing and new markets is necessary to remain competitive. We carry out our research and development activities in multiple locations around the world. We also maintain links with leading industrial, government and university research laboratories worldwide. We work closely with customers and institutions to develop new or extended applications of our technology. We maintain significant expertise in the following core technologies: Lasers: both gas and solid-state, designed to produce efficient, reliable and accurate laser sources in a broad range of configurations for material processing applications. Precision Optics: design and manufacturing process capability for production of laser quality lenses, mirrors of high dynamic rigidity, high performance mirrors and lens coatings. Mechanics: design of large laser-based advanced manufacturing systems and small precision servomechanisms and optical scanners, typically associated with a broad spectrum of laser systems. Electronics: design of wide bandwidth power amplifiers and high signal-to-noise ratio and low thermal drift signal detection circuits; design and manufacture of analog servo controllers with low electromagnetic interference circuitry. Software: development of real-time control of servomechanisms, process system control and machine interfaces. Inspection: design of non-contact measurement probes, systems and related software. Systems Design and Integration: leveraging our core technologies to produce highly efficient and effective application-specific manufacturing solutions typically based on lasers and their interaction with materials including integration with robotics systems. Patents and Intellectual Property Our intellectual property includes copyrights, patents, proprietary software, technical know-how and expertise, designs, process techniques and inventions. We own 88 United States and 53 foreign patents; in addition, applications are pending for 56 United States and 83 foreign patents. We have also been licensed under a number of patents in the United States and foreign countries. There can be no assurance as to the degree of protection offered by these patents or as to the likelihood that patents will be issued for pending applications. We also rely on trade secret protection for our confidential and proprietary information. We routinely enter into confidentiality agreements with our employees and consultants. There is a risk that these agreements will not provide meaningful protection of our proprietary information in the event of misappropriation or disclosure. 10 Human Resources At December 31, 2000, we had 1,552 employees in the following areas: Number of employees Percentage --------- ---------- Production and operations 634 41% Customer service 181 12% Sales, marketing and distribution 257 16% Research and development 269 17% Administration 211 14% ----- ---- Total 1,552 100% ===== ==== Other Information concerning product lines, working capital, research and development expenses, and seasonality may be found in Item 7, Management Discussion and Analysis. Information about geographic segments may be found in Note 17 to the Consolidated Financial Statements. 11 ITEM 2. PROPERTIES The principal owned and leased properties of GSI Lumonics and its subsidiaries are listed in the table below.
Approximate Owned/ Location Principal Use Square Feet Leased Kanata, Ontario, Canada Principal corporate executive 75,000 Owned offices; Manufacturing, R&D, Marketing, Sales Nepean, Ontario, Canada Manufacturing, R&D, Marketing, Sales 41,000 Owned (two sites) Billerica, MA, USA Manufacturing, R&D, Marketing, Sales 80,000 Leased; expires in 2008 with two 5-year renewal options Wilmington, MA, USA Manufacturing, R&D, Marketing, Sales 78,000 Leased; expires in 2007 with two 5-year renewal options Bedford, MA, USA Manufacturing, R&D, Marketing, Sales 51,000 Leased; expires in 2003 with one 3-year renewal option Oxnard, CA, USA Sales and administration using 9,000 44,000 Leased; expires in 2004 square feet (35,000 square feet currently unoccupied and offered for sublease) Moorpark, CA, USA Manufacturing, R&D, Marketing, Sales 49,000 Leased; expires in 2005 with one (three sites) 5-year renewal option Maple Grove, MN, USA Manufacturing, R&D, Marketing, Sales 104,000 Leased; expires in 2003 with three 1-year renewal options Farmington Hills, MN, Customer Support and Logistics Center 56,000 Leased; expires in 2003 with USA three 1-year renewal options Livonia, MI, USA Customer Support and Logistics Center 30,000 Leased; expires in July 2001 (currently unoccupied and offered for sublease) Rugby, England Manufacturing, R&D, Marketing, Sales 113,000 Owned Munich, Germany Customer Support and Logistics Center 29,000 Leased; expires in 2013 with option to renew
Additional sales, service and logistics sites are located in France, Hong Kong, Italy, Japan, Korea, Malaysia, the Philippines, Singapore, and Taiwan. These additional marketing and sales offices are in leased facilities occupying approximately 44,000 square feet in the aggregate. The Company will soon occupy a 9,700 square feet facility in Nepean, Ontario, Canada subject to a five-year lease commitment. Because of actions during fiscal 2000, we no longer operate out of our former facilities in Simi Valley, CA, Watertown, MA, Hull, England, and Phoenix, AZ. In conjunction with the exit activities described in Note 15 to the Consolidated Financial Statements, the Company is planning to reduce excess manufacturing and distribution capacity. After the above-mentioned rationalization of facilities, the Company believes the productive capacity of the remaining facilities to be both suitable and adequate for the requirements of its business. 12 ITEM 3. LEGAL PROCEEDINGS Robotic Vision Systems, Inc. v. View Engineering, Inc., USDC Case No. 95-7441. In March 2000, the United States District Court for the Central District of California entered judgement in favor of View Engineering, Inc., a wholly owned subsidiary. Robotic Vision had alleged infringement relating to lead inspection machines formerly sold by View Engineering and sought damages of $60.5 million. The District Court found Robotic Vision's patent invalid and Robotic Vision has appealed. The argument for that appeal took place on March 9, 2001. GSI Lumonics Inc. v. BioDiscovery, Inc. On December 10, 1999 GSI Lumonics filed suit in the United States District Court for the District of Massachusetts seeking a declaration that its QuantArray Microarray Analysis Software does not infringe any copyrights owned, licensed or assigned to BioDiscovery, Inc. or its president. BioDiscovery, Inc. is a manufacturer of microarray quantification software under the name ImaGene(C). On December 21, 1999, BioDiscovery's president responded to the action for declaratory judgment by filing a separate suit in the United States District Court for the Southern District of California, alleging that GSI Lumonics reverse engineered his software, and also sued for copyright infringement. In the Massachusetts action, the court denied BioDiscovery's president's motion to dismiss and scheduled the trial for May 2000. In April 2000, shortly before the trial was scheduled to begin, BioDiscovery's president abandoned his copyright infringement claim and consented to the entry of a default judgment in favor of GSI Lumonics. In the California action the court, in September 2000, allowed a motion by the Company to dismiss BioDiscovery's president's complaint insofar as it alleged any reverse engineering, reverse compiling or copying of ImaGene(C). On November 15, 2000, GSI Lumonics, BioDiscovery and BioDiscovery's president entered into a settlement agreement whereby the parties agreed to dismiss all pending actions with prejudice. The California Action was therefore voluntarily dismissed with prejudice. 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 the Company and Dynamic Details Inc., an unrelated party that is one of the Company's customers. Electro Scientific alleges that the Company offers to sell and import into the United States the 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 the GS-600 laser system infringes Electro Scientific's U.S. patent no.5,847,960 and that the Company has actively induced the infringement of, and contributorily infringed, the patent. Electro Scientific seeks an injunction, unspecified damages, trebling of those damages, and attorney fees. GSI Lumonics has indemnified Dynamic Details with respect to these allegations. Discovery in the case is set to close on June 15, 2001 and trial is scheduled for October 30, 2001. Electro Scientific Industries, Inc. v. General Scanning, Inc. In September 1998, the United States District Court for the Northern District of California granted Electro Scientific's motions for summary judgment against General Scanning 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 General Scanning'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. 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 fees, but granted interest on the damages. The Company recorded a provision during the three months ended April 2, 1999 of $19 million to reflect the amount of the damage award plus accrued interest and related costs. 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. The appeal was argued on October 3, 2000 and the appeals court has not yet rendered a decision. 13 GSI Lumonics believes that Robotic Vision's and Electro Scientific's claims in the above actions are without merit and is vigorously defending these proceedings. However, if the Company was to lose on one or more of the claims and damages are awarded, there could be a material adverse effect on its operating results and/or financial condition. 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. The plaintiff in the proceedings has alleged that certain equipment used by these manufacturers infringes patents claimed to be held by the plaintiff. While GSI Lumonics is not a defendant in any of the proceedings, several of GSI Lumonics customers have notified GSI Lumonics that, if the party successfully pursues infringement claims against them, they may require GSI Lumonics to indemnify them to the extent that any of their losses can be attributed to systems sold to them by GSI Lumonics. GSI Lumonics does not believe that the outcome of these claims will have a material adverse effect upon GSI Lumonics, but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect upon the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names, ages and positions of the current executive officers of the Company as at March 16, 2001, and the principal occupations held by each person named for at least the past five years. Executive officers serve at the pleasure of the Board of Directors.
Name Age Position with GSI Lumonics Charles D. Winston 60 President and Chief Executive Officer Thomas R. Swain 55 Vice President, Finance and Chief Financial Officer Patrick D. Austin 50 Vice President, Sales, Laser Systems William L. Housley 45 Vice President, Operations, Laser Systems Linda Palmer 49 Vice President, Human Resources Kurt A. Pelsue 48 Vice President, Technology Felix I. Stukalin 39 Vice President, WavePrecision Inc. Victor H. Woolley 59 Vice President, Strategic Planning
Charles D. Winston has served as Chief Executive Officer of GSI Lumonics beginning in March 1999 and as President beginning in November 1999. He previously served as President and Chief Executive Officer of General Scanning commencing in September 1988. Mr. Winston served as a Director of General Scanning from 1989 until the merger. Prior to joining General Scanning, from 1986 to 1988, Mr. Winston served as a management consultant. In 1986, Mr. Winston was an officer of Savin Corporation. From 1981 to 1985, he served as a Senior Vice President of Federal Express Corporation. Thomas R. Swain has held his current position beginning in September 2000. He joined General Scanning in August 1996 with the acquisition of View Engineering and served as Vice President and General Manager. Prior to the acquisition, Mr. Swain was President and Chief Executive Officer of View Engineering. Patrick D. Austin has held his current position beginning in March 1999, and has served as Vice President, Sales for Lumonics Inc. beginning in January 1996. Prior to that time he was Vice President, Market Development for Lumonics and prior to October 1992 was Vice President, Laser Marking Division. 14 William L. Housley joined GSI Lumonics in January 2001. Beginning in 1999, Mr. Housley served as President, Optical Storage Group for Oak Technology. Prior to that, Mr. Housley served as Director of Operations, Imaging and Storage Division for Motorola Semiconductor Products Sector. Linda Palmer assumed her current role in December 1999 having served as Vice President of Integration from March 1999. She had been General Scanning's Vice President of Human Resources beginning in 1996. Prior to that time, Ms. Palmer served as Director of Human Resources for Analog Devices. Kurt A. Pelsue assumed his current position in March 1999 having served beginning in 1997 as Vice President, Corporate Engineering for General Scanning. Prior to that time, Mr. Pelsue held numerous senior level engineering assignments within General Scanning. He joined General Scanning in 1976. Felix I. Stukalin was appointed to his position in March 2000. Prior to that Mr. Stukalin served as Vice President, Components. He joined General Scanning in 1994 as Director of Engineering for the Components Division and in 1999 was appointed General Manager of that Division. Victor H. Woolley assumed his current role in March 1999, having served as Chief Financial Officer, Treasurer and Clerk of General Scanning Inc. beginning in August 1995. From 1986 to 1995, Mr. Woolley was Vice President and Chief Financial Officer of Sepracor Inc. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market Information GSI Lumonics common stock, no par value, trades on The Nasdaq Stock Market(R) under the symbol GSLI and on The Toronto Stock Exchange (the "TSE") under the symbol LSI. Prior to the 1999 merger, Lumonics' common stock was traded on The Toronto Stock Exchange under the symbol LUM beginning September 29, 1995. From May 1989 to September 28, 1995 the Company's Common Stock was not publicly traded. The following table sets forth, for the periods indicated, the high and low prices per share of the common stock as reported by Nasdaq in U.S. dollars and the TSE in Canadian dollars.
Nasdaq Toronto Stock Exchange Price Price Range Range US$ Cdn$ High Low High Low ---- --- ---- --- Fiscal year 2000: First Quarter $29.375 $ 8.250 $40.00 $11.80 Second Quarter 36.000 11.750 53.75 18.50 Third Quarter 43.500 16.250 64.00 24.55 Fourth Quarter 17.063 7.000 26.00 10.75 Fiscal year 1999: First Quarter $ 6.813 $ 4.500 $10.50 $ 6.75 Second Quarter 4.750 3.250 7.00 5.00 Third Quarter 6.875 4.063 10.25 5.95 Fourth Quarter 11.250 4.188 16.20 7.60
Holders On February 28, 2001, there were approximately 133 holders of record of Common Stock. Since many of the shares of Common Stock are registered in "nominee" or "street" name, the Company estimates that the total number of beneficial owners is considerably higher. Dividends The Company has never paid cash dividends on its Common Stock. The Company currently intends to reinvest its earnings for use in the business and does not expect to pay cash dividends in the foreseeable future. Subject to the provisions of the Canada-US Income Tax Convention (the "Convention"), Canadian withholding tax at a rate of 25% will be payable on dividends paid or credited, or deemed to be paid or credited, by GSI Lumonics to a US holder on GSI Lumonics common shares. Under the Convention, the withholding tax rate is reduced to 15%, or if the US holder is a corporation that owns 10% or more of GSI Lumonics voting stock, to 5%. 16 ITEM 6. SELECTED FINANCIAL DATA This section presents our selected consolidated financial data prepared in accordance with U.S. GAAP for the five fiscal years ended December 31, 2000. The information set forth should be read carefully in conjunction with the consolidated financial statements, including the notes to the consolidated financial statements, and the management's discussion and analysis included in this report. The selected consolidated data in this section is not intended to replace the consolidated financial statements. 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 include, for illustrative purposes, unaudited pro forma information as if the merger had occurred 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, ------------------------------------------------- 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (in thousands except per share amounts) Consolidated Statement of Operations Data: Sales $ 373,864 $ 274,550 $ 144,192 $ 177,328 $ 153,367 Gross profit 124,961 95,777 40,673 65,922 60,999 Operating expenses: Research and development 33,931 28,700 12,985 11,993 11,872 Selling, general and administrative 80,949 64,653 38,191 37,591 32,999 Amortization of technology and other intangibles 4,851 4,070 861 400 381 Acquired in-process research and development -- 14,830 -- -- -- Restructuring and other 7,196 19,631 2,022 -- -- --------- --------- --------- --------- --------- Income (loss) from operations (1,966) (36,107) (13,386) 15,938 15,747 Gain on sales of assets, foreign exchange and interest 77,009 (1,223) 2,210 1,048 634 --------- --------- --------- --------- --------- Income (loss) before income taxes 75,043 (37,330) (11,176) 16,986 16,381 Income tax provision (benefit) 29,666 (2,556) (3,260) 5,074 4,635 --------- --------- --------- --------- --------- Net income (loss) for the year $ 45,377 $ (34,774) $ (7,916) $ 11,912 $ 11,746 ========= ========= ========= ========= ========= Net income (loss) per common share: Basic $ 1.19 $ (1.14) $ (0.46) $ 0.75 $ 0.83 Diluted $ 1.13 $ (1.14) $ (0.46) $ 0.72 $ 0.78 ========= ========= ========= ========= ========= Weighted average common shares outstanding (000's) 38,187 30,442 17,079 15,989 14,077 Weighted average common shares outstanding and dilutive potential common shares (000's) 40,000 30,442 17,079 16,454 15,079
December 31, ------------------------------------------------- 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (in thousands) Balance Sheet Data: Working capital $ 190,978 $ 103,727 $ 85,977 $ 110,895 $ 71,981 Total assets 431,184 289,722 159,642 189,180 135,602 Long-term liabilities, including current portion 8,626 9,898 7,082 9,239 13,820 Total stockholders' equity 289,267 171,730 120,757 133,623 88,345
17 ITEM 7. 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 report. This report 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 report. Overview We design, develop, manufacture and market laser-based advanced manufacturing systems and components as enabling tools for a wide range of high-technology applications, including computer-chip memory repair processing, inspection systems for solder paste and component placement on surface-mount ("SMT") printed circuits, via drilling, hybrid circuit trim and circuit trim on silicon. We also provide precision optics for Dense Wave Division Multiplexing ("DWDM") networks. Major markets for our products include the semiconductor, electronics, and telecommunications industries. In addition, we sell to other markets such as the aerospace industry. Our systems sales depend on our customers' capital expenditures that are affected by business cycles in the markets they serve. As more fully described in Note 2 to the Consolidated Financial Statements, the Company completed a merger of equals with General Scanning Inc. on March 22, 1999. 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. During fiscal 2000, we accomplished the major portion of a strategic repositioning of the Company through a series of steps, including: . Divestitures and one acquisition; . Rationalization for excess capacity at our Rugby, United Kingdom facility and three leased facility locations in the United States and Germany; and . Restructuring of the Company's United Kingdom operation and worldwide distribution system related to high-power laser systems for certain automotive applications. These steps resulted in a significant gain on disposals and significant restructuring costs as discussed in Notes 2 and 15 to the Consolidated Financial Statements. Business Environment Industrial lasers are generally used in the semiconductor and electronics industries, with a growing number of applications in other industries as well. In the long term, subject to market cycles, 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. However, some firms in the semiconductor industry have recently announced a slowdown in new orders as market conditions weaken. In the short term, IC Insights, an independent market research company, projects semiconductor capital equipment spending will increase from an actual of $32.6 billion in 1999 to $59.2 billion in 2000, $53.2 billion in 2001 and $48.8 billion in 2002. Sales grew 36% to $374 million in 2000 compared to $275 million for 1999 and grew 27% compared to pro forma 1999 sales of $295 million (assuming the merger between General Scanning and Lumonics occurred January 1, 1999, rather than March 22, 1999). 18 Sales by Market. The following table sets forth sales in millions of dollars to our primary markets for 2000, 1999 and 1998.
2000 1999 1998 --------------------------------- --------------------------------- ----------------- Increase Increase (decrease) (decrease) % of over % of over % of Sales Total prior year Sales Total prior year Sales Total --------- ----- ---------- --------- ----- ---------- --------- ----- Semiconductor $ 85.4 23% 148% $ 34.5 13% 146% $ 14.0 10% Electronics 81.2 22 20 67.9 25 120 30.8 21 Automotive 25.9 7 116 12.0 5 (12) 13.6 9 Components 47.5 13 42 33.4 12 351 7.4 5 Other 83.3 22 (5) 87.5 31 91 45.9 32 Parts and service 50.6 13 29 39.3 14 21 32.5 23 --------- ----- ---- --------- ----- ---- --------- ----- Total $ 373.9 100% 36% $ 274.6 100% 90% $ 144.2 100% ========= ===== ==== ========= ===== ==== ========= =====
Sales to the semiconductor market increased significantly in 2000 and 1999. After severe recession beginning in 1998 and extending into 1999, the semiconductor equipment industry began to recover in the second half of 1999 and this recovery continued into 2000. Activity has increased in both the front end and back end of the fabrication process, resulting in an increase in orders for trim and test and wafer marking systems due to growth in mixed signal devices. The increase in sales during 1999 to the semiconductor industry was due primarily to the 1999 merger. Sales to the electronics market increased by 20% over the prior year. Sales in the second half of 2000 declined slightly relative to the same period in 1999, mainly in Europe. Sales experienced steady growth in 1999 through to the first half of 2000. This growth, as is also the case in the semiconductor market, was fueled by the growing demand for components for telecommunications devices, personal computers, consumer and automotive electronics. During 2000, sales to the automotive market increased by $13.9 million, following a decline of 12% in 1999, as a result of a major contract completed during 2000. During the fourth quarter 2000, we restructured our Rugby, UK operations and worldwide distribution system, which supplies the AM Series high-power laser product line mainly in the automotive market. See Note 15 to the Consolidated Financial Statements. Growth in sales in the components sector of 42% is due to a gain in market share and our sales growth in the telecom optics market. The increase in sales during 1999 to the components market was due primarily to the 1999 merger. Sales to the other markets (including aerospace, packaging and medical/biotechnology industries) decreased by 5% during 2000 due to the divestiture of certain product lines which were included in this category. Sales to medical/biotechnology industries in the future will be impacted by the sale of the Life Sciences business on October 1, 2000, which had sales of $13.1 million for the nine months ended September 30, 2000. Increased sales in 1999 were due primarily to the merger. Parts and service sales increased 29% for 2000 and 21% for 1999. The increase reflects continued growth of the installed base. 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. Revenues are attributed to these geographic areas on the basis of customer location. The following table shows sales in millions of dollars to each geographic region for 2000, 1999 and 1998. 19
2000 1999 1998 --------------------------------- --------------------------------- ----------------- Increase Increase over over of % prior of % prior of % Sales Total year Sales Total year Sales Total --------- ----- ---------- --------- ----- ---- --------- ----- United States $ 177.8 48% 24% $ 143.0 52% 133% $ 61.3 42% Canada 20.2 5 87 10.8 4 30 8.3 6 Latin and South America 5.5 1 244 1.6 -- 167 0.6 -- Europe 72.0 19 10 65.3 24 62 40.4 28 Japan 58.2 16 79 32.6 12 104 16.0 11 Asia-Pacific, other 40.2 11 89 21.3 8 21 17.6 13 --------- ----- ---- --------- ----- ----- --------- ----- Total $ 373.9 100% 36% $ 274.6 100% 90% $ 144.2 100% ========= ===== ==== ========= ===== ===== ========= =====
Sales increased during 2000 compared to the prior year in the United States in the semiconductor, electronics and automotive markets and in Canada in the electronics and components markets. The economic recovery in Asia-Pacific and Japan continued during 2000 with sales increasing by 83% compared to 1999. This region was impacted by the 1997 economic downturn and financial crisis and the effects extended into 1998 and 1999. Beginning in 1999, financial conditions in Asia-Pacific and Japan began to improve. During 2000, in the semiconductor market, activity increased in the front end of the fabrication process resulting in an increase in orders for wafer marking. In the second half of 2000, activity increased in the back end of the fabrication process resulting in increased sales of laser markers. Electronic equipment demand was stirred by consumer demand for cellular phones. Sales increases in 1999 in all regions were due primarily to the 1999 merger. Before the 1999 merger, the Japanese market was served primarily by our largest distributor and significant shareholder, Sumitomo Heavy Industries, Ltd., which accounted for sales of $10.2 million, $11.7 million and $15.5 million for 2000, 1999 and 1998, respectively. In October 1999, we purchased part of this distribution business from Sumitomo to broaden our direct sales and service in Japan. Backlog. We define backlog as unconditional purchase orders or other contractual agreements for products for which customers have requested delivery within the next twelve months. Backlog was a record $119 million at December 31, 2000, compared to $83 million at December 31, 1999, with over 60% in the semiconductor and electronics markets and 20% in the components market. 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. 20 Results of Operations for Fiscal Years Ended December 31, 2000, 1999 and 1998 The following table sets forth items in the consolidated statement of operations as a percentage of sales for the periods indicated:
Year ended December 31, ------------------------- 2000 1999 1998 ---- ---- ---- Sales 100.0% 100.0% 100.0% Cost of goods sold 66.6 65.1 71.8 ----- ----- ----- Gross profit 33.4 34.9 28.2 Research and development 9.1 10.5 9.0 Selling, general and administrative 21.6 23.5 26.5 Amortization of technology and other intangibles 1.3 1.5 0.6 Acquired in-process research and development -- 5.4 -- Restructuring and other 1.9 7.2 1.4 ----- ----- ----- Loss from operations (0.5) (13.2) (9.3) Gain on sale of assets 20.5 0.6 -- Interest income, net 0.9 -- 1.1 Foreign exchange translation gains (losses) (0.8) (1.0) 0.4 ----- ----- ----- Income (loss) before income taxes 20.1 (13.6) (7.8) Income tax provision (benefit) 7.9 (0.9) (2.3) ----- ----- ----- Net income (loss) 12.2% (12.7)% (5.5)% ===== ===== =====
Gross Profit Margin. Gross profit margin was 33.4% in 2000, 34.9% in 1999 and 28.2% in 1998. Gross profit margin in 2000 was lower than 1999 due primarily to a write-off of AM Series inventory of $8.5 million in the fourth quarter of 2000 and higher warranty provisions related to restructuring of the Rugby operation and worldwide distribution system in automotive applications. The Company also evaluated other inventory at December 31, 2000 and increased obsolescence provisions by $10.5 million. Gross profit margin in 1999 was affected by increased sales of higher margin products, varying levels of capacity utilization at our manufacturing plants and warranty settlements on certain large custom systems and printers. Gross profit margin in 1998 was lower due to declines in sales of higher margin products, lower capacity utilization, cost overruns on large and custom systems and costs associated with consolidating facilities. Research and Development Expenses. Research and development expenses, net of government assistance, for 2000 were 9.1% of sales or $33.9 million, compared to 10.5% of sales or $28.7 million (excluding the $14.8 million merger related in-process research and development charge) in 1999 and 9.0% of sales or $13.0 million in 1998. The increases in 2000 and 1999 were due primarily to the merger. During 2000, research and development activities focused on products targeted at the electronics, semiconductor and telecommunications markets. During 1999, research and development activities focused on products targeted at the electronics, semiconductor, biotechnology, aerospace and automotive markets. During 1998, research and development activities focused on products targeted at the aerospace and electronics markets. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 21.6% of sales in 2000 compared to 23.5% of sales in 1999 due primarily to increased sales. In 1999, selling, general and administrative expenses decreased to 23.5% of sales due primarily to operating efficiencies realized from the merger and increased sales. In 1998, in dollar terms, selling, general and administrative expenses were essentially the same as 1997. 21 Amortization of Technology and Other Intangibles. Amortization of technology and other intangibles increased to $4.9 million in 2000 from $4.1 million in 1999 as a result of amortizing intangible assets acquired from the acquisition of General Optics. Acquired In-Process Research and Development Costs. During 1999, we wrote off $14.8 million of in-process research and development costs acquired in the 1999 merger with General Scanning. Restructuring and Other. During the fourth quarter of 2000, a charge of $12.5 million was taken to accrue employee severance of $1.0 million for approximately 50 employees and other exit costs of $3.8 for the Company's United Kingdom operation and worldwide distribution system related to high-power laser systems for certain automotive applications and costs of $7.7 million associated with restructuring for excess capacity at three leased facility locations in the United States and Germany. We also recorded a $2 million write-down of land and building in the United Kingdom. Compensation expense of $0.6 million arising on the acceleration of options on the sale of businesses during the year was also charged to restructuring. During the fourth quarter of 2000, the Company recorded a reversal of $5 million for 1999 restructuring costs that have been determined will not be incurred. During 1999, we took a charge of $19.6 million to accrue for employee severance of $5.6 million, leased facility and related costs of $4 million associated with the closure of our 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 operation shutdown was completed during December 1999. Other integration activities included incurring exit costs for some product lines, reducing redundant resources worldwide, and abandoning redundant sales and service facilities. Gain on Sale of Assets. During 2000, we sold the net assets of the Life Sciences business for a non-operating gain of $73.1 million and the operating assets of other product lines including View Engineering metrology product line, fiber-optics operations in Phoenix, Arizona and package coding product line in Hull, UK for a net gain of $1.3 million. We also sold two facilities in the United States for a net gain of $2.4 million. During 1999, we sold the OLT precision alignment system product line. Interest Income. Net interest income was $3.3 million or 0.9% of sales in 2000 compared to $0.1 million in 1999 and $1.6 million or 1.1% of sales in 1998. The increase in net interest income in 2000 was due to the investment of proceeds received from the April 2000 offering of 4.3 million shares of Common Stock to the public at a price of $17 per share, for net proceeds of $70.1 million. Significant proceeds from the sale of assets also contributed to an increased average cash and investments balance compared to 1999. The decrease in net interest income in 1999 compared to 1998 was due to a higher average debt balance and a lower average cash and investments balance. Income Taxes. The effective tax rate for 2000 was 39.5% of income before taxes, compared to an effective tax rate of recovery of 6.8% for 1999 and 29.2% for 1998. Our tax rate in 2000 reflects the fact that we do not recognize the tax benefit from losses in certain countries where future use of the losses is uncertain and other non-deductible costs. Our recovery rate in 1999 reflects the non-deductibility for tax purposes of acquired in-process research and development costs arising from the merger and the non-recognition of the tax benefit from losses in certain countries where future use of the losses is uncertain. Our 29.2% recovery rate in 1998 derives primarily from our ability to carry back current losses against prior year profits to recover taxes paid in prior years. In addition, our annual effective tax rate is generally less than the Canadian statutory tax rate as tax rates in many of the countries where we operate are lower than the Canadian statutory rate. Net Income (Loss). As a result of the forgoing factors, net income during 2000 was $45.4 million, compared with a net loss of $34.8 million in 1999 and a net loss of $7.9 million in 1998. 22 Liquidity and Capital Resources The Company generated $88.6 million in cash in 2000 to close the year at cash and cash equivalents of $113.9 million at December 31, 2000 compared to $25.3 million at December 31, 1999 and $24.2 million at December 31, 1998. In addition, short-term investments were $20.0 million at December 31, 2000, an increase of $12.7 million from 1999. At December 31, 2000, we held an investment in equity securities consisting of approximately 4.5 million shares, or 6.6%, of Packard BioScience Company common stock received on the sale of our Life Sciences business. This investment is classified as available-for-sale. These equity securities are subject to market fluctuations and, during the fourth quarter, we recorded an unrealized loss of $8.3 million ($5.4 million after tax) as a separate component of accumulated other comprehensive income. During February 2001, Packard filed a preliminary prospectus to register these and other Packard shares for resale. During 2000, we used $10.2 million in operating activities. Net income, after adjustment for non-cash items, resulted in the use of cash of $19.9 million in 2000. Accounts receivable, inventories and other current assets used a further $24.6 million, which was more than offset by current liabilities providing $34.3 million. During 1999, we used $5.7 million in operating activities. The net loss, after adjustment for non-cash items, resulted in the use of cash of $8.0 million in 1999. Accounts receivable used a further $14.4 million, which was more than offset by inventories, other current assets and current liabilities providing $16.7 million. In 1998 we used $7.2 million to fund operations. In 1998, the net loss of $7.9 million, after adjustment for non-cash items, resulted in the use of cash of $3.6 million in 1998. Accounts receivable provided $14.4 million in cash offset by inventories, other current assets and current liabilities using $18.0 million. During 2000, investing activities provided $35.8 million, including $57.7 million of purchases and $45.0 million of maturities of short-term investments. We generated $65.0 million from the sale of business assets and invested $10.1 million in property, plant and equipment. The acquisition of General Optics used $7.1 million in cash. During 1999, we used $0.9 million in investing activities, including $7.3 million of purchases and $8.2 million of maturities of short-term investments. We generated $3.9 million from the sale of business assets and invested $6.2 million in property, plant and equipment. At the date of merger, General Scanning added $4.7 million in cash and cash equivalents, offset by merger costs of $3.3 million. During 1998, we used a total of $11.3 million in cash in investing activities. These activities included $43.5 million of purchases of short-term investments, $47.1 million of maturities of short-term investments, $13.6 million in capital expenditures and $1.2 million to acquire Meteor Optics Inc. Capital expenditures in 1998 included $6.3 million to complete the expansion of manufacturing facilities in Rugby, England that began in 1997 and approximately $1.5 million to purchase and equip a second optics facility in Nepean, Canada. Cash flow provided by financing activities was $61.2 million for the year ended December 31, 2000 compared to $5.4 million for the year ended December 31, 1999 and $10.6 million used in financing activities in 1998. The net increase in cash in 2000 relates primarily to $68.3 million net proceeds received from a public offering of 4.3 million common shares, $8.7 million raised from the exercise of stock options and decrease in bank indebtedness and long-term debt of $15.8 million. The increase in cash in 1999 relates primarily to a $7.5 million increase in bank indebtedness less $2.6 million of payments of long-term debt. Changes during 1998 were due primarily to $7.9 million reduction in bank indebtedness, $2.3 million used to repay long-term debt and $0.6 million used to repurchase and cancel 94,900 common shares. Term loans from Sumitomo made in 1990 and 1991 were repayable in 10 equal semi-annual installments, which commenced in April 1996. We made the final two payments in 2000 totaling $2.6 million and two payments in 1999 totaling $2.6 million. In addition, we repaid a loan balance of $1.5 million in 2000 under a mortgage on property in California. Long-term debt at December 31, 2000 relates to a note payable of $6.5 million, non-interest bearing, to the former shareholders of General Optics, currently employees of the Company. The note payable is discounted at an imputed interest rate of 6.23% and will be settled in two installments due September 21, 2001 and 2002. 23 We have credit facilities at December 31, 2000 of $39.7 million which are denominated in Canadian dollars, US dollars, Pound sterling and Japanese yen (1999 - $40.1 million). As at December 31, 2000, bank indebtedness is $11.4 million (1999 - $17.0 million) due on demand and bears interest based on prime which resulted in an effective average rate 4.52% for fiscal 2000 (1999 -4.98%). As at December 31, 2000, the Company had unused and available demand lines of credit amounting to $20.2 million (1999 - $19.0 million) and outstanding letters of credit of $8.1 million (1999 - $4.1 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, 2000, the Company was in compliance with those ratios and conditions. We believe that existing cash balances, together with cash generated from operations and available bank lines of credit, will be sufficient to satisfy anticipated cash needs to fund working capital and investments in facilities and equipment for the next two years. Recent pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments Statements No. 137 and No. 138, in June 1999 and June 2000, respectively. The statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedge item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Statements No. 133 and No. 138 are effective for fiscal years beginning after June 15, 2000. Based on an evaluation of derivative instruments at January 1, 2001, the Company estimates that adoption will have no material impact on its financial statements. Outlook Of the record $119 million backlog at December 31, 2000, over 60% was in laser systems for semiconductor and electronics applications and 20% in components, split about evenly between laser beam steering assemblies used by OEMs and passive optical components used in telecom and other industrial applications. Normally, GSI Lumonics experiences seasonality in both sales and bookings, with softness in the first quarter, strength in the spring and a slowdown in the summer months, followed by a strong fourth quarter. Although bookings may be soft in the current first quarter, shipments may be stronger than usual due to the record $119 million backlog. During the fourth quarter 2000, GSI Lumonics announced the formation of a new business unit to focus on meeting the accelerating demands of the market for fiber optics telecommunication networks. During 2000, we tripled our productive capacity through process improvements, additional space, equipment and skilled personnel and the acquisition of General Optics of Moorpark, CA. We also announced plans to establish a technology development center in the Boston area to develop optical switching components for a variety of applications in this rapidly expanding market. In the first quarter of the current year, these operations (Nepean, Moorpark and the development center) were split off from GSI Lumonics into a new corporation, currently wholly-owned by GSI Lumonics, named WavePrecision Inc. The primary focus of this company is to become the supplier of choice in the sub-components segment of the supply chain in fiber optic telecommunication networks. Its products are passive and tunable glass optical components for the selecting, shifting and interleaving precise wavelengths of light for increasing bandwidth and efficiency of DWDM networks. The purpose of this strategic move is to provide this business the opportunity to establish brand name identity in the market it serves, recruit talent from within that industry and enable GSI Lumonics and WavePrecision to form an integrated financial strategy. 24 Risk Factors Customers' Cyclical Fluctuations - -------------------------------- Our customers' cyclical fluctuations may adversely affect our operations. 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 industry where we generated 23% of our revenues during 2000. 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. Some businesses in the semiconductor industry have recently announced a slowdown in new orders as market conditions weaken. 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 our target markets often occur in connection with, or anticipation of, maturing product cycles for both our customers 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 our target markets 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. Quarterly Fluctuations in Operations - ------------------------------------ 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; . 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. 25 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. Proprietary Rights; Infringement Claims - --------------------------------------- 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, may not protect our products or intellectual property rights to the same extent as do the laws of the United States and Canada 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. 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 claims and actions described under Item 3, Legal Proceedings, of this report. Dependence on limited source suppliers - -------------------------------------- We depend on limited source suppliers that 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 26 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. Reliance on Key Personnel - ------------------------- 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. Rapid Technological Change - -------------------------- 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. Investment in research and development - -------------------------------------- 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 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. Loss of Major Customers - ----------------------- A loss of one or more of our large customers could have an adverse effect on our business. Competition - ----------- 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 27 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. Operating in Foreign Countries - ------------------------------ 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. 28 Risks associated with acquisitions - ---------------------------------- Our business may be harmed by acquisitions we complete in the future. We plan to continue to pursue additional acquisitions from time to time. 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 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. Significant Fixed Costs - ----------------------- 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. Long-term Customer Contracts - ---------------------------- 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. 29 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk. Our exposure to market risk associated with changes in interest rates relates primarily to our cash equivalents, short-term investments and debt obligations. As described in Note 3 to the Consolidated Financial Statements, at December 31, 2000 the Company had $81.1 million invested in cash equivalents and $20.0 million invested in short-term investments. Due to the average maturities and the nature of the investment portfolio, a change in interest rates is not expected to have a material effect on the value of the portfolio. We do not use derivative financial instruments in our investment portfolio. We do not actively trade derivative financial instruments but may use them to manage interest rate positions associated with our debt instruments. We currently do not hold interest rate derivative contracts. Foreign Currency Risk. We have substantial sales and expenses and working capital in currencies other than U.S. dollars. As a result, we have exposure to foreign exchange fluctuations, which may be material. To reduce the Company's exposure to exchange gains and losses, we generally transact sales and costs and related assets and liabilities in the functional currencies of the operations. We have a foreign currency hedging program using currency forwards and currency options to hedge exposure to foreign currencies. The goal of the hedging program is to manage risk associated with fluctuations in the value of the foreign currency. We do not currently use currency forwards or currency options for trading purposes. At December 31, 2000, we had four foreign exchange forward contracts to purchase $6.5 million U.S. dollars with a fair value loss of $164 thousand maturing at varying dates in 2001. 30 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA GSI LUMONICS INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AUDITORS' REPORT............................................. 32 CONSOLIDATED BALANCE SHEETS.................................. 33 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.............. 34 CONSOLIDATED STATEMENTS OF OPERATIONS........................ 35 CONSOLIDATED STATEMENTS OF CASH FLOWS........................ 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................... 37 31 AUDITORS' REPORT To the Stockholders of GSI Lumonics Inc. We have audited the consolidated balance sheets of GSI Lumonics Inc. as of December 31, 2000 and 1999 and the consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. Our audits also included the financial statement schedule listed at Item 14 of this Form 10-K Annual Report. 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, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000 in accordance with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. On February 16, 2001, we reported without reservation to the stockholders on the Company's consolidated financial statements prepared in accordance with Canadian generally accepted accounting principles. Ottawa, Canada, ERNST & YOUNG LLP February 16, 2001 Chartered Accountants 32 GSI LUMONICS INC. CONSOLIDATED BALANCE SHEETS (U.S. GAAP and in thousands of U.S. dollars, except share amounts)
As of December 31, ---------------------------- 2000 1999 ---- ---- ASSETS ------ Current Cash and cash equivalents $113,858 $ 25,272 Short-term investments (note 3) 20,020 7,342 Accounts receivable, less allowance of $2,758 (1999-$3,197) (note 7) 83,398 80,448 Due from related party (note 14) 1,828 3,235 Inventories (notes 4 and 7) 77,906 72,727 Deferred tax assets (note 13) 25,615 24,473 Other current assets (note 6) 5,465 3,749 -------- -------- Total current assets 328,090 217,246 Property, plant and equipment, net of accumulated depreciation of $23,961 (1999 - $28,024) (note 5) 33,368 45,278 Deferred tax assets (note 13) 6,253 - Other assets (note 6) 37,398 3,851 Goodwill and other intangible assets, net of amortization of $11,363 (1999 - $8,689) 26,075 23,347 -------- -------- $431,184 $289,722 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Bank indebtedness (note 7) $11,414 $23,100 Accounts payable 30,030 28,094 Accrued compensation and benefits 12,797 13,833 Income taxes payable 32,489 8,200 Other accrued expenses 46,561 34,867 Current portion of long-term debt (note 8) 3,821 5,425 -------- -------- Total current liabilities 137,112 113,519 Long-term debt due after one year (note 8) 2,697 - Deferred income tax liability (note 13) - 2,397 Deferred compensation (note 9) 2,108 2,076 -------- -------- Total liabilities 141,917 117,992 Commitments and contingencies (note 16) Stockholders' equity (note 10) Capital stock, no par value; Issued common shares of 40,162,608 (1999 - 34,298,942) 301,667 222,865 Additional paid-in capital 759 - Retained earnings (deficit) 1,152 (44,225) Accumulated other comprehensive income (14,311) (6,910) -------- -------- Total stockholders' equity 289,267 171,730 -------- -------- $431,184 $289,722 ======== ========
The accompanying notes are an integral part of these financial statements 33 GSI LUMONICS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (U.S. GAAP and in thousands of U.S. dollars, except share amounts)
Accumulated Capital Stock Additional Retained Other ----------------- Paid-In- Earnings Comprehensive Comprehensive # Shares Amount Capital (Deficit) Income Income Total -------- ------ ------- --------- ------ ------ ----- (000's) 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. 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 ========== Net income 45,377 45,377 45,377 Issuance of capital stock --public offering 4,300 70,137 70,137 --stock options 1,564 8,665 8,665 Unrealized loss on equity securities, net of tax of $2,905 (5,395) (5,395) (5,395) Compensation expense $ 759 759 Foreign currency translation adjustments (2,006) (2,006) (2,006) ------------------------------------------------------------------------------------ Balance, December 31, 2000 40,163 $ 301,667 $ 759 $ 1,152 $ (14,311) $ 37,976 $ 289,267 ====================================================================================
The accompanying notes are an integral part of these financial statements 34 GSI LUMONICS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. GAAP and in thousands of U.S. dollars, except share amounts)
Year ended December 31, ----------------------------------- 2000 1999 1998 ---- ---- ---- Sales $ 373,864 $ 274,550 $ 144,192 Cost of goods sold (note 15) 248,903 178,773 103,519 --------- --------- --------- Gross profit 124,961 95,777 40,673 Operating expenses: Research and development 33,931 28,700 12,985 Selling, general and administrative 80,949 64,653 38,191 Amortization of technology and other intangibles 4,851 4,070 861 Acquired in-process research and development (note 2) - 14,830 - Restructuring and other (note 15) 7,196 19,631 2,022 --------- --------- --------- Loss from operations (1,966) (36,107) (13,386) Gain on sale of assets (notes 2 and 10) 76,786 1,599 - Interest income, net 3,345 89 1,578 Foreign exchange transaction gains (losses) (3,122) (2,911) 632 --------- --------- --------- Income (loss) before income taxes 75,043 (37,330) (11,176) Income taxes provision (benefit) (note 13) 29,666 (2,556) (3,260) --------- --------- --------- Net income (loss) $ 45,377 $ (34,774) $ (7,916) ========= ========= ========= Net income (loss) per common share: Basic $ 1.19 $ (1.14) $ (0.46) Diluted $ 1.13 $ (1.14) $ (0.46) Weighted average common shares outstanding (000's) 38,187 30,442 17,079 Weighted average common shares outstanding and dilutive 40,000 30,442 17,079 potential common shares (000's)
The accompanying notes are an integral part of these financial statements 35 GSI LUMONICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. GAAP and in thousands of U.S. dollars)
Year ended December 31, -------------------------------------- 2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net income (loss) for the year $ 45,377 $ (34,774) $ (7,916) 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 (76,786) (1,599) - Compensation expense 759 - - Depreciation and amortization 14,309 15,177 5,600 Deferred compensation 85 78 - Deferred income taxes (3,613) (1,704) (1,306) Changes in current assets and liabilities: Accounts receivable (10,296) (14,448) 14,408 Inventories (13,506) 6,084 (8,343) Other current assets (844) 4,540 (3,321) Accounts payable, accrued expenses, and taxes payable 34,295 6,073 (6,360) --------- --------- --------- Cash used in operating activities (10,220) (5,743) (7,238) --------- --------- --------- Cash flows from investing activities: Merger with General Scanning Inc. (note 2) - 1,451 - Acquisition of businesses, net of cash acquired (note 2) (7,138) (336) (1,158) Sale of assets 64,962 3,940 - Additions to property, plant and equipment, net (10,142) (6,219) (13,568) Maturity of short-term investments 45,031 8,208 47,091 Purchase of short-term investments (57,710) (7,342) (43,522) (Increase) decrease in other assets 838 (609) (102) --------- --------- --------- Cash provided by (used in) investing activities 35,841 (907) (11,259) --------- --------- --------- Cash flows from financing activities: Proceeds (payments) of bank indebtedness (11,686) 7,502 (7,865) Payments on long-term debt, net (4,114) (2,617) (2,325) Issue of share capital (net of issue costs) 76,986 466 233 Repurchase of common shares - - (627) --------- --------- --------- Cash provided by (used in) financing activities 61,186 5,351 (10,584) Effect of exchange rates on cash and cash equivalents 1,779 2,342 (3,518) --------- --------- --------- Increase (decrease) in cash and cash equivalents 88,586 1,043 (32,599) Cash and cash equivalents, beginning of year 25,272 24,229 56,828 --------- --------- --------- Cash and cash equivalents, end of year $ 113,858 $ 25,272 $ 24,229 ========= ========= =========
The accompanying notes are an integral part of these financial statements 36 GSI LUMONICS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2000 (U.S. GAAP and 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 as enabling tools for a wide range of high-technology applications, including computer-chip memory repair processing, inspection systems for solder paste and component placement on surface-mount printed circuits, via drilling, hybrid circuit trim and circuit trim on silicon. The Company also provides precision optics for Dense Wave Division Multiplexing networks. Major markets for its products include the semiconductor, electronics, and telecommunications industries. The Company's principal markets are in the United States, Canada, Europe, Japan and Asia-Pacific. Basis of presentation 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. Basis of consolidation The consolidated financial statements include the accounts of GSI Lumonics Inc. and its wholly owned subsidiaries (the "Company"). Intercompany accounts and transactions are eliminated. As more fully described in Note 2, the Company completed a merger of equals with General Scanning Inc. on March 22, 1999. 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. 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. Investments Short-term investments consist principally of commercial paper, short-term corporate debt, and banker's acceptances with original maturities greater than three months. The Company has classified these investments as available-for-sale securities that are stated at estimated fair value based primarily upon market quotes. 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. 37 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 intangible assets 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. Goodwill and other intangibles are amortized on a straight-line basis over periods from two to 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. As a result of divestitures described in Note 2, the Company has no goodwill at December 31, 2000 (1999 - $1,018). Impairment of long-lived assets The Company reviews the recoverability of its long-lived assets, including goodwill and other intangible assets, in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets To Be Disposed Of. Based on its review, and after the provision discussed in Note 5, the Company expects full recovery. Revenue recognition The Company generally recognizes product revenue at the time of shipment and when all significant contractual obligations, including customer acceptance, have been satisfied and collection is reasonably assured. The Company recognizes service revenue upon performance or over the terms of the service contract as appropriate. 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. Shipping and handling costs are recorded in costs of goods sold. Stock based compensation The Company applies APB 25 in accounting for its stock option plans. 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 on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect for the period. Accordingly, gains and losses resulting from translating foreign currency financial statements are reported as a separate component of other comprehensive income in stockholders' equity. Foreign currency transaction gains and losses are included in net income. 38 Derivative financial instruments The Company uses derivative instruments to minimize the impact of foreign currency balance sheet fluctuations and foreign currency denominated sales. Gains and losses on contracts identified as hedges are deferred and included in the measurement of the related foreign currency transactions. Gains and losses on foreign currency contracts that are not designated as hedges of firm commitments are included in current earnings. 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 to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. A valuation allowance is established to reduce the deferred tax asset if it is "more likely than not" that the related tax benefits will not be realized in the future. Recent pronouncements In June 1998, the Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and its amendments Statements No. 137 and No. 138, in June 1999 and June 2000, respectively. The statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedge item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Statements No. 133 and No. 138 are effective for fiscal years beginning after June 15, 2000. Based on an evaluation of derivative instruments at January 1, 2001, the Company estimates that adoption will have no material impact on its financial statements. Comparative amounts Certain comparative amounts have been reclassified from statements previously presented to conform to the presentation of the 2000 financial statements. 2. Business Combinations and Divestitures Purchases On September 21, 2000, the Company acquired all outstanding shares of General Optics, Inc. ("General Optics"), a privately-held precision optics company located in Moorpark, California. The purchase price of $13.5 million was comprised of cash of $6.9 million paid on closing, note payable valued at $6.4 million, discounted at an imputed interest rate of 6.23%, and costs of acquisition of $0.2 million. The note payable will be settled in two installments, due September 21, 2001 and 2002. The transaction has been accounted for as a purchase and, accordingly, the operations of General Optics have been included in the consolidated financial statements from the date of acquisition. The excess of fair value of net identifiable tangible assets acquired over the purchase price was recorded as acquired technology to be amortized over its estimated useful life of 10 years. Results of operations would not have changed materially for 1999 or 2000 if General Optics had been acquired on January 1, 1999 and 2000, respectively. 39 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 $1.3 million was comprised of a cash consideration of $0.4 million paid on closing and debt of $0.9 million, plus agreed interest, settled in two equal installments during 2000. This transaction has been accounted for as a purchase and, accordingly, the operations of Lumonics Pacific KK have been included in the consolidated financial statements from the date of acquisition. On March 22, 1999, the Company completed a merger of equals with General Scanning Inc. ("General Scanning"), Watertown, Massachusetts, a leading manufacturer of laser systems and components, and printers. General Scanning shareholders received 1.347 shares of common stock in the Company in exchange for each common share of General Scanning 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. The aggregate purchase price of $84 million was allocated to General Scanning net identifiable assets, based on estimated fair values. 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 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 34,177 34,030 dilutive potential common shares..................
In June 1998, the Company acquired, for cash consideration of $1.2 million, all outstanding shares of Meteor Optics Inc., a fiber-optics manufacturer based in Phoenix, Arizona. This transaction has been accounted for as a purchase. Divestitures On October 1, 2000, the Company sold the net assets of its Life Sciences business to Packard BioScience Company for $39.3 million in cash and approximately 4.5 million shares of Packard BioScience Company common stock valued at $43.3 million based on an independent valuation of the stock at the date of closing. The Life Sciences business comprised working capital of approximately $3.5 million and fixed and other intangible assets of approximately $1.2 million. The Company recorded a non-operating gain of $73.1 million ($47.3 million after tax), or $1.24 per share, as a result of this transaction. Sales for the Life Sciences business for the nine months ended September 30, 2000 were $13.1 million and for the years ended December 31, 1999 and 1998, on a pro-forma basis, were $13.8 million and $8.0 million, respectively. During the third quarter of 2000, the Company sold two facilities in the United States for $12.5 million cash and recorded a net gain of $2.4 million. 40 During the second quarter of 2000, the Company sold operating assets of its View Engineering metrology product line, fiber-optics operations in Phoenix, Arizona and package coding product line in Hull, UK for an aggregate of $13.0 million cash and recorded a net gain of $1.3 million. In December 1999, the Company sold the OLT precision alignment system product line to Virtek Vision International Inc. (Virtek) of Waterloo, Ontario for $2.4 million cash and a 10% royalty on Virtek's sales of these systems to the aerospace industry for three years (see Note 15). GSI Lumonics recorded a net gain of $0.7 million on this transaction. 3. Financial instruments Cash equivalents and short-term investments At December 31, 2000, the Company had $81.1 million invested in cash equivalents denominated in both U.S. and Canadian dollars with maturity dates between January 8, 2001 and February 27, 2001. At December 31, 1999, the Company had $7.4 million invested in cash equivalents denominated in Canadian dollars. Cash equivalents approximate its fair value. At December 31, 2000, the Company had $20.0 million invested in short-term investments denominated in U.S. dollars with maturity dates between January 8, 2001 and March 30, 2001. At December 31, 1999, the Company had $7.3 million invested in short-term investments denominated in both U.S. and Canadian dollars. Short-term investments approximate its fair value. Derivative financial instruments 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. At December 31, 2000, the Company had four foreign exchange forward contracts to purchase $6.5 million U.S. dollars with a fair value loss of $164 thousand and maturing at varying dates in 2001. At December 31, 1999 and 1998, the Company had no foreign exchange forward contracts. At December 31, 1999, the Company had three interest rate swap 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. The terms of these derivative contracts matched the terms of the underlying debt instruments. The debt and related swap contracts matured during the year. At December 31, 1999, the fair value of swaps was $1.4 million more than carrying value (1998 - $2.2 million). 4. Inventories Inventories consist of the following:
December 31, -------------------------- 2000 1999 ---- ---- Raw materials $ 42,468 $ 26,011 Work-in-process 11,083 17,005 Finished goods 15,392 17,322 Demo inventory 8,963 12,389 -------- -------- Total inventories $ 77,906 $ 72,727 ======== ========
41 5. Property, Plant and Equipment Property, plant and equipment consists of the following:
December 31, ----------------------------- 2000 1999 ---- ---- Cost: Land, buildings and improvements $20,738 $36,435 Machinery and equipment 36,591 36,867 ----------- ----------- Total cost 57,329 73,302 Accumulated depreciation (23,961) (28,024) ----------- ----------- Net property, plant and equipment $33,368 $45,278 =========== ===========
During the quarter ended December 31, 2000, the Company reviewed the recoverability of its long-lived assets on the basis set out in Note 1 and recorded a write-down of $2.0 million to land and buildings used in automotive applications (see Note 15). 6. Other Assets Other assets consist of the following:
December 31, ---------------------------- 2000 1999 ---- ---- Short term other assets: ------------------------ Prepaid expenses and other $ 5,465 $ 2,338 Current portion of swap contracts (note 3) - 1,411 ---------- ---------- Total $ 5,465 $ 3,749 ========== ========== Long term other assets: ----------------------- Note receivable $ 1,688 $ 2,250 Deposits and other 739 1,601 Investment in equity securities 34,971 - ---------- ---------- Total $ 37,398 $ 3,851 ========== ==========
Investment in equity securities consists of approximately 4.5 million shares, or 6.6%, of Packard BioScience Company common stock received on the sale of the Life Sciences business (note 2). This investment is classified as available-for-sale. At December 31, 2000, the fair value of the investment is $35.0 million based on management's estimate using quoted market values after applying a discount to reflect the restriction on unregistered shares. During February 2001, Packard filed a preliminary prospectus to register these and other Packard shares. An unrealized loss of $8.3 million ($5.4 million after tax) was reported as a separate component of accumulated other comprehensive income. 7. Bank Indebtedness The Company has credit facilities of $39.7 million which are denominated in Canadian dollars, US dollars, Pound sterling and Japanese yen (1999 - $40.1 million). As at December 31, 2000, bank indebtedness is $11.4 million (1999 - $17.0 million) due on demand and bears interest based on prime which resulted in an effective average rate 4.52% for fiscal 2000 (1999 - 4.98%). As at December 31, 2000, the Company had unused and available demand lines of credit amounting to $20.2 million (1999 - $19.0 million) and outstanding letters of credit of $8.1 million (1999 - $4.1 million). 42 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, 2000, the Company was in compliance with those ratios and conditions. 8. Long-term Debt Long-term debt includes a note payable with a face value of $7.0 million, non-interest bearing, to the former shareholders of General Optics, currently employees of the Company. The note payable is discounted at an imputed interest rate of 6.23% and will be settled in two installments due September 21, 2001 and 2002. This debt approximates its fair value. Long term debt is comprised of:
2000 1999 ---- ---- Note payable, due September 21, 2001 and 2002 $ 6,518 Sumitomo Heavy Industries, Ltd., Japanese yen term loans, Interest payable semi-annually at 5.43% with semi-annual Principal payments, matured October 31, 2000 $ 3,917 Bank of America, mortgage principal matured February 1, 2000 1,508 ----------- ----------- Subtotal 6,518 5,425 Less current portion (3,821) (5,425) ----------- ----------- Total $ 2,697 $ - =========== ===========
During the year, the Company repaid a mortgage payable at 10-3/8% interest, assumed as part of the merger with General Scanning Inc., and a long-term loan from Sumitomo Heavy Industries, Ltd., a significant shareholder. Total cash interest paid on all debt during the year ended December 31, 2000 was $1,184 thousand (1999 - $1,155 thousand; 1998 - $899 thousand). 9. Deferred Compensation Certain officers and employees have deferred 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 9.22% during the year ended December 31, 2000. The portion of deferred compensation estimated to be due within one year is included in accrued compensation and benefits. 10. Stockholders' Equity Capital stock The authorized capital of the Company consists of an unlimited number of common shares without nominal or par value. In April 2000 the Company offered and sold 4,300,000 shares of Common Stock to the public at a price of $17 per share, for net proceeds of $70.1 million. Accumulated other comprehensive income At December 31, 2000, accumulated other comprehensive income is comprised of an unrealized loss of $8.3 million ($5.4 million after tax) on investment in Packard BioScience Company common stock and $8.9 million of accumulated translation adjustments. 43 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 1999 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, ----------------------------------------- 2000 1999 1998 ---- ---- ---- (in thousands) Weighted average common shares outstanding 38,187 30,442 17,079 Dilutive potential common shares 1,813 - - ---------- ---------- ---------- Diluted common shares 40,000 30,442 17,079 ========== ========== ========== Options and warrants excluded from diluted income per common share as their effect would be anti-dilutive 252 3,978 2,004 ========== ========== ==========
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 ten years beginning at the date of grant. During 2000, the number of options authorized under these plans was increased from 4.7 million to 6.7 million. At December 31, 2000, 1,737,613 (1999 - 408,178) options were available for grant. Under these plans, options are granted at the closing price of the Company's 44 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 2,950 shares of common stock were outstanding under the 1994 Plan at December 31, 2000. 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 addition, the Company adopted outstanding warrants for the purchase of common stock issued to non-employee members of the General Scanning Inc. Board of Directors. 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, 2000, none were granted or cancelled, and 2,694 were exercised. At December 31, 2000, 68,024 warrants, of which 57,248 are exercisable, remain outstanding at prices ranging from $1.75 to $15.41 per share. The warrants are included in the stock option activity table below. 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, the then-current market price of the stock, were granted with new vesting schedule, and 562,966 options were cancelled. The Company is accounting for the replacement options as variable from July 1, 2000, in accordance with Financial Accounting Standard Board Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of APB Opinion No. 25, until the options are exercised, forfeited or expire unexercised. Because the market price of the Company's stock has decreased since July 1, 2000, there was no material impact on its financial position and results of operations. In connection with the sale of businesses described in Note 2, the Company accelerated the vesting of certain options and recorded compensation expense of $0.6 million in results of operations. Stock option activity for the years ended December 31, 2000, 1999 and 1998 is presented below.
Options Weighted Avg. (thousands) Exercise Price ------------ -------------- Outstanding at December 31, 1997 1,321 $ 13.15 Granted 879 5.16 Exercised (50) 4.72 Forfeited (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 Forfeited (1,612) 12.66 ------------ ------------- Outstanding at December 31, 1999 3,978 6.71 Granted 1,037 18.99 Exercised (1,564) 5.54 Forfeited (366) 8.30 ------------ ------------- Outstanding at December 31, 2000 3,085 $ 11.20 ============ ============= Exercisable at December 31, 2000 1,056 $ 9.06 ============ =============
45 The following summarizes outstanding and exercisable options outstanding on December 31, 2000:
Options Outstanding Exercisable Options ------------------------------------------- ----------------------------- Number Weighted Weighted Number of Weighted of Average Average Options Average Range of Exercise Options Remaining Exercise Exercisable Exercise prices (000's) Life Price (000's) Price ------ ------ ---- ----- ------- ----- $ 1.75 to $ 4.38 584 4.9 years $ 4.15 164 $ 3.74 $ 4.45 to $ 6.77 838 4.7 years $ 4.73 371 $ 4.78 $ 7.42 to $ 11.33 189 5.8 years $ 10.18 144 $ 10.25 $ 12.63 to $ 16.75 582 6.5 years $ 15.07 349 $ 14.90 $ 17.99 to $ 27.48 892 8.3 years $ 19.58 28 $ 18.00 ------ ------ 3,085 1,056 ====== ======
Options outstanding include 578,793 options denominated in Canadian dollars with a weighted average exercise price of $17.37 Canadian. Pro forma stock based compensation Had compensation cost for the Company's stock option plans been determined consistent with the provisions SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts below.
2000 1999 1998 ---- ---- ---- Net income (loss): As reported $ 45,377 $ (34,774) $ (7,916) Pro forma $ 42,520 $ (36,117) $ (8,976) Basic net income (loss) per share: As reported $ 1.19 $ (1.14) $ (0.46) Pro forma $ 1.11 $ (1.19) $ (0.53) Diluted income (loss) per share: As reported $ 1.13 $ (1.14) $ (0.46) Pro forma $ 1.07 $ (1.19) $ (0.53)
The fair value of options was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998 ---- ---- ---- Risk-free interest rate 5.1% 6.7% 4.6% Expected dividend yield - - - Expected lives upon vesting 1.0 years 1.0 years 1.2 years Expected volatility 100% 60% 40% Weighted average fair value per share $ 12.48 $ 1.85 $ 1.00
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. 46 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 2000 were $2.7 million (1999 - $2.3 million; 1998 - $1.1 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, 2000 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:
2000 1999 ---- ---- Pension fund assets $ 13,300 $ 13,700 Accrued pension benefits $ 13,300 $ 13,700
The assumptions used to develop the actuarial present value of the accrued pension benefits were as follows:
2000 1999 ---- ---- Discount rate 6.5% 6.5% Compensation increases rate 5.0% 5.5% Investment returns assumption 6.5% 6.5% 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 2000 was $493 thousand (1999 - $520 thousand; 1998 - $670 thousand). 47 13. Income Taxes Details of the income tax provision (benefit) are as follows:
2000 1999 1998 ---- ---- ---- Current Canadian $ 2,197 $ 724 $ 1,687 International 31,082 (1,576) (3,641) --------- --------- -------- 33,279 (852) (1,954) Deferred Canadian 4,089 (2,084) (247) International (7,702) 380 (1,059) --------- --------- -------- (3,613) (1,704) (1,306) --------- --------- -------- Income tax provision (benefit) $ 29,666 $ (2,556) $ (3,260) ========= ========= ========
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:
2000 1999 1998 ---- ---- ---- Expected Canadian tax rate 44.0% 44.6% 44.6% Expected income tax provision (benefit) $ 33,019 $ (16,649) $ (4,984) Non-deductible research and development and other expenses 2,885 4,325 - International tax rate differences (3,632) 3,461 (97) Losses and temporary timing differences the benefit of which has not been recognized 3,554 5,374 1,377 Previously unrecognized losses and timing differences (6,549) (569) (161) Other items 389 1,502 605 --------- --------- -------- Reported income tax provision (benefit) $ 29,666 $ (2,556) $ (3,260) ========= ========= ========
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:
2000 1999 ---- ---- Deferred tax assets Operating tax loss carryforwards $ 9,142 $ 12,468 Compensation related deductions 2,506 2,312 Tax credits 1,513 2,431 Restructuring and other accrued liabilities 12,364 13,452 Deferred revenue 1,102 886 Inventory 13,287 4,650 Unrealized loss on equity security investment 2,905 - Book and tax differences on fixed assets 2,473 - Share issue costs 1,519 227 --------- -------- Total deferred tax assets 46,811 36,426 Valuation allowance for deferred tax assets (12,433) (9,756) --------- -------- Net deferred tax assets 34,378 26,670 --------- -------- Deferred tax liabilities Book and tax differences on fixed assets - 824 Intangibles 2,510 3,770 --------- -------- Net deferred income tax asset $ 31,868 $ 22,076 ========= ========
48
2000 1999 --------- -------- Allocated as follows: Net deferred income tax asset - short-term $ 25,615 $ 24,473 Net deferred income tax asset - long-term 6,253 - Net deferred income tax liability - long-term - (2,397) --------- -------- Net deferred income tax asset $ 31,868 $ 22,076 ========= ========
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, GSI Lumonics Engineering, Inc. (formerly 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, 2000, the Company had loss carryforwards of approximately $26.6 million available to reduce future years' income for tax purposes. Of this amount, approximately $7.3 million expires by the end of 2005, with the remainder carried forward indefinitely. Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $70.9 million at December 31, 2000. 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. Determination of the amount of unrecognized deferred tax liabilities is not practicable because of the complexities associated with its hypothetical calculation. Income taxes paid during 2000 were $4.3 million (1999 - $0.8 million; 1998 - $2.3 million). 14. Related Party Transactions In addition to Note 8, the Company had the following transactions with related parties. The Company recorded sales revenue from Sumitomo Heavy Industries, Ltd., a significant shareholder, of $10.2 million in the year ended December 31, 2000 (1999 - $11.7 million; 1998 $15.5 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. 15. Restructuring and other Restructuring charges During the fourth quarter of fiscal 2000, a charge of $12.5 million was taken to accrue employee severance of $1.0 million for approximately 50 employees and other exit costs of $3.8 for the Company's United Kingdom operation and worldwide distribution system related to high-power laser systems for certain automotive applications; costs of $7.7 million associated with restructuring for excess capacity at three leased facility locations in the United States and Germany. The Company also recorded a write-down of land and building in the United Kingdom of $2.0 million (as described in Note 5). Compensation expense of $0.6 million arising on the acceleration of vesting of options upon the sale of businesses during the year was also charged to restructuring. In addition, an inventory write-down to net realizable value of $8.5 million was recorded in cost of goods sold related to the high-power laser system product line. During the first quarter of fiscal 1999, a charge of $19.6 million was taken 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 shutdown was completed during December 1999. Other integration activities included exit costs for some product lines, reducing redundant 49 resources worldwide, and abandoning redundant sales and service facilities. During 2000, severance was paid to 23 employees in various locations worldwide. The Company recorded a reversal of $5 million in the fourth quarter for costs that have been determined will not be incurred. The following table summarizes changes in the restructuring provision.
(in millions) Total Severance Facilities Integration ----- --------- ---------- ----------- 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 --------- --------- --------- --------- Provision at December 31, 1999 10.1 2.8 3.9 3.4 2000 Actions (4.3) (1.8) (1.0) (1.5) Reversals during Q4 2000 (5.0) (0.8) (2.3) (1.9) Charge during Q4 2000 12.5 1.0 7.7 3.8 --------- --------- --------- --------- Provision at December 31, 2000 $ 13.3 $ 1.2 $ 8.3 $ 3.8 ========= ========= ========= =========
It is expected that most actions will be completed by end of 2001, but certain leased facility costs will take longer to resolve due to the nature of the lease commitments. Other During 2000, the Company recorded a benefit of $0.2 million related to royalties earned on the sale of OLT precision alignment system product line and $2.7 million received for licensing some of the Company's technology. 16. 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, 2000 lease expense was approximately $4.7 million (1999 - $4.7 million; 1998 - $1.9 million). Minimum lease payments under operating leases expiring subsequent to December 31, 2000 are: 2001 $ 5,564 2002 5,077 2003 3,619 2004 2,620 2005 2,187 Thereafter 5,661 ---------- Total minimum lease payments $24,728 ========== 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 $3.8 million at December 31, 2000 (1999 - $3.0 million). The book value of the recourse receivables approximates fair value. During 2000, the Company received cash proceeds relating to the discounted receivables of $10.6 million (1999 - $6.7 million). 50 Legal proceedings and disputes Robotic Vision Systems, Inc. v. View Engineering, Inc., USDC Case No. 95-7441. In March 2000, the United States District Court for the Central District of California entered judgement in favor of View Engineering, Inc., a wholly owned subsidiary. Robotic Vision had alleged infringement relating to lead inspection machines formerly sold by View Engineering and sought damages of $60.5 million. The District Court found Robotic Vision's patent invalid and Robotic Vision has appealed. The argument for that appeal took place on March 9, 2001. GSI Lumonics Inc. v. BioDiscovery, Inc. On December 10, 1999 GSI Lumonics filed suit in the United States District Court for the District of Massachusetts seeking a declaration that its QuantArray Microarray Analysis Software does not infringe any copyrights owned, licensed or assigned to BioDiscovery, Inc. or its president. BioDiscovery, Inc. is a manufacturer of microarray quantification software under the name ImaGene(C). On December 21, 1999, BioDiscovery's president responded to the action for declaratory judgment by filing a separate suit in the United States District Court for the Southern District of California, alleging that GSI Lumonics reverse engineered his software, and also sued for copyright infringement. In the Massachusetts action, the court denied BioDiscovery's president's motion to dismiss and scheduled the trial for May 2000. In April 2000, shortly before the trial was scheduled to begin, BioDiscovery's president abandoned his copyright infringement claim and consented to the entry of a default judgment in favor of GSI Lumonics. In the California action the court, in September 2000, allowed a motion by the Company to dismiss BioDiscovery's president's complaint insofar as it alleged any reverse engineering, reverse compiling or copying of ImaGene(C). On November 15, 2000, GSI Lumonics, BioDiscovery and BioDiscovery's president entered into a settlement agreement whereby the parties agreed to dismiss all pending actions with prejudice. The California Action was therefore voluntarily dismissed with prejudice. 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 the Company and Dynamic Details Inc., an unrelated party that is one of the Company's customers. Electro Scientific alleges that the Company offers to sell and import into the United States the 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 the GS-600 laser system infringes Electro Scientific's U.S. patent no.5,847,960 and that the Company has actively induced the infringement of, and contributorily infringed, the patent. Electro Scientific seeks an injunction, unspecified damages, trebling of those damages, and attorney fees. GSI Lumonics has indemnified Dynamic Details with respect to these allegations. Discovery in the case is set to close on June 15, 2001 and trial is scheduled for October 30, 2001. Electro Scientific Industries, Inc. v. General Scanning, Inc. In September 1998, the United States District Court for the Northern District of California granted Electro Scientific's motions for summary judgment against General Scanning 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 General Scanning'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. 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 fees, but granted interest on the damages. The Company recorded a provision during the three months ended April 2, 1999 of $19 million to reflect the amount of the damage award plus accrued interest and related costs. 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. The appeal was argued on October 3, 2000 and the appeals court has not yet rendered a decision. 51 GSI Lumonics believes that Robotic Vision's and Electro Scientific's claims in the above actions are without merit and is vigorously defending these proceedings. However, if the Company was to lose on one or more of the claims and damages are awarded, there could be a material adverse effect on its operating results and/or financial condition. 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. The plaintiff in the proceedings has alleged that certain equipment used by these manufacturers infringes patents claimed to be held by the plaintiff. While GSI Lumonics is not a defendant in any of the proceedings, several of GSI Lumonics customers have notified GSI Lumonics that, if the party successfully pursues infringement claims against them, they may require GSI Lumonics to indemnify them to the extent that any of their losses can be attributed to systems sold to them by GSI Lumonics. GSI Lumonics does not believe that the outcome of these claims will have a material adverse effect upon GSI Lumonics, but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect upon the Company's financial condition or results of operations. Risks and uncertainties The Company uses financial instruments that potentially subject it to concentrations of credit risk. Such instruments include cash equivalents, securities available-for-sale, trade receivables and financial instruments used in hedging activities. The Company does not believe it is exposed to any significant credit risk on these instruments. 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. 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. 17. Segment Information GSI Lumonics Inc. designs, develops, manufactures and markets laser-based advanced manufacturing systems and components as enabling tools for a wide range of high-technology applications, including computer-chip memory repair processing, inspection systems for solder paste and component placement on surface-mount printed circuits, via drilling, hybrid circuit trim and circuit trim on silicon. The Company also provides precision optics for Dense Wave Division Multiplexing networks. Major markets for its products include the semiconductor, electronics, and telecommunications 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. 52 Geographic segment information The Company attributes revenues to geographic areas on the basis of the customer location. Long-lived assets and goodwill are attributed to geographic areas in which Company assets reside.
Year ended December 31, ---------------------------------------------------------------------- Revenues from external customers: 2000 1999 1998 -------------------- -------------------- ---------------------- USA $177,813 48% $143,034 52% $ 61,269 42% Canada 20,159 5% 10,782 4% 8,264 6% Europe 71,973 19% 65,296 24% 40,427 28% Japan 58,173 16% 32,648 12% 15,987 11% Latin and South America 5,563 1% 1,631 0% 657 1% Asia-Pacific, other 40,183 11% 21,159 8% 17,588 12% ----------- ----------- ----------- Total $ 373,864 100% $ 274,550 100% $ 144,192 100% =========== =========== =========== Long-lived assets and goodwill: USA $ 35,721 $ 42,424 $ 5,548 Canada 9,852 7,726 9,567 Europe 12,940 17,484 20,848 Japan 689 591 - Asia-Pacific, other 241 400 318 ----------- ----------- ----------- Total $ 59,443 $ 68,625 $ 36,281 =========== =========== ===========
53 GSI LUMONICS INC. SUPPLEMENTARY FINANCIAL INFORMATION (U.S. GAAP and in thousands of U.S. dollars, except share amounts) (UNAUDITED)
Three months ended ------------------------------------------------------------- December 31, September 29, June 30, March 31, 2000 2000 2000 2000 ----- ----- ----- ---- (notes 1 & 2) Sales $ 95,496 $ 97,631 $ 92,837 $ 87,900 Cost of goods sold 83,590 58,547 55,835 50,931 -------- -------- -------- -------- Gross profit 11,906 39,084 37,002 36,969 Operating expenses: Research and development 7,655 8,993 8,770 8,513 Selling, general and administrative 20,097 20,625 19,940 20,287 Amortization of technology and other intangibles 1,343 1,127 1,156 1,225 Restructuring and other 10,109 (243) - (2,670) -------- -------- -------- -------- Income (loss) from operations (27,298) 8,582 7,136 9,614 Gain on sale of assets 74,398 1,680 708 - Interest income, net 1,763 998 502 82 Foreign exchange transaction gains (losses) (1,119) (229) 612 (2,386) -------- -------- -------- -------- Income before income taxes 47,744 11,031 8,958 7,310 Income taxes provision 20,137 3,855 3,135 2,539 -------- -------- -------- -------- Net income $ 27,607 $ 7,176 $ 5,823 $ 4,771 ======== ======== ======== ======== Net income per common share: Basic $ 0.69 $ 0.18 $ 0.15 $ 0.14 Diluted $ 0.67 $ 0.17 $ 0.14 $ 0.13 Weighted average common shares outstanding (000's) 40,099 39,807 38,289 34,544 Weighted average common shares outstanding and dilutive potential common shares (000's) 41,048 41,731 40,376 36,645
1. On October 1, 2000, GSI Lumonics sold its Life Science business to Packard BioScience Company for $39.3 million in cash and 4.5 million shares of Packard BioScience common stock, resulting in a non-operating gain of approximately $73 million ($47 million after tax). 2. During the fourth quarter 2000, GSI Lumonics restructured its Rugby, UK operations and worldwide distribution system, which supplies the AM Series high-power laser product line mainly in the automotive market, and incurred net restructuring charges of $10 million, including costs for excess manufacturing and distribution capacity in the United States, UK and Germany. The Company also recorded a charge of $8.5 million in cost of goods sold related to AM Series inventory. During the quarter, the Company also evaluated other inventory and increased obsolescence provisions by $10.5 million. In the fourth quarter, AM Series sales of $2 million resulted in negative gross profit of $11.9 million for the AM Series product line, including the $8.5 million charge discussed above. 54 GSI LUMONICS INC. SUPPLEMENTARY FINANCIAL INFORMATION (U.S. GAAP and in thousands of U.S. dollars, except share amounts) (UNAUDITED)
Three months ended ----------------------------------------------------------- December 31, October 1, July 2, April 2, 1999 1999 1999 1999 ----- ----- ----- ---- Sales $ 88,667 $ 78,041 $ 69,248 $ 38,594 Cost of goods sold 54,273 47,553 45,872 31,075 -------- -------- -------- --------- 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 -------- -------- -------- --------- Income (loss) from operations 6,536 3,429 (4,980) (41,092) Gain on sale of assets 1,599 - - - Interest income (expense), net (14) 2 (93) 194 Foreign exchange transaction gains (losses) (1,767) (514) 157 (787) -------- -------- -------- --------- 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 (000's) 34,222 34,173 34,167 19,204 Weighted average common shares outstanding and dilutive potential common shares (000's) 35,755 35,085 34,167 19,204
The information above reflects the operating results of General Scanning, Inc., which was acquires by merger on March 22, 1999. The quarterly amounts differ from results of operations published in interim financial reports on form 10-Q due to changes in the purchase accounting for the merger. The valuation of intangible assets, land and deferred taxes was completed at different amounts than estimated resulting in negative goodwill which was allocated to the long-term assets. The following reconciles net income changes: Net income (loss) as reported on form 10-Q $ 1,999 $ (3,786) $ (35,491) Less: additional in-process research and development - - (1,830) Less: additional intangibles amortization expense (378) (378) (63) Plus: reduced depreciation expense 422 422 70 --------- ---------- ----------- Net income (loss) restated $ 2,043 $ (3,742) $ (37,314) ========= ========== ===========
55 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISRANT Directors The information with respect to directors is contained in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 8, 2001 (the "2001 Proxy Statement") and is incorporated herein by reference. Executive Officers The information with respect to executive officers is set forth under the caption "Executive Officers" in Part I of this report. Reports of Beneficial Ownership The information required by this item is contained in the 2001 Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The response to this item is contained in the Company's 2001 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT The response to this item is contained in the Company's 2001 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this item is contained in the Company's 2001 Proxy Statement and is incorporated herein by reference. 56 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K List of Financial Statements The financial statements required by this item are listed in Item 8, "Financial Statements and Supplementary Data" herein. List of Financial Statement Schedules See Schedule II-Valuation and Qualifying Accounts. All other schedules are omitted because they are not applicable, not required or the required information is shown in the consolidated financial statements or notes thereto. List of Exhibits EXHIBIT NUMBER DESCRIPTION - ------ ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of October 27, 1998, by and among the Registrant, Grizzly Acquisition Corp., New Grizzly Acquisition Corp. and General Scanning Inc. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules referred to in the Merger Agreement are omitted. The Registrant hereby undertakes to furnish a supplemental a copy of any omitted Schedule to the Commission upon request. (4) 2.2 Purchase and Sale Agreement and Joint Escrow Instructions, dated as of February 29, 2000, by and between Alexandria Real Estate Equities, Inc., and General Scanning Inc., including amendments. 2.3 Asset Purchase Agreement, dated as of August 19, 2000, between GSI Lumonics Life Science Trust, GSI Lumonics Trust, Inc. and Packard BioScience Company. (7) 3.1 Certificate and Articles of Continuance of the Registrant dated March 22, 1999. (4) 3.2 By-Law No.1 of the Registrant. (4) 4.1 Line of Credit Agreement between the Registrant and CIBC dated April 8, 1998 and accepted April 15, 1998. (4) 10.1 Lease Agreement between JRF II Associates Ltd. Partnership and Lumonics Corporation dated September 24, 1991. (4) 10.2 Industrial Space Lease between Lumonics Corporation and The Travelers Insurance Company dated March 17, 1992. (4) 10.3 Lease Agreement between Lumonics Corporation and Sisilli dated June 1994. (4) 10.4 GSI Lease dated July 31, 1996, as amended to date, between View Engineering, Inc. and Donald J. Devine as Trustee under the Donald J. Devine Trust Agreement. (2) 10.5 Lease dated July 15, 1997, as amended to date, between GSI and The Wilmington Realty Trust. (3) 10.6 Severance Agreement between the Registrant and Patrick D. Austin dated April 13, 1998. (4) 10.7 Split Dollar Compensation Agreement dated September 13, 1997 between GSI and Charles D. Winston. (3) 10.8 Key Employee Retention Agreement between GSI and Victor H. Woolley, dated May 1, 1997. (4) 10.9 Settlement Agreement dated June 12, 1998 between GSI and Robotic Vision Systems, Inc. (4) 10.10 Severance Agreement between the Registrant and Charles D. Winston dated April 21, 1999. (5) 10.11 Severance Agreement between the Registrant and Kurt Pelsue dated April 21, 1999. (5) 57 EXHIBIT NUMBER DESCRIPTION - ------ ----------- 10.12 OEM Supply Agreement between the Registrant and Sumitomo Heavy Industries, Ltd. dated August 31, 1999. (5) 10.13 1981 Stock Option Plan of GSI (1) 10.14 1992 Stock Option Plan of GSI (1) 10.15 1995 Directors' Warrant Plan of GSI (1) 10.16 1994 Key Employees and Directors Stock Option Plan of the Registrant. (4) 10.17 1995 Stock Option Plan for Employees and Directors of the Registrant (6) 10.18 Employment Agreement between the Registrant and Charles D. Winston dated January 1, 2000. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Chartered Accountants. - --------- (1) Incorporated by reference to GSI's registration statement on Form S-1, filed August 11, 1995 (33-95718) (2) Incorporated by reference to GSI's Current Report on Form 10-K for the year ended December 31, 1996. (3) Incorporated by reference to GSI's Current Report on Form 10-K for the year ended December 31, 1997. (4) Incorporated by reference to Lumonics' registration statement on Form S-4/A Amendment No. 2, filed February 11, 1999 (333-71449) (5) Incorporated by reference to the Company's Current Report on Form 10-K for the year ended December 31, 1999. (6) Incorporated by reference to the Company's registration statement on Form S-8 filed August 4, 2000. (7) Incorporated by reference to the Company's Current Report on Form 8-K filed October 16, 2000. Reports on Form 8-K On October 16, 2000, the Company filed a Current Report on Form 8-K to report the sale of assets of its Life Sciences business to Packard BioScience Company on October 1, 2000. On November 13, 2000, the Company filed an amendment to this Form 8-K to provide the required pro forma financial information. 58 Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, GSI Lumonics Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GSI LUMONICS INC. (Registrant) By: /s/ Charles D. Winston ------------------------------------------ Charles D. Winston President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name Title Date - -------------------------------------- ------------------------------------------------ ---------------------- /s/ Charles D. Winston Director and Chief Executive Officer March 19, 2001 - ---------------------- Charles D. Winston (Principal Executive Officer) /s/ Thomas R. Swain Vice President Finance and Chief Financial March 19, 2001 - ------------------- Thomas R. Swain Officer (Principal Financial and Accounting Officer) /s/ Richard Black Director March 19, 2001 - ----------------- Richard Black /s/ Paul F. Ferrari Director March 19, 2001 - ------------------- Paul F. Ferrari /s/ Woodie Flowers Director March 19, 2001 - ------------------ Woodie Flowers /s/ Byron O. Pond Director March 19, 2001 - ----------------- Byron O. Pond /s/ Benjamin J. Virgilio Director March 19, 2001 - ------------------------ Benjamin J. Virgilio /s/ Phillip A. Griffiths Director March 19, 2001 - ------------------------ Phillip A. Griffiths
59 GSI LUMONICS INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -------------------------------------------------------------------------------------------------------------------- Balance Charged at to costs Charged Balance beginning and to other At end of Description of period expenses accounts Deductions period - -------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1998 Allowance for doubtful accounts $ 191 $ 109 $ - $ (11) $ 311 - -------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1999 Allowance for doubtful accounts $ 311 $ 615 $ 2,799 * $ (528) $ 3,197 - -------------------------------------------------------------------------------------------------------------------- Year ended December 31, 2000 Allowance for doubtful accounts $ 3,197 $ 935 $ - $ (1,374) $ 2,758 - --------------------------------------------------------------------------------------------------------------------
* Increase due to merger with General Scanning Inc. 60 EX-2.2 2 0002.txt PURCHASE TO SALE AGREEMENT EXHIBIT 2.2 PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS February 29, 2000 BY AND BETWEEN ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation "Buyer" AND GENERAL SCANNING INC., a Massachusetts corporation "Seller" TABLE OF CONTENTS Page ---- 1 AGREEMENT TO PURCHASE AND SELL ...................................... 2 2 PURCHASE PRICE ...................................................... 2 2.1 Deposit ....................................................... 2 2.2 Balance ....................................................... 3 2.3 Allocation of Purchase Price .................................. 3 3 DUE DILIGENCE ....................................................... 3 3.1 Property Documents ............................................ 3 3.2 Investigations ................................................ 4 3.3 Occupants ..................................................... 4 3.4 CC&Rs ......................................................... 5 3.5 Property Questionnaire ........................................ 5 3.6 Termination Right ............................................. 5 3.8 Insurance ..................................................... 6 3.9 Indemnity and Repair .......................................... 6 3.10 Title ......................................................... 6 3.10.1 Deliveries by Seller ................................... 6 3.10.2 Buyer's Review of Title ................................ 7 3.10.3 Seller's Obligations Regarding Title ................... 7 3.10.4 Condition of Title at Closing .......................... 8 4 SELLER'S REPRESENTATIONS AND WARRANTIES ............................. 8 4.1 Authority ..................................................... 8 4.2 No Conflicts .................................................. 9 4.4 Property Documents ............................................ 9 4.5 Tenant Leases ................................................. 9 4.7 Unpaid Commissions ............................................ 10 4.8 Special Assessments or Condemnation ........................... 10 4.9 Service Contracts ............................................. 10 4.10 Employees ..................................................... 10 4.11 Existing Approvals ............................................ 10 4.12 Insurance ..................................................... 10 4.13 Litigation .................................................... 11 4.14 Compliance with Laws .......................................... 11 4.15 Environmental Materials ....................................... 11 4.16 No Income ..................................................... 13 4.17 Survival ...................................................... 13 4.18 Seller's Knowledge ............................................ 13 4.19 As-Is ......................................................... 13 5 BUYER'S REPRESENTATIONS AND WARRANTIES .............................. 14 [500 Arsenal Street] i (C) Alexandria Real Estate Equities, Inc. 1999 5.1 No Conflicts .................................................. 14 5.2 Due Organization: Consents .................................... 14 5.3 Buyer's Authority; Validity of Agreements ..................... 14 5.4 Bankruptcy .................................................... 14 6 COVENANTS OF SELLER AND BUYER ....................................... 14 6.1 Covenants of Seller ........................................... 14 6.1.1 Title ................................................... 15 6.1.2 Notice of Change in Circumstances ....................... 15 6.1.3 No Defaults: Maintenance of Property .................... 15 6.1.4 Exclusive Negotiations .................................. 15 6.1.5 Development Activities .................................. 15 6.1.6 Service, Management and Employment Contracts ............ 16 6.1.7 Tenant Leases ........................................... 16 6.1.8 Insurance ............................................... 16 6.1.9 Litigation .............................................. 16 6.2 Covenants of Buyer ............................................ 16 6.2.1 Development Activities .................................. 16 7 CONDITIONS PRECEDENT TO CLOSING ..................................... 17 7.1 Buyer's Conditions ............................................ 17 7.1.1 Title ................................................... 17 7.1.2 Seller's Due Performance ................................ 17 7.1.3 Condition of Property ................................... 17 7.1.4 Bankruptcy .............................................. 17 7.1.6 No Moratoria ............................................ 18 7.2 Failure of Buyer's Conditions ................................. 18 7.2.1 Waive and Close ......................................... 18 7.2.2 Terminate ............................................... 18 7.3 Seller's Conditions ........................................... 18 7.3.1 Buyer's Due Performance ................................. 18 7.3.2 Bankruptcy .............................................. 18 7.4 Failure of Seller's Conditions ................................ 18 8 CLOSING ............................................................. 19 8.1 Closing Date .................................................. 19 8.2 Closing Costs ................................................. 19 9 CLOSING DELIVERIES .................................................. 20 9.1 Deliveries by Seller to Escrow ................................ 20 9.1.1 Deed .................................................... 20 9.1.2 Non-foreign Affidavit ................................... 20 9.1.3 Bill of Sale and Assignment ............................. 20 9.1.4 Seller's Certificate .................................... 20 9.1.5 Proof of Authority ...................................... 20 9.1.6 Other ................................................... 20 [500 Arsenal Street] ii (C) Alexandria Real Estate Equities, Inc. 1999 9.2 Deliveries by Buyer ........................................... 20 9.2.1 Balance, Prorations & Closing Costs: .................... 20 9.2.2 Buyer's Certificate ..................................... 20 9.2.4 Other ................................................... 21 9.3 Deliveries Outside of Escrow .................................. 21 9.3.1 Service Contracts ....................................... 21 9.3.2 Intangible Property ..................................... 21 9.3.3 Property Documents ...................................... 21 9.3.4 Personal Property ....................................... 21 9.3.5 Other ................................................... 21 10 PRORATIONS .......................................................... 22 10.1 Prorations .................................................... 22 10.2 Preliminary Closing Statement ................................. 22 11 ESCROW .............................................................. 23 11.1 Opening of Escrow ............................................. 23 11.2 Escrow Instructions ........................................... 23 11.3 Actions by Escrow Agent ....................................... 23 11.3.1 Recording .............................................. 23 11.3.2 Funds .................................................. 24 11.3.3 Owner's Title Policy ................................... 24 11.3.4 Delivery of Documents .................................. 24 11.4 Conflicting Demands ........................................... 24 11.5 Real Estate Reporting Person .................................. 25 11.6 Destruction of Documents; Survival ............................ 25 12 RISK OF LOSS ........................................................ 25 12.1 Condemnation .................................................. 25 12.2 Casualty ...................................................... 26 13 DEFAULT ............................................................. 26 13.1 Default by Buyer .............................................. 26 13.2 Default by Seller ............................................. 27 14 BROKERS ............................................................. 27 15 CONFIDENTIALITY ..................................................... 27 15.1 Buyer ......................................................... 27 15.2 Seller ........................................................ 28 16 MISCELLANEOUS PROVISIONS ............................................ 28 16.1 Governing Law and Jurisdiction ................................ 28 16.2 Entire Agreement .............................................. 28 16.3 Modifications; Waiver ......................................... 28 16.4 Notices ....................................................... 29 [500 Arsenal Street] iii (C) Alexandria Real Estate Equities, Inc. 1999 16.5 Expenses ............................................................ 30 16.6 Assignment .......................................................... 30 16.6.1 Seller's Right to Assign ..................................... 30 16.6.2 Buyer's Right to Assign ...................................... 30 16.7 Severability ........................................................ 30 16.8 Successors and Assigns: Third Parties ............................... 31 16.9 Counterparts ........................................................ 31 16.10 Headings ............................................................ 31 16.11 Time of the Essence ................................................. 31 16.12 Further Assistance .................................................. 31 16.13 Number and Gender ................................................... 31 16.14 Construction ........................................................ 31 16.15 Post-Closing Access to Records ...................................... 31 16.16 Exhibits ............................................................ 32 16.17 Attorneys' Fees ..................................................... 32 16.18 Business Days ....................................................... 32 [500 Arsenal Street] iv (C) Alexandria Real Estate Equities, Inc. 1999 LIST OF EXHIBITS EXHIBIT A Legal Description EXHIBIT B Intentionally Left Blank EXHIBIT C-1 Personal Property Inventory EXHIBIT C-2 Excluded Property EXHIBIT D Allocation Schedule EXHIBIT E Description of Property Documents EXHIBIT F Intentionally Left Blank EXHIBIT G Property Questionnaire EXHIBIT H Surveyor's Certificate EXHIBIT I Quitclaim Deed EXHIBIT J Service Contracts EXHIBIT K-1 Seller's Certificate EXHIBIT K-2 Buyer's Certificate EXHIBIT L Non-Foreign Affidavit EXHIBIT M Intentionally Left Blank EXHIBIT N Bill of Sale and Assignment EXHIBIT 0 Approvals EXHIBIT P Litigation EXHIBIT Q Phase II Results EXHIBIT R Environmental Reports [500 Arsenal Street] v (C) Alexandria Real Estate Equities, Inc. 1999 PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Agreement") is made and entered into as of February 29, 2000, by and between ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation ("Buyer"), and GENERAL SCANNING INC., a Massachusetts corporation ("Seller"), for the purposes of setting forth the agreement of the parties and of instructing CHICAGO TITLE INSURANCE COMPANY ("Escrow Agent"), with respect to the transactions contemplated by this Agreement. RECITALS Upon and subject to the terms and conditions set forth in this Agreement, Seller desires to sell and Buyer desires to purchase the following (collectively, the "Property"): (i) the fee interest in that certain real property commonly known as 500 Arsenal Street and located in the City of Watertown, County of Middlesex, Commonwealth of Massachusetts, as legally described on Exhibit A attached hereto, together with all rights, privileges and easements appurtenant thereto or used in connection therewith, including, without limitation, all minerals, oil, gas and other hydrocarbon substances thereon, all development rights, air rights, water, water rights and water stock relating thereto, all strips and gores, and all of Seller's right, title and interest in and to any streets, alleys, easements, rights-of-way, public ways, or other rights appurtenant, adjacent or connected thereto or used in connection therewith (collectively, the "Land"); (ii) all buildings, improvements, structures and fixtures now or hereafter included or located on or in the Land (collectively, the "Improvements"), and all apparatus, equipment, appliances and other fixtures used in connection with the operation or occupancy of the Land and the Improvements, such as heating, air conditioning or mechanical systems and facilities used to provide any utility services, refrigeration, ventilation, waste disposal or other services now or hereafter located on or in the Land or the Improvements (provided, however, the Improvements shall not include the items listed in Exhibit C-2 attached hereto (the "Excluded Property")); (iii) Seller's interest in all leases, licenses and other occupancy agreements covering the Land and Improvements, if any (these leases, together with all amendments, modifications, extensions or supplements thereto or guarantees thereof, are collectively referred to in this Agreement as the "Tenant Leases") (the Land, the Improvements and Seller's interest in the Tenant Leases are sometimes hereinafter collectively referred to as the "Real Property"); (iv) all tangible personal property, equipment and supplies (collectively, the "Personal Property") now or hereafter owned by Seller and located on or about the [500 Arsenal Street] 1 (C) Alexandria Real Estate Equities, Inc. 1999 Land or the Improvements or attached thereto or used in connection with the use, operation, maintenance or repair thereof, including, without limitation, the personal property designated in Exhibit C-1 attached hereto; provided, however, that such Personal Property shall not include any of the Excluded Property listed in Exhibit C-2 attached hereto; and (v) all intangible property (collectively, the "Intangible Property") now or hereafter owned by Seller and used in connection with the Land, the Improvements or the Personal Property, including, without limitation, property or building-specific trademarks and trade names, transferable licenses, architectural, site, landscaping or other permits, applications, approvals, authorizations and other entitlements, transferable guarantees and warranties covering the Land and/or Improvements, all contract rights (including rights under the Service Contracts (as hereinafter defined)), books, records, reports, test results, environmental assessments, as-built plans, specifications and other similar documents and materials relating to the use or operation, maintenance or repair of the Property or the construction or fabrication thereof, and all transferable utility contracts; provided, however, that "Intangible Property" shall not include (A) intellectual property rights related to Seller's business operations, or (B) intangible property related to the Excluded Property. NOW, THEREFORE, in consideration of the foregoing Recitals which are incorporated herein by this reference, the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Buyer and Seller hereby agree, and instruct Escrow Agent, as follows: 1 AGREEMENT TO PURCHASE AND SELL. Subject to all of the terms and conditions of this Agreement, Seller agrees to sell, transfer and convey to Buyer, and Buyer agrees to acquire and purchase from Seller, the Property upon the terms and conditions set forth herein. 2 PURCHASE PRICE. The purchase price for the Property (the "Purchase Price") shall be the sum of $10,350,000, payable as follows: 2.1 Deposit. Not later than the date which is 3 Business Days (as hereinafter defined) after the Execution Date (as hereinafter defined), Buyer shall deposit into Escrow the sum of $100,000 (which amount, together with any and all interest and dividends earned thereon, shall hereinafter be referred to as the "Initial Deposit"). In the event that Buyer does not terminate this Agreement on or before the Due Diligence Termination Date (as hereinafter defined), not later than the date which is 2 Business Days after the Due Diligence Termination Date, Buyer shall deposit into Escrow the sum of $300,000 (which amount, together with any and all interest and dividends earned thereon, shall hereinafter be referred to as the "Additional Deposit"). The Initial Deposit and the Additional Deposit shall be referred to herein collectively as the "Deposit." For [500 Arsenal Street] 2 (C) Alexandria Real Estate Equities, Inc. 1999 purposes of this Agreement, the "Execution Date" shall mean the date, after Seller has executed this Agreement, that written notice to Seller and Escrow Agent is delivered by Buyer advising that Buyer has executed this Agreement. Within 5 Business Days after the Execution Date, Seller and Buyer shall confirm in writing the specific dates for deadlines under this Agreement based upon the Execution Date determined as provided above. Escrow Agent shall deposit the Deposit in a non-commingled trust account and shall invest the Deposit in insured money market accounts, certificates of deposit, United States Treasury Bills or such other instruments as Buyer may instruct from time to time. In the event of the consummation of the purchase and sale of the Property as contemplated hereunder, the Deposit shall be paid to Seller at the Closing (as defined in Section 8 below) and credited against the Purchase Price. In the event the sale of the Property is not consummated because of the termination of this Agreement by Buyer in accordance with any right to so terminate provided herein, or the failure of any Buyer's Conditions Precedent (hereinafter defined), or for any other reason except for a default under this Agreement solely on the part of Buyer, Buyer shall notify Escrow Agent in writing of the same, and the Deposit shall be immediately returned to Buyer. 2.2 Balance. On the Closing Date (as defined below), Buyer shall pay to Seller the balance of the Purchase Price over and above the Deposit paid by Buyer under Section 2.1 above, by wire transfer of federal funds to Escrow Agent, net of all prorations and adjustments as provided herein. 2.3 Allocation of Purchase Price. Buyer and Seller hereby agree to allocate the Purchase Price among the Property for all tax and non-tax purposes in accordance with Exhibit D attached hereto (the "Allocation Schedule"). Buyer and Seller hereby agree that the Allocation Schedule shall be prepared in a manner consistent with the rules prescribed under Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code"). Buyer and Seller hereby each (a) agree to utilize the amounts allocated pursuant to the Allocation Schedule in filing all tax returns (including any amended tax returns) and (b) agree not to take any position on or in connection with any such tax return or otherwise that is inconsistent with such allocation. 3 DUE DILIGENCE 3.1 Property Documents. Not later than the date which is 5 Business Days after the Execution Date, Seller shall, at Seller's sole cost and expense, deliver or make available to Buyer, to the extent such items are in Seller's possession, or, with respect to such items not available in the public records, to the extent that such items are in the possession or control of Seller's agents, auditors, independent contractors or representatives and Seller can, with diligent efforts, obtain possession of such items after due inquiry and/or investigation, copies of all agreements, contracts, documents, information, Tenant Leases (if any), reports, books, records and other materials pertinent to the current or future ownership, operation, occupancy, use, or management of the Property including the items described in Exhibit E attached hereto (the "Property [500 Arsenal Street] 3 (C) Alexandria Real Estate Equities, Inc. 1999 Documents"). Upon the date of satisfactory receipt of all of the Property Documents, Buyer shall confirm the same to Seller in writing; provided, however, (a) Buyer shall notify Seller in writing of any Property Document not received by Buyer promptly after Buyer determines the same, and (b) on or before the Due Diligence Termination Date, Buyer shall notify Seller in writing of any Property Documents which Buyer then knows have not been delivered to Buyer or obtained by Buyer through other sources. 3.2 Investigations. At all reasonable times from the Execution Date until the Closing or earlier termination of this Agreement and upon not less than 24 hours prior notice provided prior to the date on which Buyer, its agents and representatives perform the investigations contemplated herein (provided, however, that Buyer shall only be obligated to provide such notice once for each continuous period that Buyer shall be performing the investigations contemplated herein), Buyer, its agents and representatives shall be entitled at Buyer's sole cost and expense to (i) enter onto the Property during normal business hours to perform any inspections, investigations, studies and tests of the Property, including, without limitation, physical, structural, mechanical, architectural, engineering, soils, geotechnical and environmental/asbestos tests that Buyer deems reasonable; (ii) cause environmental assessments of the Property to be performed; (iii) review all Property Documents and examine and copy any and all other books and records in the possession or control of Seller or its agents relating to the Property (including, without limitation, all documents relating to utilities, zoning, and the access, subdivision and appraisal of the Property); and (iv) interview Seller's property manager ("Manager") and its employees, if any. In performing the investigations contemplated herein, Buyer, its agents and representatives shall not unreasonably interfere with Seller's operations at the Property. 3.2.1 Prior Environmental Due Diligence. Buyer has previously performed a Phase I Environmental Assessment of the Property, a Phase II Environmental Assessment of the Property (the "Phase II"), other related environmental testing of the Property, and interviews with tenants, property managers and Seller's personnel in connection therewith (collectively, the "Prior Investigations"). Seller hereby agrees and acknowledges that Buyer has previously delivered to Seller the results of the Prior Investigations, which results are summarized in Exhibit Q attached hereto and indicate the presence of contamination at the Property (the "Existing Contamination"). Nothing contained herein shall be deemed or construed as Buyer's approval of the environmental condition of the Property, the results of the Prior Investigations or the Existing Contamination. Prior to the Due Diligence Termination Date (as hereinafter defined) Buyer intends to conduct further environmental investigations, including, without limitation, with respect to the Existing Contamination, obtaining opinion letters, in form and substance satisfactory to Buyer in its sole and absolute discretion, from GZA GeoEnvironmental, Inc., a Licensed Site Professional ("LSP") and opinions from such other LSPs as Buyer shall deem necessary in its sole and absolute discretion (collectively, the "LSP Opinions"). Prior to the Due Diligence [500 Arsenal Street] 4 (C) Alexandria Real Estate Equities, Inc. 1999 Termination Date, Buyer shall deliver written notice to Seller as to whether, as of the date of such LSP Opinions, Buyer is satisfied with the LSP Opinions regarding the condition of the Existing Contamination. 3.3 Occupants. The Property is 100% Seller-occupied. Not later than the date which is 10 days after the Execution Date, Seller shall arrange for an introduction of Buyer to such occupants of the Property as Buyer may request and shall otherwise assist and cooperate with Buyer in providing Buyer access to such occupants. Buyer and its agents, and employees shall observe and comply with Seller's reasonable requests regarding entry into facilities at the Property for purpose of inspection. Buyer may conduct such inquiries and investigations of any and all occupants (or prospective tenants) as Buyer, in its sole discretion, deems advisable or necessary. 3.4 CC&Rs. Buyer may conduct such inquiries and investigations of any and all declarants or associations created by any covenants, conditions or restrictions encumbering the Property ("CC&Rs") as Buyer, in its sole discretion, deems advisable or necessary. Seller shall cooperate with Buyer in Buyer's efforts to obtain not later than the date which is 5 Business Days before the Due Diligence Termination Date an estoppel certificate, each substantially in form and substance acceptable to Buyer, executed by each such declarant or association under any CC&Rs (collectively, the "CC&Rs Estoppels"). Seller's obligation to cooperate with Buyer under this section shall include (A) executing and delivering letters to such declarants and/or associations, (B) telephoning the representatives of such declarants and/or associations, and (C) participating in such other follow up activities as may be reasonably requested by Buyer. 3.5 Property Questionnaire. Not later than the date which is 10 days after the Execution Date, Seller shall deliver to Buyer a property questionnaire in the form attached hereto as Exhibit G (the "Property Questionnaire") completed by Seller and its Manager, if any. 3.6 Termination Right. Buyer shall have the right at any time on or before 5:00 p.m. (Los Angeles, California time) on March 15, 2000 (the "Due Diligence Termination Date") to terminate this Agreement if, during the course of Buyer's due diligence investigations of the Property, Buyer determines in its sole and absolute discretion that the Property or the Property Questionnaire is not acceptable to Buyer. Buyer may exercise such termination right by delivering written notice of termination to Seller and Escrow Agent (a "Due Diligence Termination Notice") on or before the Due Diligence Termination Date. Upon the timely delivery of such Due Diligence Termination Notice, (i) Escrow Agent shall immediately return the Deposit to Buyer, (ii) if Buyer has terminated for any reason (other than a default by Seller or the failure of Seller to remove an Obligatory Removal Exception (as hereinafter defined)), Buyer shall pay all cancellation charges of Title Company (as hereinafter defined) and Escrow Agent ("Cancellation Charges"), and (iii) this Agreement shall automatically terminate and be of no further force or effect and neither party shall have any further rights or obligations hereunder, other than pursuant to any provision hereof which expressly survives the termination of this Agreement. If Buyer has timely delivered to Escrow Agent a Due Diligence Termination Notice, no [500 Arsenal Street] 5 (C) Alexandria Real Estate Equities, Inc. 1999 notice to Escrow Agent from Seller shall be required for the return of the Deposit to Buyer. If Buyer does not exercise such termination by delivery of the Due Diligence Termination Notice on or before the Due Diligence Termination Date, then Buyer's right to terminate this Agreement pursuant to this Section shall automatically lapse. 3.7 Return of Property Documents; Third-Party Reports. In the event that Buyer terminates this Agreement pursuant to Section 3.6 herein, (a) Buyer shall return to Seller all Property Documents delivered by Seller to Buyer within 10 Business Days of such termination, and (b) Buyer shall deliver to Seller such reports and studies prepared for Buyer by independent third party consultants and engineers (the "Third Party Reports") as Seller shall request in writing; provided, however, Buyer's obligation to deliver such Third Party Reports shall be subject to the following conditions: (i) the preparer of such requested Third Party Report shall consent to the delivery of such Third Party Report to Seller, without any cost or expense to Buyer, (ii) Seller shall reimburse Buyer for the cost (or such portion thereof acceptable to Buyer in its sole and absolute discretion) of obtaining such Third Party Report, and (iii) such Third Party Report shall be delivered subject to Buyer's and such preparer's standard acknowledgments and disclaimers. Notwithstanding anything to the contrary contained herein, Buyer shall not be obligated to deliver to Seller any confidential or privileged information, documents or reports, whether prepared internally by Buyer or prepared by third parties. 3.8 Insurance. Buyer agrees that from the Execution Date through the earlier of (a) termination of this Agreement and (b) the Closing, Buyer shall carry, or cause its agents and representatives that will enter the Property in connection with the investigations pursuant to Section 3.2 to carry, workers' compensation and general liability insurance in the amount of $1,000,000 per occurrence, which insurance shall name Seller as an additional insured; Buyer shall provide Seller with proof of such insurance prior to commencing Buyer's physical inspections of the Property. 3.9 Indemnity and Repair. Buyer agrees to indemnify and hold harmless Seller from any losses, cost, damage and expenses arising from any actual damage to the Property or any injury to persons caused by any act of Buyer or Buyer's agents or representatives as a result of the inspections, investigations, tests or other activities performed pursuant to Section 3.2 above, which indemnity shall survive the termination of this Agreement or the Closing for a period of 90 days; provided, however, that Buyer's indemnity hereunder shall not include any losses, cost, damage or expenses resulting from (x) the acts of Seller, its agents or representatives, or (y) the discovery of any pre-existing condition of the Property. In addition, if this Agreement is terminated, Buyer shall repair any material damage to the Property caused by its entry thereon and shall restore the Property substantially to the condition in which it existed prior to such entry; provided, however, that Buyer shall have no obligation to repair any damage caused by the acts or omissions of Seller, its agents or representatives or to remediate, contain, abate or control any pre-existing condition of the Property which existed prior to Buyer's entry thereon. [500 Arsenal Street] 6 (C) Alexandria Real Estate Equities, Inc. 1999 3.10 Title. 3.10.1 Deliveries by Seller. Buyer acknowledges that Seller has delivered to Buyer (a) Seller's existing title policy for the Property, and (b) the most recently updated as-built survey for the Property in Seller's possession. Not later than 10 days after the Execution Date, Buyer shall order (a) an ALTA extended coverage commitment for title insurance (the "Commitment") issued by Chicago Title Insurance Company (in such capacity, "Title Company"), together with legible copies of all documents referenced as exceptions therein, (b) a current As-Built American Land Title Association survey of the Property (the "Survey"), in form reasonably satisfactory to Buyer and Title Company, prepared by a surveyor licensed in the State where the Property is located and certified (using a surveyor's certificate in substantially the same form as the certificate attached hereto as Exhibit H) to Buyer and Title Company and such other persons or entities as Buyer may, in its discretion, request, and (c) a UCC Search with regard to Seller and the Property (the "UCC Search"). 3.10.2 Buyer's Review of Title. Buyer shall have until the Due Diligence Termination Date to notify Seller in writing of any objection which Buyer may have to any exception reported in the Commitment or matter shown on the Survey or the UCC Search or any updates thereof; provided, however, that if any such updates are received by Buyer, Buyer shall have an additional 5 Business Days, regardless of the Due Diligence Termination Date or Closing Date, following Buyer's receipt of such update and legible copies of all documents referenced therein to notify Seller of objections to items shown on any such update. Exceptions reported in the Commitment and matters shown on the Survey or the UCC Search (or any updates thereof) not objected to by Buyer as provided above shall be deemed to be "Permitted Exceptions." 3,10.3 Seller's Obligations Regarding Title. As a condition to Closing, Seller shall take all action necessary to remove from title to the Property (or in the alternative, Seller shall obtain for Buyer title insurance insuring over such exceptions or matters, such insurance to be in form and substance satisfactory to Buyer in its sole discretion) the following matters: (a) all exceptions to title and survey matters created by Seller on or after the Execution Date without the prior written consent of Buyer (which consent may be withheld in Buyer's sole and absolute discretion); (b) any and all liens and encumbrances affecting the Property which secure an obligation to pay money (other than installments of real estate taxes or assessments not delinquent as of the Closing); (c) all taxes and assessments due and payable for any period prior to the Closing; and (d) all claims of any right to occupancy, use or possession other than under the Permitted Exceptions (collectively, the "Obligatory Removal Exceptions"). If, prior to the Closing, Seller is unable to remove or satisfactorily insure over any of the Obligatory Removal Exceptions, then, in addition to any and all other rights and remedies which Buyer may have hereunder, Buyer may (a) terminate this Agreement by delivering written notice to Seller and Escrow Agent (in which [500 Arsenal Street] 7 (C) Alexandria Real Estate Equities, Inc. 1999 case Escrow Agent shall return the Deposit to Buyer, and Seller shall pay the Cancellation Charges), and Seller shall reimburse Buyer for all of Buyer's out-of-pocket costs and expenses incurred in connection with the transaction contemplated by this Agreement up to a maximum amount of $150,000 (including attorneys' fees incurred in connection with the transaction contemplated by this Agreement up to a maximum amount of $15,000 (excluding, however, attorneys' fees incurred by Buyer in connection with the negotiation of this Agreement) and excluding the cost of obtaining any Third Party Report not delivered to Seller hereunder; provided, however, that (A) the $150,000 cap on such reimbursement shall not apply to Seller's independent obligation to reimburse Buyer for a portion of Buyer's Phase II due diligence costs, (B) Buyer shall deliver to Seller a commercially reasonable detailed invoice for such costs and expenses, and (C) Buyer shall deliver to Seller such Third Party Reports as Seller shall request in writing (provided that (x) such requested Third Party Report shall be delivered subject to Buyer's and such preparer's standard acknowledgments and disclaimers and (y) the preparer of such requested Third Party Report shall consent to the delivery of such Third Party Report to Seller, without any cost or expense to Buyer), and thereafter neither party shall thereafter have any rights or obligations to the other hereunder, other than pursuant to any provision hereof which expressly survives the termination of this Agreement; (b) pursue an action for specific performance to compel Seller to remove the Obligatory Removal Exceptions; or (c) waive Buyer's objections to such Obligatory Removal Exceptions and proceed to a timely Closing whereupon such Obligatory Removal Exceptions shall be deemed "Permitted Exceptions." If, prior to the Closing, Seller is unable to, or elects not to, remove or satisfactorily insure over any other exceptions or matters objected to by Buyer in accordance with Section 3.10.2 (other than Obligatory Removal Exceptions), then, in addition to any and all other rights and remedies which Buyer may have hereunder, Buyer may (x) terminate this Agreement by delivering written notice to Seller and Escrow Agent (in which case Escrow Agent shall return the Deposit to Buyer, and Buyer shall pay the Cancellation Charges), and thereafter neither party shall thereafter have any rights or obligations to the other hereunder, other than pursuant to any provision hereof which expressly survives the termination of this Agreement; or (y) waive Buyer's objections to such other exceptions and matters (other than Obligatory Removal Exceptions) and proceed to a timely Closing whereupon such other exceptions and matters shall be deemed "Permitted Exceptions." 3.10.4 Condition of Title at Closing. Upon the Closing, Seller shall sell, transfer and convey to Buyer indefeasible fee simple title to the Land and the Improvements thereon by a duly executed and acknowledged quitclaim deed in the form of Exhibit I attached hereto (the "Deed"), subject only to the Permitted Exceptions. [500 Arsenal Street] 8 (C) Alexandria Real Estate Equities, Inc. 1999 4 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to and agrees with Buyer that, as of the date hereof and as of the Closing Date: 4.1 Authority. Within 10 days from the Execution Date, this Agreement and all other documents delivered prior to or at the Closing (i) shall have been duly authorized, executed, and delivered by Seller; (ii) shall be binding obligations of Seller; (iii) shall be collectively sufficient to transfer all of Seller's rights to the Property; and (iv) shall not violate the formation documents of Seller. Seller shall, within 5 days from the Execution Date, obtain all required consents, releases, and approvals necessary to execute this Agreement and consummate the transaction contemplated by this Agreement. Upon obtaining such required consents, releases, and approvals necessary to execute this Agreement and consummate the transaction contemplated by this Agreement, Seller shall promptly notify Buyer in writing of the same and deliver Buyer a certificate executed by Seller confirming that all such required consents, releases and approvals described in this Section 4.1 have been obtained. Seller further represents that it is a corporation, duly organized and existing in good standing under the laws of the Commonwealth of Massachusetts, with its principal place of business in the Commonwealth of Massachusetts. 4.2 No Conflicts. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated, and compliance with the terms of this Agreement will not conflict with, or, with or without notice or the passage of time or both, result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, deed of trust, mortgage, loan agreement, or other document, or instrument or agreement, oral or written, to which Seller is a party or by which Seller or the Property is bound, or any applicable regulation of any governmental agency, or any judgment, order or decree of any court having jurisdiction over Seller or all or any portion of the Property. 4.3 Preferential Rights, Seller has not granted any options or rights of first refusal or rights of first offer to third parties to purchase or otherwise acquire an interest in the Property. 4.4 Property Documents. The Property Documents required to be delivered by Seller pursuant to the terms hereof constitute all of the material documents relating to the Property that are in (i) Seller's possession or (ii) with respect to such items not available in the public records, the possession or control of Seller's agents, auditors, independent contractors or representatives, to the extent Seller could have with diligent efforts obtained possession of such items after due inquiry and/or investigation. Each such Property Document as delivered by Seller constitutes a true, correct and complete copy of such Property Document. There are no commitments or agreements affecting the Property which have not been disclosed by Seller to Buyer in writing. Seller is not in default of Seller's obligations or liabilities pertaining to the Property or the Property Documents; nor, to Seller's Knowledge, are there facts, circumstances, conditions, or events which, after notice or lapse of time, would constitute a default. Seller has not [500 Arsenal Street] 9 (C) Alexandria Real Estate Equities, Inc. 1999 received notice or information that any party to any of the Property Documents considers a breach or default to have occurred. 4.5 Tenant Leases. As of the Execution Date, there are no Tenant Leases affecting the Property and the Property is 100% Seller occupied. Buyer acknowledges that Seller has advised Buyer that (a) Seller is contemplating selling its printed circuit board ("PCB") division to a third party, and (b) in connection with such sale, Seller and the new owner of the PCB division may enter into an agreement for the continued use and occupancy by the PCB division of a portion of the Property (the "PCB Agreement"); provided however, that such PCB Agreement shall provide that all rights of such third party to such continued use, occupancy and possession of the Property shall terminate on or before September 19, 2000 and such third party shall vacate and surrender the Property prior to the Closing. There shall be no documents or agreements binding upon the Property or Buyer after the Closing which grant rights to third parties (including any third party owner of the PCB division) to occupy or possess the Property or any portion thereof or interest therein. As of the Execution Date, no person or entity other than Seller has any claim to use, occupancy or possession of the Property other than under the Permitted Exceptions. As of the time immediately prior to the Closing, no person or entity other than Seller shall have any claim to use, occupancy or possession of the Property other than under the Permitted Exceptions. 4.6 Bankruptcy. No attachments, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings are pending, or, to Seller's knowledge, threatened against Seller. 4.7 Unpaid Commissions. As of the Closing Date, there will be no brokerage or other leasing commissions due or payable on an absolute or contingent basis to any person in connection with any tenants or Tenant Leases. 4.8 Special Assessments or Condemnation. To Seller's Knowledge, there are no existing, proposed or contemplated (i) special assessments, except those shown as exceptions on the Commitment, or (ii) condemnation actions against the Property or any part. Seller has not received notice of any contemplated special assessments or eminent domain proceedings that would affect the Property. 4.9 Service Contracts. There are no service, maintenance, repair, management, leasing, or supply contracts or other contracts (including, without limitation, janitorial, elevator and landscaping agreements) affecting the Property, oral or written, except as set forth on the schedule attached hereto as Exhibit J (the "Service Contracts") and, except as set forth on such schedule, all Service Contracts are cancelable without cost at the option of Seller or the then owner of the Property upon not more than 30 days prior written notice. 4.10 Employees. There are no employees who are employed by Seller or Manager in the operation, management or maintenance of the Property and whose employment will continue after the Closing. On and after the Closing, there will be no obligations [500 Arsenal Street] 10 (C) Alexandria Real Estate Equities, Inc. 1999 concerning any pre-Closing employees of Seller or Manager which will be binding upon Buyer or the Property. 4.11 Existing Approvals. To Seller's Knowledge, the documents set forth on Exhibit O attached hereto (collectively, the "Approvals") are in full force and effect and, constitute all necessary or appropriate certifications, approvals, consents, authorizations, licenses, permits, easements, rights of way, and all valid, final and unconditional certificates of occupancy, or the equivalent permitting required by the applicable licensing agency, or required by any governmental authority in connection with the ownership, development, use and maintenance of the Property. To Seller's Knowledge, all of the Approvals are transferable to Buyer without the necessity of any approval or consent or additional payment and no such transfer will affect the validity thereof. 4.12 Insurance. There are currently in effect such insurance policies as are customarily maintained with respect to similar properties. Seller has not received any notice or request from any insurance company requesting the performance of any work or alteration with respect to the Property. Seller has received no notice from any insurance company concerning, nor, to Seller's Knowledge, are there any defects or inadequacies in the Property which, if not corrected, would result in the termination of insurance coverage or increase its cost. 4,13 Litigation. Except as set forth on the schedule attached hereto as Exhibit P, there are no actions, suits or proceedings before any judicial or quasi-judicial body, pending, or to Seller's Knowledge, threatened, against or affecting all or any portion of the Property. 4,14 Compliance with Laws. To Seller's Knowledge, the Property is in full compliance with all existing laws, rules, regulations, ordinances and orders of all applicable federal, state, city and other governmental authorities in effect as of the date of this Agreement (collectively, "Laws"), including, without limitation, all Laws with respect to zoning, building, fire and health codes, environmental protection and sanitation and pollution control and the Americans with Disabilities Act, as amended. Seller has received no notice of, and has no Knowledge of, any condition currently or previously existing on the Property or any portion thereof which may give rise to any violation of any Laws applicable to the Property if it were disclosed to the authorities having jurisdiction over the Property. 4.15 Environmental Materials. 4.15.1 Definitions. (a) "Environmental Claim" means any and all actions (including, without limitation, investigatory, remedial or enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or resulting therefrom), costs, claims, damages (including, without limitation, punitive damages), expenses (including, without limitation, attorneys', consultants' and experts' fees, court costs and amounts paid in settlement of any [500 Arsenal Street] 11 (C) Alexandria Real Estate Equities, Inc. 1999 claims or actions), fines, forfeitures or other civil, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage, or contamination of, or adverse effects upon, the environment, water tables or natural resources), liabilities or losses arising from or relating to the presence or suspected presence of any Environmental Materials in, on, under, or about the Property or properties adjacent thereto. (b) "Environmental Materials" means chemicals, pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products or any other chemical, material, or substance that, because of its quantity, concentration, or physical or chemical characteristics, exposure to which is limited or regulated for health and safety reasons by any governmental authority, or which poses a significant present or potential hazard to human health and safety or to the environment if released into the workplace or the environment. 4.15.2 Representations and Warranties. Seller represents and warrants to and agrees with Buyer that, as of the date hereof, and as of the Closing Date: (i) except with respect to the Existing Contamination disclosed by the Prior Investigations, to Seller's Knowledge, each of the Property and Seller is in full compliance with all Laws relating to Environmental Materials, which compliance includes, but is not limited to, the possession by Seller of all permits and other governmental authorities required under applicable Laws, and compliance with the terms and conditions thereof; (ii) except as disclosed in the reports described in Exhibit R attached hereto (the "Environmental Reports"), Seller has not received any communication (written or oral) that alleges that Seller or the Property is not in such full compliance and, to Seller's Knowledge, there are no circumstances that may prevent or interfere with such full compliance in the future; (iii) except as disclosed in the Environmental Reports, there is no Environmental Claim pending or, to Seller's Knowledge, threatened with regard to the Property; (iv) except as disclosed in the Environmental Reports, to Seller's Knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents relating to the Environmental Materials that could form the basis of any Environmental Claim against Seller or against any person or entity, including, without limitation, persons or entities whose liability for any such Environmental Claim Seller has or may have retained or assumed either contractually or by operation of law; (v) except as disclosed in the Environmental Reports, Seller has received no notice of any past or present actions, activities, circumstances, conditions, events or incidents relating to the Environmental Materials that could form the basis of any Environmental Claim against Seller or against any person or entity, including, without limitation, persons or entities whose liability for any such Environmental Claim Seller has or may have retained or assumed either contractually or by operation of law; and (vi) without in any way limiting the generality of the foregoing, except as set forth in the Environmental Reports, to Seller's Knowledge (a) Seller has not used, stored, generated, released, disposed or arranged for the disposal of Environmental Materials on the Property, (b) there are no underground storage tanks located on [500 Arsenal Street] 12 (C) Alexandria Real Estate Equities, Inc. 1999 the Property, (c) there is no asbestos contained in or forming part of any Improvement, including, without limitation, any building, building component, structure or office space on the Property, and (d) no polychlorinated biphenyls (PCBs) are used or stored at the Property. 4.15.3 Indemnification. Seller hereby indemnifies and agrees to reimburse, defend, and hold Buyer harmless from, for and against all Environmental Claims arising from, asserted against, imposed on, or incurred by Buyer, directly or indirectly, in connection with (i) the breach of any representation or warranty set forth in Section 4.15.2 of this Agreement, or (ii) any event or condition, occurring or arising after the date of the Environmental Reports prepared on behalf of Buyer and prior to the Closing. With respect to the matters covered by clause (i) above, the indemnity in this Section shall survive the Closing until the final resolution of all claims raised by Buyer within 18 months from the Closing Date, and, with respect to the matters covered by clause (ii) above, the indemnity in this Section shall survive until the date all of the following conditions are satisfied: (x) Seller has completely vacated the Property, (y) Buyer has received from its environmental consultants an environmental exit audit (the "Environmental Exit Audit") for the Property indicating that, except as disclosed in the Environmental Reports, there are no events or conditions relating to Environmental Materials which have arisen in connection with Seller's continued use and occupancy of the Property (or the continued use and occupancy of the Property by Seller's PCB division) that could form the basis of any Environmental Claim against Seller, Buyer, the Property or against any person or entity, and (c) any deficiencies noted in the Environmental Exit Audit have been resolved. Buyer shall use commercially reasonable efforts to cause its environmental consultants to issue the Environmental Exit Audit within 30 days from the date on which Seller has completely vacated the Property. Notwithstanding anything contained herein to the contrary, Buyer may have non-contractual statutory and common law rights and remedies against Seller for non-disclosure or noncompliance with certain matters which are also the subject matter of the representations, warranties and agreements contained in this Section, and the limited representations, warranties and agreements and limited survival periods set forth herein will not be deemed or construed as limiting, waiving or relinquishing any such non-contractual statutory or common law right or remedy, and the effect of the representations, warranties and agreements made in this Section will not be diminished or deemed to be waived by any inspections, tests or investigations made by Buyer or its agents. 4.16 No Income. As of the Execution Date, there are no rentals, revenues or other income, of any kind whatsoever, from the Property. 4.17 Survival. All of the representations, warranties and agreements of Seller set forth in Article 4, Article 10, Article 14, Section 15.2 and Article 16 shall be true upon the execution of this Agreement, shall be deemed to be repeated at and as of the Closing Date without the necessity of a separate certificate with respect thereto and shall survive [500 Arsenal Street] 13 (C) Alexandria Real Estate Equities, Inc. 1999 the delivery of the Deed and other Closing instruments and documents for a period of 12 months from the Closing Date, except for the representations and warranties contained in Section 4.15 herein, which shall survive for a period of 18 months from the Closing Date and the indemnity contained in Section 4.15.3 herein, which shall survive as set forth in such Section 4.15.3. Notwithstanding anything contained herein to the contrary, Seller's liability with respect to any breach by Seller of any covenant contained in Section 6.1 herein, of which Buyer first obtains actual knowledge after the Closing and for which Buyer has not specifically waived in a writing executed by Buyer shall survive for the longest period permitted by applicable law. 4.18 Seller's Knowledge. As used in this Agreement, the phrase "to Seller's Knowledge" and words of similar import shall mean the actual knowledge of Thomas R. Swain, and Ken Austin, without any duty of inquiry or investigation. Seller represents and warrants that the foregoing persons are those persons affiliated with Seller most knowledgeable regarding the ownership and operation of the Property, possessing the greatest experience and familiarity with the Property, that no other person presently affiliated with Seller possesses any equal or greater familiarity and experience with the Property, that Thomas R. Swain has been involved with the Property since March 1, 1999 and that Ken Austin has been involved with the Property since June 1, 1993. 4.19 As-Is. Except as expressly set forth in this Article 4, Section 6.1, Article 10, and Article 16 and except for those warranties, expressly set forth, or implied by law, in the Deed or other documents delivered at the Closing, at the Closing, Seller shall convey the Property to Buyer and Buyer shall accept the Property in its present "AS-IS" condition, without any warranties, expressed or implied. 5 BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and warrants to and agrees with Seller that, as of the date hereof, and as of the Closing Date (or the earlier termination of this Agreement): 5.1 No Conflicts. The execution and delivery of this Agreement, the consummation of the transactions herein contemplated, and compliance with the terms of this Agreement will not conflict with, or, with or without notice or the passage of time or both, result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, deed of trust, mortgage, loan agreement, or other document or instrument to which Buyer is a party or by which Buyer is bound, or any applicable regulation of any governmental agency, or any judgment, order or decree of any court having jurisdiction over Buyer or all or any portion of the Property. 5.2 Due Organization: Consents. Buyer is a corporation duly organized and existing in good standing under the laws of the State of Maryland with its principal place of business in the State of California. All requisite corporate action has been taken by Buyer in connection with entering into this Agreement, and will be taken prior to the Closing in connection with the execution and delivery of the instruments referenced herein and the consummation of the transactions contemplated hereby. No consent of [500 Arsenal Street] 14 (C) Alexandria Real Estate Equities, Inc. 1999 any partner, shareholder, beneficiary, creditor, investor, judicial or administrative body, governmental authority or other party is required in connection herewith which has not been obtained. 5.3 Buyer's Authority; Validity of Agreements. Buyer has full right, power and authority to purchase the Property from Seller as provided in this Agreement and to carry out its obligations hereunder. The individual(s) executing this Agreement and the instruments referenced herein on behalf of Buyer have the legal power, right and actual authority to bind Buyer to the terms hereof and thereof. This Agreement is and all other documents and instruments to be executed and delivered by Buyer in connection with this Agreement shall be duly authorized, executed and delivered by Buyer and shall be valid, binding and enforceable obligations of Buyer. 5.4 Bankruptcy. No attachments, execution proceedings, assignments for the benefit of creditors, insolvency, bankruptcy, reorganization or other proceedings are pending, or, to Buyer's knowledge, threatened against Buyer. 6 COVENANTS OF SELLER AND BUYER. 6.1 Covenants of Seller. In addition to the covenants and agreements of Seller set forth elsewhere in this Agreement, Seller covenants and agrees that between the date hereof and the Closing Date (or the earlier termination of this Agreement): 6.1.1 Title. Seller shall not (a) directly or indirectly sell, assign or create any right, title or interest whatsoever in or to the Property (other than the PCB Agreement), (b) take any action, create, commit, permit to exist or suffer any acts which would (i) give rise to a variance from the current legal description of the Land, or (ii) cause the creation of any lien, charge or encumbrance other than the Permitted Exceptions, or (c) enter into any agreement to do any of the foregoing without Buyer's prior written consent (which consent may be withheld in Buyer's sole and absolute discretion). 6.1.2 Notice of Change in Circumstances. Seller shall promptly notify Buyer of any change in any condition with respect to the Property or any portion thereof or of any event or circumstance of which Seller has Knowledge subsequent to the date of this Agreement which (a) materially, adversely affects the Property or any portion thereof or the use or operation of the Property or any portion thereof, (b) makes any representation or warranty of Seller to Buyer under this Agreement untrue or misleading, or (c) makes any covenant or agreement of Seller under this Agreement incapable or less likely of being performed, it being expressly understood that Seller's obligation to provide information to Buyer under this Section shall in no way relieve Seller of any liability for a breach by Seller of any of its representations, warranties, covenants or agreements under this Agreement. [500 Arsenal Street] 15 (C) Alexandria Real Estate Equities, Inc. 1999 6.1.3 No Defaults; Maintenance of Property. Seller shall not default with respect to the performance of any obligation relating to the Property, including, without limitation, the payment of all amounts due and the performance of all obligations with respect to the Service Contracts and any existing indebtedness relating to the Property. Subject to Section 12, Seller shall operate and maintain the Property in its current condition, reasonable wear and tear excepted, in accordance with all applicable Laws. 6.1.4 Exclusive Negotiations. Seller shall (i) remove the Property from the market, (ii) cease and refrain from any and all negotiations with any other prospective optionees or purchasers of the Property, and (iii) refrain from any and all negotiations with potential tenants for the Property (other than negotiations related to the PCB Agreement). 6.1.5 Development Activities. Seller shall not take any actions with respect to the development of the Property, including, without limitation, applying for, pursuing, accepting or obtaining any permits, approvals or other development entitlements from any governmental or other regulatory entities or finalizing or entering into any agreements relating thereto without Buyer's prior written consent (which consent may be withheld in Buyer's sole and absolute discretion). Seller hereby agrees to reasonably cooperate with Buyer in Buyer's efforts to obtain such governmental approvals as Buyer deems necessary to permit Buyer to operate the Property as Buyer wishes. 6.1.6 Service, Management and Employment Contracts. Seller shall not enter into, extend, renew or replace any existing service, property management or employment contracts in respect of the Property without Buyer's prior written consent (which consent may be withheld in Buyer's sole and absolute discretion), unless the same shall be cancelable without penalty or premium, upon not more than 30 days' notice from the owner of the Property and Seller shall immediately notify Buyer of any such new, extended, renewed or replaced contract. 6.1.7 Tenant Leases. Other than the PCB Agreement, Seller shall not enter into any new lease, without Buyer's prior written consent (which consent may be withheld in Buyer's sole and absolute discretion). Seller shall deliver a copy of the proposed PCB Agreement to Buyer for approval, which shall not be unreasonably withheld so long as such PCB Agreement shall terminate prior to August 31, 2000 and the third party owner of the PCB division shall vacate and surrender the Property prior to the Closing. Other than under the PCB Agreement, Seller shall not accept any rent from any tenant under any new tenant under any new lease to which Buyer has consented for more than 1 month in advance of the payment date without Buyer's prior written consent (which consent may be withheld in Buyer's sole and absolute discretion). 6.1.8 Insurance. Seller will maintain its current insurance in place from the date hereof through the Closing Date or earlier termination of this Agreement. Seller [500 Arsenal Street] 16 (C) Alexandria Real Estate Equities, Inc. 1999 hereby covenants to name Buyer, at no cost or expense to Seller, as an additional insured under such insurance during the period prior to the Closing. 6.1.9 Litigation. Seller shall not allow to be commenced on its behalf any action, suit or proceeding with respect to all or any portion of the Property without Buyer's prior written consent (which consent may be withheld in Buyer's sole and absolute discretion). In the event Seller receives any notice of any proceeding of the character described in Sections 4.6, 4.8 or 4.13 which has not been previously disclosed to Buyer prior to the Closing, Seller shall promptly advise Buyer in writing. 6.2 Covenants of Buyer. In addition to the covenants and agreements of Buyer set forth elsewhere in this Agreement, Buyer covenants and agrees that between the date hereof and the Closing Date (or the earlier termination of this Agreement): 6.2.1 Development Activities. Buyer shall not take any action with respect to the renovation or development of the Property (including, without limitation, applying for, pursuing, accepting or obtaining any permits, approvals or other governmental entitlements from any governmental or regulatory entity) that would be binding on Seller or the Property in the event that Buyer terminates this Agreement. 7 CONDITIONS PRECEDENT TO CLOSING. 7.1 Buyer's Conditions. The obligation of Buyer to render performance under this Agreement is subject to the following conditions precedent (and conditions concurrent, with respect to deliveries to be made by the parties at Closing) ("Buyer's Conditions"), which conditions may be waived, or the time for satisfaction thereof extended, by Buyer only in a writing executed by Buyer; provided, however, that any such waiver shall not affect Buyer's ability to pursue any remedy, for the period set forth in Section 4.17 herein, Buyer may have with respect to any breach under Section 6.1 herein by Seller of which Buyer first obtains actual knowledge after the Closing and for which Buyer has not specifically waived in a writing executed by Buyer: 7.1.1 Title. Title Company shall be prepared and irrevocably committed to issue (a) to Buyer an American Land Title Association extended coverage owner's policy of title insurance (Form B)-1970 (expressly deleting any creditor's rights exclusion) in favor of Buyer in an amount equal to the Purchase Price showing indefeasible fee simple title to the Property vested in Buyer, with those endorsements and reinsurance reasonably requested by Buyer prior to the Due Diligence Termination Date, subject only to the Permitted Exceptions (collectively, the "Owners Title Policy"). 7.1.2 Seller's Due Performance. All of the representations and warranties of Seller set forth in Sections 4 and 14 and shall be true and correct as of the Closing Date, and Seller, on or prior to the Closing Date, shall have complied with and/or [500 Arsenal Street] 17 (C) Alexandria Real Estate Equities, Inc. 1999 performed all of the obligations, covenants and agreements required on the part of Seller to be complied with or performed pursuant to the terms of this Agreement, including, without limitation, the deliveries required to be made by Seller pursuant to Sections 9.1 and 9.3 hereof. 7.1.3 Condition of Property. Subject to the provisions of Section 12 below, the condition of the Property shall be substantially the same on the Closing Date as on the Execution Date, except for reasonable wear and tear and any damages due to any act of Buyer or Buyer's representatives. 7.1.4 Bankruptcy. No action or proceeding shall have been commenced by or against Seller under the federal bankruptcy code or any state law for the relief of debtors or for the enforcement of the rights of creditors and no attachment, execution, lien or levy shall have attached to or been issued with respect to the Property or any portion thereof. 7.1.5 Possession of the Property. On or before September 19, 2000, Seller and any entity occupying or having possession of the Property or any portion thereof shall have completely vacated and surrendered the Property. The Property shall be delivered to Buyer at the Closing free and clear of any claims to occupancy, use or possession other than under the Permitted Exceptions. 7.1.6 No Moratoria. No moratorium, statute, regulation, ordinance, or federal, state, county or local legislation, or order, judgment, ruling or decree of any governmental agency or of any court shall have been enacted, adopted, issued, entered or pending which would materially, adversely affect Buyer's intended use of the Property. For purposes of this Section 7.1.6, Buyer hereby acknowledges that Buyer's intended use of the Property includes business offices, light industry, manufacturing, including without limitation, administrative, executive, professional and similar offices, laboratories engaged in research, experimental and testing activities. 7.2 Failure of Buyer's Conditions. Subject and without limitation to Buyer's rights hereunder, including, without limitation, Section 13.2 and Section 8.1 hereof, if any of Buyer's Conditions have not been fulfilled within the applicable time periods, Buyer may: 7.2.1 Waive and Close. Waive the Buyer's Condition and close Escrow in accordance with this Agreement, without adjustment or abatement of the Purchase Price (or with adjustment of the Purchase Price as mutually agreed upon by Buyer and Seller); or 7.2.2 Terminate. Terminate this Agreement by delivering written notice to Seller and to Escrow Agent, in which event Escrow Agent shall return the Deposit to Buyer, Seller shall pay the Cancellation Charges, and Buyer shall be entitled to pursue any other rights and remedies which it may have against Seller in connection herewith. [500 Arsenal Street] 18 (C) Alexandria Real Estate Equities, Inc. 1999 7.3 Seller's Conditions. The obligation of Seller to render performance under this Agreement is subject to the following conditions precedent (and conditions concurrent with respect to deliveries to be made by Buyer at Closing) ("Seller's Conditions"), which conditions may be waived, or the time for satisfaction thereof extended, by Seller only in a writing executed by Seller: 7.3.1 Buyer's Due Performance. All of the representations and warranties of Buyer set forth in Sections 5 and 14 hereof shall be true and correct as of the Closing Date, and Buyer, on or prior to the Closing Date, shall have complied with and/or performed all of the obligations, covenants and agreements required on the part of Buyer to be complied with or performed pursuant to the terms of this Agreement, including, without limitation, the deliveries required to be made by Buyer pursuant to Section 9.2 hereof. 7.3.2 Bankruptcy. No action or proceeding shall have been commenced by or against Buyer under the federal bankruptcy code or any state law for the relief of debtors or for the enforcement of the rights of creditors. 7.4 Failure of Seller's Conditions. In the event that the Escrow and the transaction contemplated by this Agreement fail to close solely as a result of the default of Buyer in the performance of its obligations hereunder, Seller shall be entitled to the sole and exclusive remedy set forth in Section 13.1 herein. In the event that the Escrow and the transaction contemplated by this Agreement fail to close for any reason other than as a result of the default of Buyer in the performance of its obligations hereunder, Seller may terminate this Agreement by delivery of written notice to Buyer and Escrow Agent, in which event Escrow Agent shall return the Deposit to Buyer, Buyer shall pay the Cancellation Charges, and neither party shall thereafter have any rights or obligations to the other hereunder. 8 CLOSING. 8.1 Closing Date. Subject to the provisions of this Agreement, the Closing shall take place on the 10th day after Buyer's Condition set forth in Section 7.1.5 has been satisfied, or on such other date as the parties hereto may agree, but in no event (i) earlier than June 1, 2000 nor (ii) later than September 29, 2000. As used herein, the "Closing" shall mean the recordation of the Deed in the Official Records of the Middlesex County Southern District Registry of Deeds, Commonwealth of Massachusetts (the "Official Records"), and the "Closing Date" shall mean the date upon which the Closing actually occurs. If Buyer's Condition set forth in Section 7.1.5 has not been satisfied prior to September 19, 2000, Buyer shall have the right to terminate this Agreement, and upon such termination Seller shall pay all Cancellation Charges and Seller shall reimburse Buyer all costs and expenses incurred by Buyer incurred in connection with the transaction contemplated by this Agreement (including costs and expenses incurred by Buyer in planning for the renovation, ownership, operation and leasing of the Property) up to a maximum amount of $150,000 (including attorneys' fees incurred in connection [500 Arsenal Street] 19 (C) Alexandria Real Estate Equities, Inc. 1999 with the transaction contemplated by this Agreement up to a maximum amount of $15,000 (excluding, however, attorneys' fees incurred by Buyer in connection with the negotiation of this Agreement) and excluding the cost of obtaining any Third Party Report not delivered to Seller hereunder; provided, however, that (A) the $150,000 cap on such reimbursement shall not apply to Seller's independent obligation to reimburse Buyer for a portion of Buyer's Phase II due diligence costs, (B) Buyer shall deliver to Seller a commercially reasonable detailed invoice for such costs and expenses and (C) Buyer shall deliver to Seller such Third Party Reports as Seller shall request in writing (provided that (x) such requested Third Party Report shall be delivered subject to Buyer's and such preparer's standard acknowledgments and disclaimers and (y) the preparer of such requested Third Party Report shall consent to the delivery of such Third Party Report to Seller, without any cost or expense to Buyer). 8.2 Closing Costs. Each party shall pay its own costs and expenses arising in connection with the Closing (including, without limitation, its own attorneys' and advisors' fees), except the following costs (the "Closing Costs"), which shall be allocated between the parties as follows: 8.2.1 Seller shall pay all documentary transfer, stamp, sales and other taxes related to the transfer of the Property, 1/2 of Escrow Agent's escrow fees and costs, the cost of the UCC Search, and 1/2 of all recording fees related to the transfer of ownership of the Property. 8.2.2 Buyer shall pay 1/2 of Escrow Agent's escrow fees and costs, all recording fees related to the financing of Buyer's acquisition of the Property, all premiums, costs and fees related to the delivery of the Owner's Title Policy, the cost of the Survey, and 1/2 of all recording fees related to the transfer of ownership of the Property. 9 CLOSING DELIVERIES. 9.1 Deliveries by Seller to Escrow. Not less than 2 Business Days prior to the Closing Date, Seller, at its sole cost and expense, shall deliver or cause to be delivered into Escrow the following documents and instruments, each effective as of the Closing Date and executed by Seller, in addition to the other items and payments required by this Agreement to be delivered by Seller: 9.1.1 Deed. The original executed and acknowledged Deed conveying the Property to Buyer or its nominee; 9.1.2 Non-foreign Affidavit. 2 originals of the Non-Foreign Affidavit in the form of Exhibit L attached hereto, each executed by Seller; [500 Arsenal Street] 20 (C) Alexandria Real Estate Equities, Inc. 1999 9.1.3 Bill of Sale and Assignment. 2 original counterparts of the Bill of Sale and Assignment in the form of Exhibit N attached hereto, each executed by Seller, pursuant to which Seller shall transfer to Buyer all the Personal Property and the Intangible Property, including, without limitation, the Property Documents, in each case free of all liens and encumbrances; 9.1.4 Seller's Certificate. 2 originals of a certificate, in the form of Exhibit K-1 attached hereto (the "Seller's Certificate"), each executed by Seller; 9.1.5 Proof of Authority. Such proof of Seller's authority and authorization to enter into this Agreement and the transaction contemplated hereby, and such proof of the power and authority of the individual(s) executing or delivering any instruments, documents or certificates on behalf of Seller to act for and bind Seller as may be reasonably required by Title Company; and 9.1.6 Other. Such other documents and instruments, signed and properly acknowledged by Seller, if appropriate, as may be reasonably required by Escrow Agent or otherwise in order to effectuate the provisions of this Agreement and the Closing of the transactions contemplated herein, including, without limitation, reasonable or customary title affidavits and indemnities. 9.2 Deliveries by Buyer. On or before the Closing, Buyer, at its sole cost and expense, shall deliver or cause to be delivered into Escrow the following: 9.2.1 Balance, Prorations & Closing Costs. The balance of the Purchase Price pursuant to Section 2 hereof and Buyer's share of prorations and Closing Costs (as hereinafter defined), as provided in Sections 10 and 8.2, respectively; 9.2.2 Buyer's Certificate. 2 originals of a certificate, in the form of Exhibit K-2 attached hereto (the "Buyer's Certificate"), each executed by Buyer; 9.2.3 Proof of Authority. Such proof of Buyer's authority and authorization to enter into this Agreement and the transaction contemplated hereby, and such proof of the power and authority of the individual(s) executing or delivering any instruments, documents or certificates on behalf of Buyer to act for and bind Buyer as may be reasonably required by Title Company; and 9.2.4 Other. Such other documents and instruments, signed and properly acknowledged by Buyer, if appropriate, as may reasonably be required by Escrow Agent or otherwise in order to effectuate the provisions of this Agreement and the closing of the transactions contemplated herein. 9.3 Deliveries Outside of Escrow. Seller shall deliver possession of the Property to Buyer upon the Closing, free and clear of any claims of any person or entity to occupancy, use or possession other than under the Permitted Exceptions, (without any options or rights of first refusal or other preferential rights to purchase the Property). Further, Seller [500 Arsenal Street] 21 (C) Alexandria Real Estate Equities, Inc. 1999 hereby covenants and agrees, at its sole cost and expense, to deliver or cause to be delivered to Buyer, on or prior to the Closing, the following items: 9.3.1 Service Contracts. An original, fully executed counterpart of each of the Service Contracts being assumed by Buyer, and any amendments, modifications, supplements and restatements thereto (or if originals are not available, copies certified by all parties thereto as true, correct and complete); 9.3.2 Intangible Property. The original of each document evidencing the Intangible Property or rights to ownership and use thereof, including without limitation the Approvals, in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation (or if originals are not available, copies certified by all parties thereto as true, correct and complete); 9.3.3 Property Documents. To the extent not previously delivered, originals of all of the Property Documents, other than such items available in the public records, (or if originals are not available, copies certified by Seller, to Seller's Knowledge as true, correct and complete); 9.3.4 Personal Property. The Personal Property, including, without limitation, all keys, pass cards, remote controls, security codes, computer software and other devices relating to access to the Improvements; and 9.3.5 Other. Keys, combinations or card keys to all locks and security systems, and such other documents and instruments, as may be reasonably required by Buyer or otherwise in order to effectuate the provisions of this Agreement and the Closing of the transactions contemplated herein. 10 PRORATIONS. 10.1 Prorations. 10.1.1 Expenses. Taxes, assessments, improvement bonds, service or other contract fees, utility costs (including, without limitation, water and sewer use charges), and other expenses affecting the Property shall be prorated between Buyer and Seller as of the Closing Date to the extent due and payable for any period prior to the Closing. All non-delinquent real estate taxes or assessments on the Property shall be prorated based on the actual current tax bill, but if such tax bill has not yet been received by Seller by the Closing Date or if supplemental taxes are assessed after the Closing for the period prior to the Closing, the parties shall make any necessary adjustment after the Closing by cash payment to the party entitled thereto so that Seller shall have borne all taxes, including all supplemental taxes, allocable to the period prior to the Closing and Buyer shall [500 Arsenal Street] 22 (C) Alexandria Real Estate Equities, Inc. 1999 bear all taxes, including all supplemental taxes, allocable to the period after the Closing. 10.1.2 Adjustments. If any expenses attributable to the Property and allocable to the period prior to the Closing are discovered or billed after the Closing, the parties shall make any necessary adjustment after the Closing by cash payment to the party entitled thereto so that Seller shall have borne all expenses allocable to the period prior to the Closing and Buyer shall bear all expenses allocable to the period from and after the Closing. 10.1.3 Tax Appeals. With respect to any property tax appeals or reassessments filed by Seller for tax years prior to the year in which the Closing occurs, Seller shall be entitled to the full amount of any refund or rebate resulting therefrom, and with respect to any property tax appeals or reassessments filed by Seller for the tax year in which the Closing occurs, Seller and Buyer shall share the amount of any rebate or refund resulting therefrom (after first paying to Seller all costs and expenses incurred by Seller in pursuing such appeal or reassessment) in proportion to their respective periods of ownership of the Property for such tax year; 10.1.4 Generally. For purposes of calculating prorations, Buyer shall be deemed to be in title to the Property, and therefore entitled to the income and responsible for the expenses, after 12:01 a.m. (Boston, Massachusetts time) on the Closing Date. All such prorations shall be made on the basis of the actual number of days of the month which shall have elapsed as of the day of the Closing and based upon the actual number of days in the month and a three hundred sixty-five (365) day year. The provisions of this Section 10 shall survive the Closing for a period of 1 year. 10.2 Preliminary Closing Statement. 10 days prior to the Closing, Escrow Agent shall deliver to each of the parties for their review and approval a preliminary closing statement (the "Preliminary Closing Statement") based on an income expense statement prepared by Seller, approved by Buyer, and delivered to Escrow Agent prior to said date, setting forth (i) the proration amounts allocable to each of the parties pursuant to this Section 10 and (ii) the Closing Costs allocable to each of the parties pursuant to Section 8.2 hereof. Based on each of the party's comments, if any, regarding the Preliminary Closing Statement, Escrow Agent shall revise the Preliminary Closing Statement and deliver a final, signed version of a closing statement to each of the parties at the Closing (the "Closing Statement"). 11 ESCROW. 11.1 Opening of Escrow. Promptly following the Execution Date, Buyer and Seller shall each cause a purchase and sale escrow ("Escrow") to be opened with Escrow Agent by delivery to Escrow Agent of 2 duplicate partially executed originals of this Agreement executed by Seller and Buyer. Upon receipt of such partially executed originals of this [500 Arsenal Street] 23 (C) Alexandria Real Estate Equities, Inc. 1999 Agreement, Escrow Agent shall form 2 duplicate original counterparts of this Agreement and telephonically confirm to Buyer and Seller the date upon which Escrow is opened (the "Opening of Escrow"). On or immediately after the Opening of Escrow, Escrow Agent shall (a) confirm the same by executing and dating the 3 duplicate original counterparts of this Agreement in the space provided for Escrow Agent, and (b) deliver a fully executed original of this Agreement to each of Seller and Buyer. 11.2 Escrow Instructions. This Agreement shall constitute escrow instructions to Escrow Agent as well as the agreement of the parties. Escrow Agent is hereby appointed and designated to act as Escrow Agent and instructed to deliver, pursuant to the terms of this Agreement, the documents and funds to be deposited into Escrow as herein-provided. The parties hereto shall execute such additional escrow instructions, not inconsistent with this Agreement as determined by counsel for Buyer and Seller, as Escrow Agent shall deem reasonably necessary for its protection, if any (as may be modified by and mutually acceptable to Buyer, Seller and Escrow Agent). In the event of any inconsistency between this Agreement and such additional escrow instructions, the provisions of this Agreement shall govern. 11.3 Actions by Escrow Agent. Provided that Escrow Agent shall not have received written notice from Buyer or Seller of the failure of any condition to the Closing or of the termination of the Escrow and this Agreement, when Buyer and Seller have deposited into Escrow the documents and funds required by this Agreement (including the balance of the Purchase Price pursuant to Section 2 hereof and each parties share of prorations and Closing Costs) and Title Company is unconditionally and irrevocably committed to issue the Owner's Title Policy concurrently with the Closing, Escrow Agent shall, in the order and manner herein below indicated take the following actions: 11.3.1 Recording. Following Title Company's acknowledgment that it is prepared and irrevocably committed to issue the Owner's Title Policy to Buyer, cause the Deed and any other documents which the parties hereto may mutually direct to be recorded in the Official Records and obtain conformed copies thereof for distribution to Buyer and Seller. 11.3.2 Funds. Upon receipt of confirmation of the recordation of the Deed and such other documents as were recorded pursuant to Section 11.3.1 above, disburse all funds deposited with it by Buyer as follows: (a) Pursuant to the Closing Statement (as defined in Section 10.2 herein), retain for Escrow Agent's own account all escrow fees and costs, disburse to Title Company the fees and expenses incurred in connection with the issuance of the Owner's Title Policy, and disburse to any other persons or entities entitled thereto the amount of any other Closing Costs; (b) Disburse to Seller an amount equal to the Purchase Price, less or plus the net debit or credit to Seller by reason of the prorations and allocation of Closing Costs provided for in Sections 10 and 8.2. Seller's portion (as provided [500 Arsenal Street] 24 (C) Alexandria Real Estate Equities, Inc. 1999 in Section 8.2) of the escrow fees, title fees and other Closing Costs shall be paid pursuant to clause (a) above; and (c) Disburse to Buyer any remaining funds in the possession of Escrow Agent after payments pursuant to clauses (a) and (b) above have been completed. 11.3.3 Owner's Title Policy. Cause Title Company to issue the Owner's Title Policy to Buyer. 11.3.4 Delivery of Documents. Deliver to Buyer and Seller one original of each of all documents deposited into Escrow, other than the Deed and any other recorded documents. 11.4 Conflicting Demands. Upon receipt of a written demand for the Deposit (a "Deposit Demand") by Seller or Buyer (the "demanding party"), Escrow Agent shall promptly send a copy of such Deposit Demand to the other party (the "non-demanding party"). Except in connection with the delivery of a Due Diligence Termination Notice (in which event the Deposit shall be immediately returned to Buyer), Escrow Agent shall hold the Deposit for 5 Business days from the date of delivery by Escrow Agent of the Deposit Demand to the non-demanding party ("Objection Period") or until Escrow Agent receives a confirming instruction from the non-demanding party. In the event the non-demanding party delivers to Escrow Agent written objection to the release of the Deposit to the demanding party (an "Objection Notice") within the Objection Period (which Objection Notice shall set forth the basis under this Agreement for objecting to the release of the Deposit), Escrow Agent shall promptly send a copy of the Objection Notice to the demanding party. In the event of any dispute between the parties regarding the release of the Deposit, Escrow Agent, in its good faith business judgment, may disregard all inconsistent instructions received from either party and may either (a) hold the Deposit until the dispute is mutually resolved and Escrow Agent is advised of such mutual resolution in writing by both Seller and Buyer, or Escrow Agent is otherwise instructed by a final non-appealable judgment of a court of competent jurisdiction, or (b) deposit the Deposit with a court of competent jurisdiction by an action of interpleader (whereupon Escrow Agent shall be released and relieved of any further liability or obligations hereunder from and after the date of such deposit). In the event Escrow Agent shall in good faith be uncertain as to its duties or obligations hereunder or shall receive conflicting instructions, claims or demands from the parties hereto (expressly excluding however a conflicting demand given by Seller after Buyer has delivered a Due Diligence Termination Notice and demand for the Deposit), Escrow Agent shall promptly notify both parties in writing and thereafter Escrow Agent shall be entitled (but not obligated) to refrain from taking any action other than to keep safely the Deposit until Escrow Agent shall receive a joint instruction from both parties clarifying Escrow Agent's uncertainty or resolving such conflicting instructions, claims or demands, or until a final non-appealable judgment of a court of competent jurisdiction instructs Escrow Agent to act. [500 Arsenal Street] 25 (C) Alexandria Real Estate Equities, Inc. 1999 11.5 Real Estate Reporting Person. Escrow Agent is designated the "real estate reporting person" for purposes of section 6045 of title 26 of the United States Code and Treasury Regulation 1.6045-4 and any instructions or settlement statement prepared by Escrow Agent shall so provide. Upon the consummation of the transaction contemplated by this Agreement, Escrow Agent shall file Form 1099 information return and send the statement to Seller as required under the aforementioned statute and regulation. 11.6 Destruction of Documents; Survival. Escrow Agent is hereby authorized to destroy or otherwise dispose of any and all documents, papers, instructions and other material concerning the Escrow at the expiration of 6 years from the later of (a) the Closing, (b) the final disbursement of any funds maintained in Escrow after the Closing, or (c) the final release of the Deposit following the termination of this Agreement. The provisions of this Section 11 shall survive the Closing or earlier termination of this Agreement until Escrow Agent's duties and obligations hereunder are fully and finally discharged. 12 RISK OF LOSS. 12.1 Condemnation. If, prior to the Closing Date, all or any portion of the Property is taken by condemnation or eminent domain (or is the subject of a pending or contemplated taking which has not been consummated), Seller shall immediately notify Buyer of such fact. In such event, Buyer shall have the option to terminate this Agreement by delivering written notice to Seller not later than 15 days after delivery of such notice from Seller. Upon such termination, Escrow Agent shall immediately return the Deposit to Buyer, the parties shall equally share the Cancellation Charges, and neither party shall have any further rights or obligations hereunder, other than pursuant to any provision hereof which expressly survives the termination of this Agreement. If Buyer does not elect to terminate this Agreement, Seller shall not compromise, settle or adjust any award without Buyer's prior written consent (which consent may be withheld in Buyer's sole and absolute discretion). At the Closing, Seller shall assign and turn over to Buyer, and Buyer shall be entitled to receive and keep all awards for such taking or pending or contemplated taking. 12.2 Casualty. If, prior to Closing any part of the Property is damaged or destroyed, Seller shall immediately notify Buyer of such fact. If such damage or destruction is a Material Casualty (as hereinafter defined), Buyer shall have the option to terminate this Agreement by delivering written notice to Seller not later than 30 days after delivery of any such notice from Seller. As used herein "Material Casualty" shall mean any damage or destruction which results in either (i) the cost of repairing such damage or destruction being equal to or greater than $500,000, as reasonably determined by Buyer, or (ii) the amount of time required to repair such damage or destruction being equal to or greater than 30 days, as reasonably determined by Buyer. If Buyer does not elect to terminate this Agreement or if a non-Material Casualty shall occur, Seller shall assign and turn over, and Buyer shall be entitled to receive and keep, all insurance proceeds payable with respect to such damage or destruction (which shall then be repaired or not at Buyer's sole option and cost), plus Seller shall pay over to Buyer an amount equal to the deductible amount with respect to the insurance or uninsured amount and [500 Arsenal Street] 26 (C) Alexandria Real Estate Equities, Inc. 1999 the parties shall proceed to Closing pursuant to the terms hereof without modification of the terms of this Agreement and without any reduction in the Purchase Price. If Buyer does not elect to terminate this Agreement or if a non-Material Casualty shall occur, Buyer shall have the right to participate in any adjustment of the insurance claim and Seller shall not compromise, settle or adjust any such claim without Buyer's prior written consent (which consent may be withheld in Buyer's sole and absolute discretion). 13 DEFAULT. 13.1 Default by Buyer. IN THE EVENT THAT THE ESCROW AND THIS TRANSACTION FAIL TO CLOSE SOLELY AS A RESULT OF THE DEFAULT OF BUYER IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT, BUYER AND SELLER AGREE THAT SELLER'S ACTUAL DAMAGES WOULD BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO FIX AND THAT THE AMOUNT OF THE DEPOSIT REPRESENTS THE PARTIES' REASONABLE ESTIMATE OF SUCH DAMAGES. THE PARTIES THEREFORE AGREE THAT IN THE EVENT THAT ESCROW AND THIS TRANSACTION FAIL TO CLOSE SOLELY AS A RESULT OF THE DEFAULT OF BUYER IN THE PERFORMANCE OF ITS OBLIGATIONS HEREUNDER AND SELLER IS READY, WILLING AND ABLE TO PERFORM ITS OBLIGATIONS HEREUNDER, SELLER, AS SELLER'S SOLE AND EXCLUSIVE REMEDY, IS ENTITLED TO LIQUIDATED DAMAGES IN THE AMOUNT OF THE DEPOSIT (INCLUDING INTEREST AND DIVIDENDS EARNED THEREON) THEN HELD BY ESCROW AGENT. IN THE EVENT ESCROW FAILS TO CLOSE SOLELY AS A RESULT OF BUYER'S DEFAULT AND SELLER IS READY, WILLING AND ABLE TO PERFORM ITS OBLIGATIONS HEREUNDER, THEN (1) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF BUYER AND SELLER HEREUNDER AND THE ESCROW CREATED HEREBY SHALL TERMINATE, (2) ESCROW AGENT SHALL, AND IS HEREBY AUTHORIZED AND INSTRUCTED TO, RETURN PROMPTLY TO BUYER AND SELLER ALL DOCUMENTS AND INSTRUMENTS TO THE PARTIES WHO DEPOSITED THE SAME, AND (3) ESCROW AGENT SHALL DELIVER THE DEPOSIT (INCLUDING INTEREST AND DIVIDENDS EARNED THEREON) THEN HELD BY ESCROW AGENT TO SELLER PURSUANT TO SELLER'S INSTRUCTIONS, AND THE SAME SHALL BE THE FULL, AGREED AND LIQUIDATED DAMAGES. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS SECTION 13.1, AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS. 13.2 Default by Seller. In the event of any breach or default by Seller, then Buyer shall be entitled to pursue any remedy available to Buyer hereunder, at law or in equity, including, without limitation, the specific performance of this Agreement. 14 BROKERS. Seller and Buyer each hereby represent, warrant to and covenant to each other that it has not dealt with any third party (other than CB Richard Ellis/Whittier Partners) ("Brokers") in a manner which would obligate the other to pay any brokerage commission, finder's fee or other [500 Arsenal Street] 27 (C) Alexandria Real Estate Equities, Inc. 1999 compensation due or payable with respect to the transaction contemplated hereby other than a commission to be paid to Brokers pursuant to a separate agreement, which shall be paid by Seller only upon the Closing of the purchase and sale contemplated hereby. Seller hereby indemnifies and agrees to protect, defend and hold Buyer harmless from and against any and all claims, losses, damages, costs and expenses (including attorneys' fees, charges and disbursements) incurred by Buyer by reason of any breach or inaccuracy of the representation, warranty and agreement of Seller contained in this Section 14. Buyer hereby indemnifies and agrees to protect, defend and hold Seller harmless from and against any and all claims, losses, damages, costs and expenses (including attorneys' fees, charges and disbursements) incurred by Seller by reason of any breach or inaccuracy of the representation, warranty and agreement of Buyer contained in this Section 14. The provisions of this Section 14 shall survive the Closing or earlier termination of this Agreement. 15 CONFIDENTIALITY. 15.1 Buyer. Buyer agrees that until the Closing, except as otherwise provided herein or required by law and except for the exercise by Buyer of any remedy hereunder, Buyer shall (a) keep confidential the pendency of this transaction and the documents and information supplied by Seller to Buyer, (b) disclose such information only to Buyer's agents, employees, contractors, consultants or attorneys, as well as lenders (if any), investment bankers, venture capital groups, investors, title company personnel and tenants, with a need to know in connection with Buyer's review and consideration of the Property, provided that Buyer shall inform all persons receiving such information from Buyer of the confidentiality requirement and (to the extent within Buyer's control) cause such confidence to be maintained, and (c) upon the termination of this Agreement prior to the Closing, return to Seller promptly upon request all copies of documents and materials supplied by Seller. Disclosure of information by Buyer shall not be prohibited if that disclosure is of information that is or becomes a matter of public record or public knowledge as a result of the Closing of this transaction or from sources other than Buyer or its agents, employees, contractors, consultants or attorneys. 15.2 Seller. Seller agrees that both prior to and after the Closing, except as otherwise provided herein or required by law, and except for the exercise by Seller of any remedy hereunder, Seller shall (a) keep confidential the pendency of this transaction with Buyer, the terms and conditions contained in the Agreement and the identity of Buyer and the relationship between Buyer and the entity to which Buyer may assign this Agreement or which Buyer designates as the party to whom Seller shall convey the Property at the Closing, and (b) disclose such information only to Seller's agents, employees, contractors, consultants or attorneys, as well as tenants and title company personnel, with a need to know such information in connection with effecting this transaction, provided that Seller shall inform all such persons receiving such confidential information from Seller of the confidentiality requirement and (to the extent within Seller's control) cause such confidence to be maintained. Disclosure of the pendency of this transaction by Seller shall not be prohibited if that disclosure is of information that is or becomes a matter of public record or public knowledge as a result of the Closing of this transaction [500 Arsenal Street] 28 (C) Alexandria Real Estate Equities, Inc. 1999 or from sources other than Seller or its agents, employees, contractors, consultants or attorneys. 16 MISCELLANEOUS PROVISIONS. 16.1 Governing Law and Jurisdiction. This Agreement and the legal relations between the parties hereto shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts, without regard to its principles of conflicts of law. In the event that legal proceedings are initiated in connection with this Agreement, Seller and Buyer consent to exclusive personal jurisdiction by any court of the Commonwealth of Massachusetts or any court of the United States of America within the Commonwealth of Massachusetts. 16.2 Entire Agreement. This Agreement, including the exhibits and schedules attached hereto, constitutes the entire agreement between Buyer and Seller pertaining to the subject matter hereof and supersedes all prior agreements, understandings, letters of intent, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements, express or implied, made to either party by the other party or by the other party's Broker in connection with the subject matter hereof except as specifically set forth herein or in the documents delivered pursuant hereto or in connection herewith. Without limiting the foregoing, upon the execution of this Agreement, that certain Letter of Intent dated as of October 18, 1999, as amended, between Buyer and Seller, shall terminate and be of no further force or effect. 16.3 Modifications: Waiver. No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 16.4 Notices. All notices, consents, requests, reports, demands or other communications hereunder (collectively, "Notices") shall be in writing and may be given personally, by reputable overnight delivery service or by facsimile transmission (with in the case of a facsimile transmission, confirmation by reputable overnight delivery service) to each of the parties at the following addresses: To Buyer: c/o Alexandria Real Estate Equities, Inc. 135 N. Los Robles Ave. Suite 250 Pasadena, California 91101 Attention: General Counsel Re: 500 Arsenal Street Telephone: (626) 578-0777 Facsimile: (626) 578-0770 [500 Arsenal Street] 29 (C) Alexandria Real Estate Equities, Inc. 1999 With A Copy To: Mayer, Brown & Platt 350 South Grand Avenue 25th Floor Los Angeles, California 90071 Attention: Todd Evan Stark, Esq. Telephone: (213) 229-9500 Facsimile: (213) 625-0248 To Seller: c/o GSI Lumonics, Inc. 1650 N. Voyager Avenue Simi Valley, California 93063 Attention: Thomas R. Swain Telephone: (805) 522-8439 Facsimile: (805) 578-5296 With A Copy To: Hanify & King 1 Federal Street Boston, Massachusetts 02110 Attention: Barbara W. Pfirrman, Esq. Telephone: (617) 423-0400 Facsimile: (617) 423-0498 To Escrow Agent: Chicago Title Insurance Company 700 South Flower Street Suite 900 Los Angeles, California 90017 Attention: Maggie Watson Telephone: (213) 488-4337 Facsimile: (213) 488-4388 or to such other address or such other person as the addressee party shall have last designated by written notice to the other party. Notices given by facsimile transmission shall be deemed to be delivered as of the date and time when transmission and receipt of such facsimile is confirmed; and all other Notices shall have been deemed to have been delivered on the date of delivery or refusal. 16.5 Expenses. Subject to the allocation of Closing Costs provided in Section 8.2 hereof, whether or not the transactions contemplated by this Agreement shall be consummated, all fees and expenses incurred by any party hereto in connection with this Agreement shall be borne by such party. [500 Arsenal Street] 30 (C) Alexandria Real Estate Equities, Inc. 1999 16.6 Assignment. 16.6.1 Seller's Right to Assign. Seller shall not have the right, power, or authority to assign, pledge or mortgage this Agreement or any portion of this Agreement, or to delegate any duties or obligations arising under this Agreement, voluntarily, involuntarily, or by operation of law. 16.6.2 Buyer's Right to Assign. Upon delivery of written notice to Seller and Escrow Agent, Buyer shall have the right, power, and authority to assign this Agreement or to delegate any duties or obligations arising under this Agreement, voluntarily, involuntarily or by operation of law, to any affiliate of Buyer. Upon such assignment and the consummation of the transaction contemplated by this Agreement, Buyer shall be relieved of all obligations under this Agreement and the Escrow. Buyer shall have the right, power, and authority to assign this Agreement or to delegate any duties or obligations arising under this Agreement, voluntarily, involuntarily or by operation of law, to any person or entity other than an affiliate of Buyer, with Seller's prior written consent (which consent shall not be unreasonably withheld or delayed). Upon such assignment, Buyer shall be relieved of all obligations under this Agreement and the Escrow. 16.7 Severability. Any provision or part of this Agreement which is invalid or unenforceable in any situation in any jurisdiction shall, as to such situation and such jurisdiction, be ineffective only to the extent of such invalidity and shall not affect the enforceability of the remaining provisions hereof or the validity or enforceability of any such provision in any other situation or in any other jurisdiction. 16.8 Successors and Assigns; Third Parties. Subject to and without waiver of the provisions of Section 16.6 hereof, all of the rights, duties, benefits, liabilities and obligations of the parties shall inure to the benefit of, and be binding upon, their respective successors and assigns. Except as specifically set forth or referred to herein, nothing herein expressed or implied is intended or shall be construed to confer upon or give to any person or entity, other than the parties hereto and their successors or assigns, any rights or remedies under or by reason of this Agreement. 16.9 Counterparts. This Agreement may be executed in as many counterparts as may be deemed necessary and convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same instrument. 16.10 Headings. The section headings of this Agreement are for convenience of reference only and shall not be deemed to modify, explain, restrict, alter or affect the meaning or interpretation of any provision hereof. 16.11 Time of the Essence. Time shall be of the essence with respect to all matters contemplated by this Agreement. [500 Arsenal Street] 31 (C) Alexandria Real Estate Equities, Inc. 1999 16.12 Further Assistance. In addition to the actions recited herein and contemplated to be performed, executed, and/or delivered by Seller and Buyer, Seller and Buyer agree to perform, execute and/or deliver or cause to be performed, executed and/or delivered at the Closing or after the Closing any and all such further acts, instruments, deeds and assurances as may be reasonably required to consummate the transactions contemplated hereby. 16.13 Number and Gender. Whenever the singular number is used, and when required by the context, the same includes the plural, and the masculine gender includes the feminine and neuter genders. 16.14 Construction. This Agreement shall not be construed more strictly against one party hereto than against any other party hereto merely by virtue of the fact that it may have been prepared by counsel for one of the parties. 16.15 Post-Closing Access to Records. Upon receipt by Seller of Buyer's reasonable written request at anytime and from time to time within a period of 1 year after the Closing, Seller shall make available (or cause its Manager or asset manager, as applicable, to make available) to Buyer and its accountants and designees, for inspection and copying during normal business hours and at Buyer's sole cost and expense, (i) all accounting records relating to the Property for the calendar year period ended December 31, 1999 and for the period from January 1, 2000 through the Closing Date, including, without limitation, all general ledgers, cash receipts, canceled checks and other accounting documents or information reasonably requested by Buyer and related to the Property, and (ii) all other records related to the Property, in either case whether in the possession or control of Seller or Seller's Manager, asset manager or other agent. 16.16 Exhibits. All exhibits attached hereto are hereby incorporated by reference as though set out in full herein. 16.17 Attorneys' Fees. If any action is brought by either party against the other party, relating to or arising out of this Agreement, the transaction described herein or the enforcement hereof, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees, costs and expenses incurred in connection with the prosecution or defense of such action. For purposes of this Agreement, the term "attorneys' fees" or "attorneys' fees and costs" shall mean the fees and expenses of counsel to the parties hereto, which may include printing, photostating, duplicating and other expenses, air freight charges, and fees billed for law clerks, paralegals and other persons not admitted to the bar but performing services under the supervision of an attorney, and the costs and fees incurred in connection with the enforcement or collection of any judgment obtained in any such proceeding. The provisions of this Section shall survive the entry of any judgment, and shall not merge, or be deemed to have merged, into any judgment. [500 Arsenal Street] 32 (C) Alexandria Real Estate Equities, Inc. 1999 16.18 Business Days. As used herein, the term "Business Day" shall mean a day that is not a Saturday, Sunday or legal holiday. In the event that the date for the performance of any covenant or obligation under this Agreement shall fall on a Saturday, Sunday or legal holiday under the laws of the Commonwealth of Massachusetts or State of California, the date for performance thereof shall be extended to the next Business Day. [Remainder of page intentionally blank.] [500 Arsenal Street] 33 (C) Alexandria Real Estate Equities, Inc. 1999 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BUYER: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation Execution Date: February 29, 2000 By: /s/ Lynn Anne Shapiro ------------------------------- Name: LYNN ANNE SHAPIRO ------------------------- Its: GENERAL COUNSEL ------------------------- SELLER: GENERAL SCANNING INC., a Massachusetts corporation Execution Date: February 21, 2000 By: /s/ Desmond J. Bradley ------------------------------- Name: DESMOND J. BRADLEY ------------------------- Its: VICE PRESIDENT ------------------------- ESCROW AGENT: The undersigned Escrow Agent accepts the foregoing Agreement of Purchase and Sale and Joint Escrow Instructions and agrees to act as Escrow Agent under this Agreement in strict accordance with its terms. CHICAGO TITLE INSURANCE COMPANY Date: February__, 2000 SEE ATTACHED ESCROW LETTER [500 Arsenal Street] S-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT A The land in Watertown, Middlesex County, Massachusetts, being Parcel A and Parcel C on a plan entitled Plan of Land in Watertown, Mass., dated April 1, 1977, Bradford, Saivetz & Assoc. Inc., Engineers-Architects, recorded with Middlesex South District Deeds, Book 13181, Page 435. Parcel C contains .32 acres and Parcel A contains 4.95 acres, according to said Plan. Together with the right to pass and repass over Parcel B on the aforesaid Plan and together with and subject to rights in the forty (40) foot private way shown on the aforesaid Plan as Birch Street, all as set forth in deed of Parcel B, dated April 14, 1977, recorded Middlesex South District Deeds, Book 13181, Page 435. 270836 A-1 EXHIBIT B INTENTIONALLY LEFT BLANK [500 Arsenal Street] B-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT C-1 PERSONAL PROPERTY INVENTORY All tangible personal property, fixtures (including blinds and window treatments, doors and door hardware, security and alarm systems, drinking fountains, picnic tables, sinks and countertops, and all heating, ventilation and air conditioning equipment (including the wall mounted air conditioner in the facilities office, the 2nd floor air conditioning units, and the wall mounted air conditioner in the telephone room) but expressly excluding the chiller located on the pad outside the rear of the building, the wall mounted air conditioner located in the computer room and hoods and venting systems designed to fit specific production or manufacturing equipment (provided, however, (a) all portions of such venting systems inside ceilings and walls shall be left in place from exterior connection closest to such ceilings and walls, and (b) the hood in the 2nd floor wet lab is not so excluded), equipment and supplies owned by Seller and located on or about the Land or the Improvements or attached thereto or used in connection with the use, operation, maintenance or repair thereof (expressly excluding, however, the Excluded Property listed in Exhibit C-2). [500 Arsenal Street] C-1-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT C-2 EXCLUDED PROPERTY The Excluded Property shall mean all of the following described personal property, furniture, equipment and supplies: 1. All compressed air dryers including the compressed air dryers located in the machine shop; 2. All wire caging and stock racking in the warehouse portion of the Improvements (except the mezzanine in the warehouse and the wire cage tool crib and storage areas in the warehouse, which are being sold to Buyer as fixtures to the Improvements and are to remain at the Property); 3. the vacuum system and motor located in the machine shop; 4. All compressors (including 3 10-horsepower compressors with dryers and storage tanks located in the 1st floor electrical room) but expressly excluding a. the 10-horsepower compressor located in the warehouse portion of the Improvements; b. the small compressor for 2nd floor air conditioning units located in the 1st floor electrical room; and c. the 5-horsepower compressor located in the 1st floor electrical room, all of which are being sold to Buyer as fixtures to the Improvements and are to remain at the Property. 5. the chiller located on the pad outside the rear of the building; 6. all trash compactors (which are not owned by Seller but are rented and will be removed from the Property without damage to the Property on or before the Closing); 7. all reverse osmosis hot/cold water dispensers (which are not owned by Seller but are rented and will be removed from the Property without damage to the Property on or before the Closing); 8. all vending and coffee machines (which are not owned by Seller but are rented and will be removed from the Property without damage to the Property on or before the Closing); 9. all mailboxes (including the mailboxes located in the front lobby) but expressly excluding any exterior mail boxes or mail slots in doors (which are being sold to Buyer as fixtures to the Improvements and are to remain at the Property); [500 Arsenal Street] C-2-1 (C) Alexandria Real Estate Equities, Inc. 1999 10. the wall mounted air conditioner located in the computer room; 11. all hoods and venting systems designed to fit specific production or manufacturing equipment (provided, however, (a) all portions of such venting systems inside ceilings and walls shall be left in place from exterior connection closest to such ceilings and walls, (b) the hood in the 2nd floor wet lab, (c) all copper air drops and pvc vacuum lines, and (d) the built-in vent hoods in the potting area are not part of the Excluded Property and are not being removed by Seller); 12. All air regulators; 13. All silk plants in the lobby; 14. the display case in the lobby; 15. the PBX system; 16. all production and operation equipment specifically associated with the printed circuit board manufacturing operation (including the smog hog, transformers, vacuum systems and hoods); 17. all chairs, desks, non-built in cabinets, credenzas, tables, couches, non-built in book cases and shelving, partitions, equipments stands, moveable lamps, and other furniture and office equipment); 18. all manufacturing equipment and accessories used in Seller's business and not specifically listed as part of the Personal Property; 19. All supplies located at the Property other than miscellaneous supplies of the existing building finish materials available to repair or replace existing finishes of the Improvements (including ceiling tiles, floor tiles, paint, carpet and other similar finish materials); and 20. All artwork at the Improvements other than the artwork in the lobby. [500 Arsenal Street] C-2-2 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT D ALLOCATION SCHEDULE Item Allocation - ---- ---------- Real Property 100% Personal Property 0% Intangible Property 0% [500 Arsenal Street] D-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT E PROPERTY DOCUMENTS - -------------------------------------------------------------------------------- No. Item Delivered - -------------------------------------------------------------------------------- 1. Lease Information None - -------------------------------------------------------------------------------- a. An updated current rent roll for the Property. N/A - -------------------------------------------------------------------------------- b. Copies of all Tenant Leases for the Property including any occupancy agreement for the Printed Circuit Board Division - -------------------------------------------------------------------------------- c. A list of all tenant security deposits and None prepayments (if any) related to the Tenant Leases held by or on behalf of Seller - -------------------------------------------------------------------------------- d. CAM Reconciliation Records for prior year and None current year to date - -------------------------------------------------------------------------------- e. List of Tenant Fixtures None - -------------------------------------------------------------------------------- 2. Other Property Information - -------------------------------------------------------------------------------- a. All documentation evidencing the ownership the Personal Property described in Exhibit C-1 attached hereto (specifically excluding the Excluded Property described in Exhibit C-2) - -------------------------------------------------------------------------------- b. All documents evidencing the Intangible Property in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- c. Copies of all outstanding labor, service, equipment, supply, management, maintenance, concession, utility, construction and operating contracts, and any amendments thereto to which Seller is a party (collectively, the "Service Contracts") - -------------------------------------------------------------------------------- d. Property Sales Contracts (prior purchase and sales agreements with surviving representations, warranties, indemnities or preferential rights to purchase or lease, first right of negotiation or refusal regarding the same or other option rights) - -------------------------------------------------------------------------------- e. Copies of any Ground Leases and amendments thereto None - -------------------------------------------------------------------------------- f. Copies of existing Loan Documents, if assumption None contemplated - -------------------------------------------------------------------------------- g. Copies of all Approvals in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- h. Property Association Documents: including Conditions, Covenants and Restrictions, Association Articles of Incorporation and Bylaws, Financial Statements, Budgets and Information on Reserves, Reciprocal Easement Agreements - -------------------------------------------------------------------------------- [500 Arsenal Street] E-1 (C) Alexandria Real Estate Equities, Inc. 1999 - -------------------------------------------------------------------------------- No. Item Delivered - -------------------------------------------------------------------------------- i Capital Improvement and Preventative Maintenance Program for the improvements - -------------------------------------------------------------------------------- 3. Drawings and Specifications, Maps, Plans and Photographs - -------------------------------------------------------------------------------- a. All as-built plans and specifications, site plans, aerial photographs, floor plans, CAD drawing and other similar maps, plans and drawings. - -------------------------------------------------------------------------------- b. American Land Title Association (ALTA) Survey sufficient to obtain extended coverage Owner's Policy of Title Insurance - -------------------------------------------------------------------------------- 4. Financial Information - -------------------------------------------------------------------------------- a. Year end and monthly operating statements for the Property, if any, and Income and expense statements for the Property for 1998 and 1999, and for the period from January 1, 2000 through the Execution Date, if they exist. - -------------------------------------------------------------------------------- b. Monthly general ledgers for 1999 and for the period N/A from January 1, 2000 through the Execution Date. - -------------------------------------------------------------------------------- c. A budget for the Property for calendar year 2000, if it exists. - -------------------------------------------------------------------------------- d. A copy of the tax bill issued for the prior 3 years for real estate taxes - -------------------------------------------------------------------------------- e. Expense Records: including invoice receipts and disbursements for the Property for 1998 and 1999 and for the period from January 1, 2000 through the Execution Date (including any property expenses to be paid prior to the Closing) - -------------------------------------------------------------------------------- f. Accounts Receivable and Payable Records: including None current and breakdown of over 30, 60 and 90 days - -------------------------------------------------------------------------------- g. Bank Statements and check registers for all Property None operating accounts: for 1999 and for the period from January 1, 2000 through the Execution Date. - -------------------------------------------------------------------------------- h. Most recent audited financial statements, if audited None within last two years - -------------------------------------------------------------------------------- i. Appraisals - -------------------------------------------------------------------------------- 5. Insurance Information - -------------------------------------------------------------------------------- a. Statement of insurance coverage and premiums by policy type, and evidence of insurance - -------------------------------------------------------------------------------- b. Copies of all pending insurance claims and insurance-related litigation documents - -------------------------------------------------------------------------------- [500 Arsenal Street] E2 (C) Alexandria Real Estate Equities, Inc. 1999 - -------------------------------------------------------------------------------- No. Item Delivered - -------------------------------------------------------------------------------- 6. Governmental Documents - -------------------------------------------------------------------------------- a. Development Agreements in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- b. Building Permits in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- c. Certificates of Occupancy/Completion in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- d. Variances in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- e. Special or Conditional Use Permits for Building in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- f. Special Agreements with Utilities and Districts in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- g. Environmental Impact Reports (EIR) in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- h. Negative declarations in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- i Other zoning, entitlements and developments rights agreements and information in Seller's possession or, with respect to such items not available in the public records, in the possession or control of Seller's agents, auditors, independent contractors or representatives and that Seller can, with diligent efforts, obtain possession of after due inquiry and/or investigation. - -------------------------------------------------------------------------------- [500 Arsenal Street] E3 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT F INTENTIONALLY LEFT BLANK [500 Arsenal Street] F-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT G PROPERTY QUESTIONNAIRE Attached. [500 Arsenal Street] G-1 (C) Alexandria Real Estate Equities, Inc. 1999 ALEXANDRIA REAL ESTATE EQUITIES, INC. PROPERTY QUESTIONNAIRE Name of Property: 500 Arsenal Street, Watertown, Massachusetts (the "Property") - -------------------------------------------------------------------------------- THIS QUESTIONNAIRE SHOULD BE COMPLETED BY THE PROPERTY MANAGER OR THE MOST SENIOR MANAGEMENT PERSON OF THE COMPANY THAT IS FAMILIAR WITH THE DETAILS OF THE PROPERTY AND ITS OPERATION. - -------------------------------------------------------------------------------- 1. Which of the following best describes the Property? (Check more than one box if applicable.) |_| Scientific research and development laboratory facility |_| Assembly, distribution, pilot plant, or full-scale manufacturing facility |_| Headquarters or administrative offices |_| Build-to-suit or retrofit project |_| Warehouse facility |_| Raw land |_| Other (please describe): 2. How many different tenants currently lease space at the Property? |_| 0-5 |_| 6-10 |_| 11-15 |_| More than 15 3. a. Does any lease in connection with the Property provide for any rental payments based upon the net income or profits of the tenant(1) or that are contingent in any respect, other than rental payments that vary (i) as a - ---------- (1) Responses to any questions about leases or tenants should take into account, where applicable, any subleases and sub-tenants. G-2 percentage or percentages of the tenant's gross receipts or sales, or (ii) because of "escalation clauses"? If yes, please explain. |_| YES |_| NO Explain: b. Do the terms of any lease contain "escalation clauses" other than standard escalation provisions requiring adjustments in the amount of rent due based upon changes in the consumer price index or in the costs of the Owner for insurance, property taxes or maintenance expenses? If yes, please list all such items that would potentially require any adjustment under any escalation clause. |_| YES |_| NO List: c. In connection with the lease of the Property, is any tenant entitled to receive any economic incentives (e.g., "free" or reduced rent, tenant improvement allowances, etc.)? If yes, please explain. |_| YES |_| NO Explain: d. Are the terms of all lease payments and formulas typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market, and do these provisions conform with normal G-3 business practice? If no, please explain which provisions are not typical or customary, or do not conform with normal business practice. |_| YES |_| NO Explain: e. Which of the following best describes the percentage of the leases that are "triple net"? |_| ALL |_| MOST |_| SOME |_| NONE 4. a. Is the percentage of the total rent attributable to personal property more than 15 percent of the total rent from any lease? |_| YES |_| NO b. Are any temperature-controlled or other specialized rooms located at the Property (e.g., "cold rooms", "warm rooms", or "clean rooms")? If yes, please list the approximate number of such items located in each unit and/or floor. |_| YES |_| NO List: c. Do any of the units at the Property contain any individual air conditioning, heating, refrigeration, or freezer units that are owned or leased by the G-4 Owner, other than centralized HVAC or any specialized rooms described in question 4(b)? If yes, please describe. |_| YES |_| NO Explain: d. Do any of the units at the Property contain any movable lab benches or tables, furniture (e.g., desks, chairs or lamps), laboratory equipment (e.g., microscopes, centrifuges or glassware), boilers, air compressors, deionizing apparatus, reverse osmosis apparatus, vacuum pumps, glassware washers, oven dryers, animal washers, animal caging, incinerators, or other significant items of specialized equipment that is owned or leased by the Owner? If yes, please attach a list of such items (if available). |_| YES |_| NO 5. a. Does any entity other than the Owner manage the Property or any portion of the Property (the "Manager")? If yes, please identify the Manager: |_| YES |_| NO Name of Manager: ____________________________ b. If the answer to question 5(a) is yes, are there any arrangements pursuant to which the Manager refunds, rebates or otherwise provides any credit with respect to its fee relating to the Property? If yes, please explain. |_| YES |_| NO |_| N/A Explain: G-5 c. Does the Owner employ any on-site personnel at the Property? If yes, please name such person(s) and describe their general duties. |_| YES |_| NO Explain: 6. a. Are all services provided to tenants of the Property by the Owner or the Manager (if applicable) typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market? If no, please describe which services or arrangements are not typical and customary. |_| YES |_| NO Explain: b. Are you aware of any other services provided to tenants by any person hired by the Owner or the Manager that are not typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market? If yes, please explain. |_| YES |_| NO Explain: 7. a. Are there any arrangements for the Owner or the Manager to provide architectural, construction or engineering services to any tenant at the Property (e.g., "building-out" the Property as part of lease inducements)? |_| YES |_| NO IF THE ANSWER TO QUESTION 7(a) IS NO, PLEASE SKIP TO QUESTION 8; OTHERWISE, PLEASE ANSWER QUESTIONS 7(b) THROUGH 7(d). G-6 b. Are such arrangements only provided as an inducement to the tenant to enter into or extend a lease? |_| YES |_| NO c. Are such arrangements typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market? If no, please explain which arrangements are not typical and customary. |_| YES |_| NO Explain: d. Does the Owner or the Manager expect to derive any income (e.g., development fees) from such arrangements? If yes, please describe. |_| YES |_| NO Explain: e. Do any such arrangements provide for the purchase, funding, or installation by the Owner of any significant items of property which could be deemed to constitute "personal property"? If yes, please describe any such items of property. |_| YES |_| NO Explain: G-7 8. a. Please check any utility services that the Owner or the Manager directly or indirectly plays any role in providing to tenants at the Property: |_| Electric |_| Gas |_| Water |_| Telephone |_| Heat/Air cond. |_| Sewage |_| Facsimile |_| Cable TV |_| Other: (Please list) _________________________________________ __________________________________________________________________ b. Are all such utility services typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market? If no, please list any utility services that are not typical and customary. |_| YES |_| NO |_| N/A List: c. Are tenants charged, either as a separate recoverable amount or as part of common area maintenance costs, for all such utility services? If no, please explain which services are provided at no charge and whether this is a typical and customary practice for properties of a quality and character similar to the Property that are located in the same geographic market. |_| YES |_| NO Explain: d. Are individual units separately metered to measure utility usage, with tenants charged by the Owner or the Manager, as appropriate, in proportion to usage? If no, please briefly explain how charges for utilities are determined and allocated among the various tenants (e.g., pro-rata based on square footage, etc.). |_| YES |_| NO |_| N/A Explain: G-8 e. If any tenant is charged by the Owner or the Manager for any utility service, is the tenant billed without any fee, income, profit or other markup over the cost? If no, please explain. |_| YES |_| NO |_| N/A Explain: f. Does the Owner or the Manager derive any income from any utility provider at the Property? If yes, please explain. |_| YES |_| NO |_| N/A Explain: 9. a. Are pay telephones and vending (e.g., soda, cigarette, candy, etc.) machines provided at the Property by the Owner, by the Manager, or by third-party suppliers? (Check more than one response if appropriate.) |_| OWNER |_| MANAGER |_| THIRD PARTY |_| N/A b. If pay telephones or vending machines are provided or operated by a third-party supplier, does that person pay the Owner or the Manager any rent, fee, or any other amount? |_| YES |_| NO |_| N/A c. If the answer to question 9(b) is yes, is such amount fixed or based upon a percentage of gross receipts? If it is not fixed or based upon a percentage of gross receipts, please explain. |_| YES |_| NO |_| N/A Explain: G-9 10. a. Please check any of the following that describes the parking provided at or with respect to the Property. (Check more than one box if applicable.) |_| Open lot / no gated entry |_| Open lot / gated entry |_| Single level parking garage |_| Multi-tier parking garage |_| Specific spaces (or group of spaces) reserved or preferential parking for tenant(s) or their employees |_| Cashier/parking lot attendant on duty |_| Valet parking available |_| Security guard on duty b. Is all parking at or with respect to the Property available to tenants (or to their or employees or guests) without separate charge and only on an unreserved basis (i.e., no tenant is assigned particular space(s)), other than valet parking services (as described in response to question 11(c) below) or reserved parking for handicapped persons? If no, please explain the parking arrangements between the Owner and the tenants. |_| YES |_| NO Explain: c. Are there any attendants or are any additional related services provided (e.g., valet parking, security, car wash)? If yes, please describe the functions of such person(s) and the nature of such services (including any services indicated in response to question 10(a)). In addition, please indicate whether any such services are typical and customary for properties of a similar character and quality as the Property that are located in the same geographic market. |_| YES |_| NO Explain: G-10 d. For those persons who pay to park at the Property (including in connection with any valet parking services), please indicate the period of time, if any, for which their parking privileges are generally valid (e.g., hourly, daily, monthly, etc.). Duration: _____________________________ e. Is there a person or entity (an "Operator") that either operates the parking facilities or provides related services (e.g., valet services)? If yes, please identify the Operator and attach any separate agreement evidencing those arrangements. |_| YES |_| NO Operator(s): ________________________________ IF THE ANSWER TO QUESTION 10(e) IS NO, PLEASE SKIP TO QUESTION 11; OTHERWISE, PLEASE ANSWER QUESTIONS 10(f) THROUGH 10(h). f. Please briefly explain the manner in which each Operator is compensated for its role in providing parking (e.g., fixed fee, percentage of gross parking revenues, etc.). Explain: g. Does either of the Owner or the Manager bear any portion of any Operator's costs or expenses? If yes, please explain the arrangement. |_| YES |_| NO Explain: G-11 h. Does either of the Owner or the Manager derive any income from the Operator or from any parking charges? If yes, please explain. |_| YES |_| NO Explain: 11. Does the Owner or the Manager directly or indirectly play any role in providing security services to individual tenants? Answer no if the only involvement of these entities in providing security services is with respect to the Property as a whole or its common areas, and not for individual units or tenants. |_| YES |_| NO 12. a. Does the Owner or the Manager directly or indirectly play any role in providing janitorial services to individual tenants? Answer no if the only involvement of these entities in providing janitorial services is with respect to the Property as a whole or its common areas, and not for individual units or tenants. |_| YES |_| NO IF THE ANSWER TO QUESTION 12(a) IS NO, PLEASE SKIP TO QUESTION 13; OTHERWISE, PLEASE ANSWER QUESTIONS 12(b) THROUGH 12(d). b. Is the provision of such service typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market? If no, please explain. |_| YES |_| NO Explain: G-12 c. Does the Owner or the Manager bear any portion of the cost or expense of providing janitorial services to tenants? If yes, please explain. |_| YES |_| NO Explain: d. Does the Owner or the Manager derive any income in connection with the janitorial services provided to tenants? If yes, please explain. |_| YES |_| NO Explain: e. Are tenants directly or indirectly charged for any janitorial services provided at the Property? If yes, please briefly explain the manner in which these charges are determined (e.g., pro-rata based on relative square footage). |_| YES |_| NO Explain: 13. a. Is the actual maintenance of the Property's common areas performed by employees of the Owner, the Manager, or an unrelated third-party? (Check more than one response if appropriate.) |_| OWNER |_| MANAGER |_| THIRD-PARTY G-13 b. Does the Owner or the Manager bear any portion of the cost of common area maintenance? If yes, please explain. |_| YES |_| NO Explain: c. Are tenants charged for common area maintenance? If yes, please explain the manner in which these charges are determined (e.g., pro-rata based on relative square footage). |_| YES |_| NO d. Are the services and arrangements with respect to the Property's common area maintenance typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market? If no, please explain. |_| YES |_| NO Explain: 14. Are any tenants charged by the Owner or the Manager any fee or other amount that is not typically and customarily charged in connection with the rental of properties of a character and quality similar to the Property in the same geographic market?(2) If yes, please explain. |_| YES |_| NO Explain: 15. a. Does the Owner or the Manager render any services to any tenant (or to employees of any tenant) other than as disclosed above in this questionnaire - ---------- (2) Typical and customary fees might include, in some markets, late payment fees, subleasing fees, application fees, credit check fees, release fees, etc. G-14 (e.g., glassware cleaning, electron microscopy, animal care or storage, information services (e.g., Internet or LAN connections), telecommunication services (e.g., voice mail), day care, babysitters, food services, etc.)? |_| YES |_| NO Explain: b. Are all of the services described in the response to question 15(a) above typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market? If no, please describe which services or amenities are not typical and customary. |_| YES |_| NO |_| N/A Explain: c. Does the Owner or the Manager directly or indirectly derive any income, bear any costs or expenses, or employ any persons in connection with any atypical or non-customary services indicated in the response to question 15(b) above? If yes, please explain. |_| YES |_| NO |_| N/A Explain: 16. Is any space at the Property leased to any non-commercial tenants (i.e., residential tenants)? |_| YES |_| NO 17. a. Are any services rendered to any tenant by third-party suppliers hired by the Owner or the Manager, other than as previously disclosed in this questionnaire? |_| YES |_| NO G-15 b. If the answer to question 17(a) above is yes, are all of those services typical and customary for properties of a character and quality similar to the Property that are located in the same geographic market? If not, please describe which services are not typical and customary. |_| YES |_| NO |_| N/A Explain: 18. Does any of the Owner, an Affiliate or the Manager share in any income or compensation received by any third-party service provider with respect to the rendering of services to any tenant, other than as previously disclosed in this questionnaire? If yes, please explain the arrangements. |_| YES |_| NO |_| N/A Explain: 19. Does the Company or the Manager engage in any revenue-generating activities in connection with the Property not mentioned previously in this questionnaire (other than the rental of real property or the investment of excess cash)? |_| YES |_| NO Explain: 20. a. Does the Owner separately lease any storage space at the Property? |_| YES |_| NO G-16 b. If the answer to question 19(a) is yes, is such storage space a temperature-controlled or other specialized room described in question 4(b) (e.g., freezer warehouse)? |_| YES |_| NO Explain: ______________________________ Name: ________________________ Title: _______________________ Dated: __________ __, 2000 ______________________________ Signature G-17 EXHIBIT H SURVEYOR'S CERTIFICATE To: Alexandria Real Estate Equities, Inc., a Maryland corporation, [ARE-_______, a _______________], and their successors and assigns, and Chicago Title Insurance Company. This is to certify that this map or plat and the survey on which it is based were made on the date shown below of the premises described in Chicago Title Company's title commitment dated as of __________ ___, 1999, issued under Order No. ____________, (i) in accordance with the "Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys," jointly established and adopted by ALTA, ACSM and NSPS in 1997, as defined therein, and includes Items 1, 2, 3, 4, 6, 7(a), 7(b), 7(c), 8, 9, 10, 11, 13, 14, 15 and 16 of Table A thereof and (ii) pursuant to the Accuracy Standards (as adopted by ALTA and ACSM and in effect on the date of this certification) of an Urban Survey, as defined therein. This survey was also made in accordance with the State of __________ Minimum Standards of Practice for Land Surveyors. The subject property contains __________ square feet or ______ acres, is located in a zoning district classification of ______, and contains _____ regular parking spaces and _____ handicapped parking spaces, totaling _____ regular and handicapped parking spaces. The survey correctly shows the zone designation of any area shown as being within a Special Flood Hazard Area according to current Federal Emergency Management Agency Maps which make up a part of the National Flood Insurance Administration Report; Community No. _______, Panel No. _____ dated _______ __, 1999. The subject property has ingress and egress to and from ___________________ which is a paved, public right-of-way. The street address of the subject property is _________________________________. [Surveyor's Name] By _________________________________________ Date: _______________ __________ Registered Land Surveyor No. ____________ Date of Survey: _____________________ Date of Last Revision: _____________________ [500 Arsenal Street] H-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT I QUITCLAIM DEED GENERAL SCANNING INC., f/k/a GENERAL SCANNING, INC., a Massachusetts corporation having an address of 500 Arsenal Street, Watertown, Massachusetts ("Grantor"), for consideration of Ten Million Three Hundred Fifty Thousand Dollars ($10,350,000.00) paid, grants to ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation with an address of 135 N. Los Robles Avenue, Suite 250, Pasadena, California, 91101, Attn: General Counsel, ("Grantee") with QUITCLAIM COVENANTS, the land in the City of Watertown, County of Middlesex, Commonwealth of Massachusetts known as and numbered 500 Arsenal Street, and more particularly described in Exhibit A attached hereto, together with (a) all buildings and other improvements and fixtures affixed or attached to or situated upon the land, and (b) all Grantor's right, title and interest, if any, in and to any easements, rights of way, reservations, privileges, appurtenances and other estates and rights of Grantor pertaining to the land (collectively, the "Property"). The Property is conveyed subject to and with the benefit of all covenants, easements, agreements and other matters of record, insofar as the same are in force and applicable. Grantor represents that the Property does not constitute all or substantially all of the assets held by Grantor. Property Address: 500 Arsenal Street Watertown, Massachusetts For Grantor's title see: Deed of BayBank Newton-Waltham Trust Company, dated May 25, 1977 and recorded with Middlesex County (Southern District) Registry of Deeds in Book 13458, Page 461. GRANTOR: GENERAL SCANNING INC. (f/k/a GENERAL SCANNING, INC.) By:_____________________________________ Name:___________________________________ Title:__________________________________ I-1 COMMONWEALTH OF MASSACHUSETTS ___________, ss. _____________, 2000 Then personally appeared the above named __________________, _________________ of General Scanning Inc., and acknowledged the foregoing instrument to be his/her free act, as aforesaid, and the free act and deed of General Scanning Inc., before me, __________________________________ My Commission Expires: I-2 EXHIBIT A The land in Watertown, Middlesex County, Massachusetts, being Parcel A and Parcel C on a plan entitled Plan of Land in Watertown, Mass., dated April 1, 1977, Bradford, Saivetz & Assoc. Inc., Engineers-Architects, recorded with Middlesex South District Deeds, Book 13181, Page 435. Parcel C contains .32 acres and Parcel A contains 4.95 acres, according to said Plan. Together with the right to pass and repass over Parcel B on the aforesaid Plan and together with and subject to rights in the forty (40) foot private way shown On the aforesaid Plan as Birch Street, all as set forth in deed of Parcel B, dated April 14, 1977, recorded Middlesex South District Deeds, Book 13181, Page 435. I-3 EXHIBIT J SERVICE CONTRACTS [Attached] [500 Arsenal Street] J-1 (C) Alexandria Real Estate Equities, Inc. 1999 Service Contracts Prepared by Seller The following contracts are currently in force and have provisions that they may be terminated by Seller prior to closing. Seller will terminate all such contracts as of closing date unless advised in writing by Buyer by May 1, 2000 of desire to have contract transfered where assignable to Buyer: Elevator (Passenger) - Maintenance contract with Otis Elevator in process of renewal subject to cancellation by Buyer. Fire Alarm Monitoring - Contract with Honeywell Janitorial service - Contract with Bay State Cleaning (cancellable with 14 days notice) Security - Monitoring contract with SAS Pest control - Contract with Waltham Chemical EXHIBIT K-1 SELLER'S CERTIFICATE The undersigned hereby certifies to [ARE_____________________________, a __________________ ] ("Buyer") that, as of the date hereof: 1. all of the representations, covenants and warranties of GENERAL SCANNING INC., a Massachusetts corporation ("Seller") made in or pursuant to that certain Purchase and Sale Agreement and Joint Escrow Instructions dated as of February ___, 2000 (the "Agreement"), between Seller and Alexandria Real Estate Equities, Inc. ("ARE") are true, accurate, correct and complete; 2. all conditions to the Closing (as such term is defined in the Agreement) that Seller was to satisfy or perform have been satisfied and performed; and 3. all conditions to the Closing that ARE or Buyer was to perform have been satisfied and performed. Dated: _____ ____, 2000 GENERAL SCANNING INC., a Massachusetts corporation By: ________________________________ Name: __________________________ Title: _________________________ [500 Arsenal Street] K-1-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT K-2 BUYER'S CERTIFICATE The undersigned hereby certifies to GENERAL SCANNING INC. ("Seller") that, as of the date hereof: 1. all of the representations, covenants and warranties of [ARE-_________________, a _________________] ("Buyer") made in or pursuant to that certain Purchase and Sale Agreement and Joint Escrow Instructions dated as of February ___, 2000 (the "Agreement"), between Seller and Alexandria Real Estate Equities, Inc. are true, accurate, correct and complete; and 2. all conditions to the Closing (as such term is defined in the Agreement) that Buyer was to satisfy or perform have been satisfied and performed; and 3. all conditions to the Closing that Seller was to perform have been satisfied and performed. Dated: ________ __, 2000 [ARE-___________________________], a _______________________________ By: ________________________________ Name: __________________________ Title: _________________________ [500 Arsenal Street] K-2-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT L NON-FOREIGN AFFIDAVIT 1. Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), provides that a transferee of a United States real property interest must withhold tax if the transferor is a foreign person. 2. In order to inform Alexandria Real Estate Equities, Inc., a Maryland corporation, and its nominees, designees and assigns (collectively, "Transferee"), that withholding of tax is not required upon the disposition by GENERAL SCANNING INC., a Massachusetts corporation ("Transferor"), of the United States real property more particularly described on Exhibit A attached hereto and incorporated herein by reference (the "Property"), the undersigned Transferor certifies and declares by means of this certification, the following: a. Transferor is not a foreign person, foreign corporation, foreign partnership, foreign trust or foreign estate (as such terms are defined in the Code and the Income Tax Regulations). b. Transferor's federal taxpayer identification number is: ___________. c. Transferor's address is: __________________________________________ __________________________________________ __________________________________________ 3. Transferor understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained in this certification may be punished by fine, imprisonment or both. Under penalties of perjury, Transferor declares that it has carefully examined this certification and it is true, correct and complete. Executed this ______ day of __________, 2000 at ____________________. TRANSFEROR: GENERAL SCANNING INC., a Massachusetts corporation By: __________________________ Name: ____________________ Its: ____________________ [500 Arsenal Street] L-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT A The land in Watertown, Middlesex County, Massachusetts, being Parcel A and Parcel C on a plan entitled Plan of Land in Watertown, Mass., dated April 1, 1977, Bradford, Saivetz & Assoc. Inc., Engineers-Architects, recorded with Middlesex South District Deeds, Book 13181, Page 435. Parcel C contains .32 acres and Parcel A contains 4.95 acres, according to said Plan. Together with the right to pass and repass over Parcel B on the aforesaid Plan and together with and subject to rights in the forty (40) foot private way shown on the aforesaid Plan as Birch Street, all as set forth in deed of Parcel B, dated April 14, 1977) recorded Middlesex South District Deeds, Book l3l81, Page 435. L-2 EXHIBIT M INTENTIONALLY LEFT BLANK [500 Arsenal Street] M-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT N BILL OF SALE AND ASSIGNMENT THIS BILL OF SALE AND ASSIGNMENT ("Bill of Sale") is made as of_______ ______, 2000, by GENERAL SCANNING INC., a Massachusetts corporation ("Seller"), to ARE- __________________, a __________________ ("Buyer"). RECITALS A. Seller is the owner of that certain real property located in the County of Middlesex, Commonwealth of Massachusetts (the "Real Property"), as more particularly described on Exhibit A attached hereto and incorporated herein by reference. B. Buyer and Seller have entered into that certain Purchase and Sale Agreement and Joint Escrow Instructions dated as of February ___, 2000 (the "Purchase Agreement"), with respect to, among other things, the acquisition of the "Personal Property" and the "Intangible Property" (each as defined below), and certain other property (expressly excluding, however, the Excluded Property). C. The Purchase Agreement requires Seller to convey all of Seller's right, title and interest in, to and under the Personal Property and the Intangible Property to Buyer. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller hereby agrees as follows: 1. Unless the context otherwise requires, all capitalized terms used but not otherwise defined herein shall have the respective meanings provided therefor in the Purchase Agreement. 2. Seller does hereby unconditionally, absolutely, and irrevocably grant, bargain, sell, transfer, assign convey, set over and deliver unto Buyer all of Seller's right, title and interest in and to: a. all tangible personal property now or hereafter owned by Seller and located on or about the Land or Improvements or attached thereto or used in connection with the use, operation, maintenance or repair thereof (expressly excluding, however, the Excluded Property) (collectively, the "Personal Property"); and b. all intangible property now or hereafter owned by Seller and used in connection with the Land, the Improvements or the Personal Property, including, without limitation, property or building-specific trademarks and trade names, transferable licenses, architectural, site, landscaping or other permits, applications, approvals, authorizations and other entitlements, transferable guarantees and warranties covering the Land and/or Improvements, all contract rights (including rights under the Service Contracts listed in Exhibit B), books, records, reports, [500 Arsenal Street] N-1 (C) Alexandria Real Estate Equities, Inc. 1999 test results, environmental assessments, as-built plans, specifications and other similar documents and materials relating to the use or operation, maintenance or repair of the Property or the construction or fabrication thereof, and all transferable utility contracts; provided, however, that such intangible property shall not include (A) intellectual property rights related to Seller's business operations, or (B) intangible property related to the Excluded Property (collectively, the "Intangible Property" and, together with the Personal Property, the "Property"). 3. [Buyer hereby expressly assumes, for itself and its successors, assigns and legal representatives, the Service Contracts listed in Exhibit B and all of the obligations and liabilities, fixed and contingent, of Seller thereunder accruing from and after the date hereof with respect thereto and agrees to (a) be fully bound by all of the terms, covenants, agreements, provisions, conditions, obligations and liability of Seller thereunder, which accrue from the date hereof, and (b) keep, perform and observe all of the covenants and conditions contained therein on the part of Seller to be kept, performed and observed, from and after the date hereof.] 4. Seller represents and warrants that its title to the Property is free and clear of all liens, mortgages, pledges, security interests, prior assignments, encumbrances and claims of any nature other than the Permitted Exceptions. 5. [Seller hereby agrees to indemnify, protect, defend and hold Buyer harmless from and against any and all claims, losses, damages, costs and expenses (including, without limitation, reasonable attorney's fees and disbursements) incurred or suffered by Buyer in connection with the Service Contracts listed in Exhibit B and arising prior to the Closing. Buyer hereby agrees to indemnify, protect, defend and hold Seller harmless from and against any and all claims, losses, damages, costs and expenses (including, without limitation, reasonable attorney's fees and disbursements) incurred or suffered by Seller in connection with the Service Contracts listed in Exhibit B and arising on or after the Closing.] 6. This Bill of Sale shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. 7. This Bill of Sale and the legal relations of the parties hereto shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts, without regard to its principles of conflicts of law. [Signatures on next page] [500 Arsenal Street] N-2 (C) Alexandria Real Estate Equities, Inc. 1999 IN WITNESS WHEREOF, this Bill of Sale was made and executed as of the date first above written. SELLER: GENERAL SCANNING INC., a Massachusetts corporation By: ____________________________ Its: _______________________ [500 Arsenal Street] N-3 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT A The land in Watertown Middlesex County, Massachusetts, being Parcel A and Parcel C on a plan entitled Plan of Land in Watertown, Mass., dated April 1, 1977, Bradford, Saivetz & Assoc. Inc., Engineers-Architects recorded with Middlesex South District Deeds, Book 13181, Page 435. Parcel C contains .32 acres and Parcel A contains 4.95 acres, according to said Plan. Together with the right to pass and repass over Parcel B on the aforesaid Plan kind together with and subject to rights in the forty (40) foot private way shown on thc aforesaid Plan as Birch Street, all as set forth in deed of Parcel B, dated April 14, 1977, recorded Middlesex South District Deeds, Book 13181, Page 435. [500 Arsenal Street] N-4 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT B List of Service Contracts Assumed [Attached] [500 Arsenal Street] N-5 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT O APPROVALS 1. Certificates of Use and Occupancy (1978, 1982, 1988) from the Town of Watertown Building Department 2. Special Permits (1978, 1982) from the Town of Watertown Zoning Board of Appeals 3. Industrial Wastewater Discharge Permit from the Massachusetts Water Resources Authority 4. Elevator Inspection Permit from the Commonwealth of Massachusetts Department of Public Safety [500 Arsenal Street] O-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT P LITIGATION None. [500 Arsenal Street] P-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT Q PHASE II RESULTS [ATTACHED] [500 Arsenal Street] Q-1 (C) Alexandria Real Estate Equities, Inc. 1999 EXHIBIT R ENVIRONMENTAL REPORTS [Attached] [500 Arsenal Street] R-1 (C) Alexandria Real Estate Equities, Inc. 1999 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BUYER: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation Execution Date: February 29, 2000 By: /s/ Lynn Anne Shapiro -------------------------------------- Name: LYNN ANNE SHAPIRO -------------------------------- Its: GENERAL COUNSEL -------------------------------- SELLER: GENERAL SCANNING INC., a Massachusetts corporation Execution Date: February 21, 2000 By: /s/ Desmond J. Bradley -------------------------------------- Name: DESMOND J. BRADLEY -------------------------------- Its: VICE PRESIDENT -------------------------------- ESCROW AGENT: The undersigned Escrow Agent accepts the foregoing Agreement of Purchase and Sale and Joint Escrow Instructions and agrees to act as Escrow Agent under this Agreement in strict accordance with its terms. CHICAGO TITLE INSURANCE COMPANY Date: March 1, 2000 By: /s/ G. Aguilar -------------------------------------- Name: G. AGUILAR -------------------------------- Its: ESCROW OFFICER -------------------------------- [500 Arsenal Street] S-1 (C) Alexandria Real Estate Equities, Inc. 1999 FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "First Amendment") is entered into as of March 15, 2000, by and between GENERAL SCANNING INC., a Massachusetts corporation ("Seller"), and ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation ("Buyer"), with reference to the following Recitals: RECITALS: A. Seller and Buyer have entered into that certain Purchase and Sale Agreement and Joint Escrow Instructions Sale dated as of February 29, 2000 (the "Original Agreement"). All initial capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this First Amendment shall mean and refer to the Original Agreement, as amended by this First Amendment. B. Seller and Buyer desire to amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Deposit: The second sentence of Section 2.1 of the Original Agreement is hereby deleted in its entirety and the following is substituted in its place: In the event that Buyer does not terminate this Agreement on or before the Due Diligence Termination Date (as hereinafter defined), not later than the Due Diligence Termination Date, Buyer shall deposit into Escrow the sum of $300,000 (which amount, together with any and all interest and dividends earned thereon, shall hereinafter be referred to as the "Additional Deposit"). 2. Due Diligence Termination Date: The first sentence of Section 3.6 of the Original Agreement is hereby deleted in its entirety and the following is substituted in its place: Buyer shall have the right at any time on or before 5:00 p.m. (Los Angeles, California time) on March 17, 2000 (the "Due Diligence Termination Date") to terminate this Agreement if, during the course of Buyer's due diligence investigations of the Property, Buyer determines in its sole and absolute discretion that the Property is not acceptable to Buyer. 3. Effect of this First Amendment. Except as amended and/or modified by this First Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Original Agreement shall remain in full force and effect, unaltered and unchanged by this First Amendment. In the event of any conflict between the provisions of this First [500 Arsenal Street] -1- (C) Alexandria Real Estate Equities, Inc. 1999 Amendment and the provisions of the Original Agreement, the provisions of this First Amendment shall prevail. Whether or not specifically amended by this First Amendment, all of the terms and provisions of the Original Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this First Amendment. 4. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this First Amendment attached thereto. [Signatures on next page] [500 Arsenal Street] -2- (C) Alexandria Real Estate Equities, Inc. 1999 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this First Amendment as of the date first above written. SELLER: GENERAL SCANNING INC., a Massachusetts corporation By: /s/ Thomas R. Swan ----------------------------------------------- Name: Thomas R. Swan ----------------------------------------- Its: Director of Real Estate Operations ----------------------------------------- BUYER: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By: /s/ Lynn Anne Shapiro ----------------------------------------------- Lynn Anne Shapiro General Counsel [500 Arsenal Street] S-1 (C) Alexandria Real Estate Equities, Inc. 1999 [LETTERHEAD OF MAYER, BROWN & PLATT] FACSIMILE COVER SHEET Time: 5:21 pm PAGES - -------------------------------------- -------------------------------------- Date: March 17, 2000 TELEPHONE: (213) 621-9448 - -------------------------------------- -------------------------------------- FROM: Carlos Matos CLIENT MATTER NO.: 99592651 - -------------------------------------- TO THE FOLLOWING: TO: NAME/FIRM: Mr. Thomas Swain / General Scanning Inc. --------------------------------------------------------------- CONFIRM #: (805) 522-8439 FAX #: (805) 578-5296 ---------------------------- ------------------------------ NAME/FIRM: Mr. Thomas Andrews / Alexandria Real Estate Equities, Inc. --------------------------------------------------------------- CONFIRM #: (508) 755-4249 FAX #: (508) 754-9487 ---------------------------- ------------------------------ NAME/FIRM: Mr. James H. Richardson / Alexandria Real Estate Equities, Inc. --------------------------------------------------------------- CONFIRM #: (650) 286-1200 FAX #: (650) 286-1256 ---------------------------- ------------------------------ NAME/FIRM: Mr. Peter J. Nelson / Alexandria Real Estate Equities, Inc. --------------------------------------------------------------- CONFIRM #: (626) 578-0777 FAX #: (626) 578-0770 ---------------------------- ------------------------------ NAME/FIRM: Barbara Pfirrman / Hanify & King --------------------------------------------------------------- CONFIRM #: (617) 423-0400 FAX #: (617) 423-0498 ---------------------------- ------------------------------ CC: Mr. Joel S. Marcus (via pouch) --------------------------------------------------------------- Lynn Anne Shapiro, Esq. (2 copies via pouch) --------------------------------------------------------------- Ms. Jane Ledwig (via pouch) --------------------------------------------------------------- Todd Evan Stark, Esq. - -------------------------------------------------------------------------------- MESSAGE: Re: 500 Arsenal Street Watertown, MA THIS MESSAGE IS INTENDED ONLY FOR THE USE OF THE INDIVIDUAL OR ENTITY TO WHICH IT IS ADDRESSED AND MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL AND EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. IF THE READER OF THIS MESSAGE IS NOT THE INTENDED RECIPIENT, OR THE EMPLOYEE OR AGENT RESPONSIBLE FOR DELIVERING THE MESSAGE TO THE INTENDED RECIPIENT, YOU ARE HEREBY NOTIFIED THAT ANY DISSEMINATION, DISTRIBUTION OR COPYING OF THIS COMMUNICATION IS STRICTLY PROHIBITED. IF YOU HAVE RECEIVED THIS COMMUNICATION IN ERROR, PLEASE NOTIFY US IMMEDIATELY BY TELEPHONE AND RETURN THE ORIGINAL MESSAGE TO US AT THE ABOVE ADDRESS VIA THE U.S. POSTAL SERVICE. THANK YOU. Messages transmitted via: Pitney Bowes -- 213-625-0248 IF YOU HAVE ANY TRANSMISSION DIFFICULTY, PLEASE CONTACT THE FACSIMILE DEPARTMENT AT 213-229-9500 SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Second Amendment") is entered into as of March 17, 2000, by and between GENERAL SCANNING INC., a Massachusetts corporation ("Seller"), and ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation ("Buyer"), with reference to the following Recitals: RECITALS: A. Seller and Buyer have entered into that certain Purchase and Sale Agreement and Joint Escrow Instructions dated as of February 29, 2000, which has been amended by that certain First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 15, 2000, by and between Seller and Buyer (as so amended, the "Original Agreement"). All initial capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this Second Amendment shall mean and refer to the Original Agreement, as amended by this Second Amendment. B. Seller and Buyer desire to amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Purchase Price: Section 2.2 of the Original Agreement is hereby deleted in its entirety and the following is substituted in its place: 2.2 Balance. On the Closing Date (as defined below), Buyer shall pay to Seller the balance of the Purchase Price over and above (i) the Deposit paid by Buyer under Section 2.1 above and (ii) an unconditional credit of $125,000 against the Purchase Price in favor of Buyer, by wire transfer of federal funds to Escrow Agent, net of all prorations and adjustments as provided herein. 2. Exhibit C-2. Exhibit C-2 entitled "Excluded Property" is hereby deleted in its entirety and replaced with Exhibit C-2 attached hereto. 3. Access to the Property. Buyer hereby waives its objection to the exception shown on the Commitment and note shown on the Survey indicating that access to the Property along the northwest corner of the Property may result in encroachment onto the parcel identified as Parcel "D" on the Survey. 4. Effect of this Second Amendment. Except as amended and/or modified by this Second Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Original Agreement shall remain in full force and effect, unaltered end unchanged by this [500 Arsenal Street] -1- (C) Alexandria Real Estate Equities, Inc. 1999 Second Amendment. In the event of any conflict between the provisions of this Second Amendment and the provisions of the Original Agreement, the provisions of this Second Amendment shall prevail. Whether or not specifically amended by this Second Amendment, all of the terms and provisions of the Original Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this Second Amendment. 5. Counterparts. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Second Amendment attached thereto. [Signatures on next page] [500 Arsenal Street] -2- (C) Alexandria Real Estate Equities, Inc. 1999 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Second Amendment as of the date first above written. SELLER: GENERAL SCANNING INC., a Massachusetts corporation By: /s/ Thomas R. Swain ---------------------------------------- Name: Thomas R. Swain ---------------------------------- Its: Director of Real Estate Operations ---------------------------------- BUYER: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland Corporation By: ---------------------------------------- Name: ---------------------------------- Its: ---------------------------------- [500 Arsenal Street] S-1 (C) Alexandria Real Estate Equities, Inc. 1999 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Second Amendment as of the date first above written. SELLER: GENERAL SCANNING INC., a Massachusetts corporation By: ---------------------------------------- Name: ---------------------------------- Its: ---------------------------------- BUYER: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland Corporation By: /s/ Peter J. Nelson ---------------------------------------- Name: PETER J. NELSON ---------------------------------- Its: SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER ---------------------------------- [500 Arsenal Street] S-1 (C) Alexandria Real Estate Equities, Inc. 1999 THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Third Amendment") is entered into as of June ___, 2000, by and between GENERAL SCANNING INC., a Massachusetts corporation ("Seller"), and ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation ("Buyer"), with reference to the following Recitals: RECITALS: A. Seller and Buyer have entered into that certain Purchase and Sale Agreement and Joint Escrow Instructions Sale dated as of February 29,2000, which has been amended by that certain First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 15, 2000 and that certain Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 17, 2000, by and between Seller and Buyer (as so amended, the "Original Agreement"). All initial-capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this Third Amendment shall mean and refer to the Original Agreement, as amended by this Third Amendment. B. Seller and Buyer desire to amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Leasing of Property; Marketing Efforts. Notwithstanding anything contained in the Agreement to the contrary, Seller and Buyer hereby agree that Buyer, or its designated representative, shall have the right to enter the Property, during normal business hours, for purposes of: (a) preparing brochures, property profiles, fliers and other marketing materials (collectively, the "Marketing Materials") related to Buyer's efforts to lease the Property, and (b) touring the Property with prospective tenants. Buyer shall have the right to distribute the Marketing Materials to any prospective tenant. Buyer shall have the right to place "For Lease" signs on the Property, provided that the size, content and location of such signs shall be subject to Seller's reasonable approval. Seller shall cooperate with Buyer's efforts to lease the Property to prospective tenants and Seller shall not interfere with Buyer's leasing and marketing efforts. Buyer shall not unreasonably interfere with any occupant's operations at the Property. The indemnity and repair obligations set forth in Section 3.9 of the Agreement shall apply to Buyer's activities on the Property pursuant to this Section. The Marketing Materials shall contain a statement that they were prepared by Buyer. 500 Arsenal Street, Watertown, Massachusetts -1- (C) Alexandria Real Estate Equities, Inc. 2000 2. Effect of this Third Amendment. Except as amended and/or modified by this Third Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Original Agreement shall remain in full force and effect, unaltered and unchanged by this Third Amendment. In the event of any conflict between the provisions of this Third Amendment and the provisions of the Original Agreement, the provisions of this Third Amendment shall prevail. Whether or not specifically amended by this Third Amendment, all of the terms and provisions of the Original Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this Third Amendment. 3. Counterparts. This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Third Amendment attached thereto. [Signatures on next page] 500 Arsenal Street, Watertown, Massachusetts -2- (C) Alexandria Real Estate Equities, Inc. 2000 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Third Amendment as of the date first above written. SELLER: GENERAL SCANNING INC., a Massachusetts corporation By: /s/ Thomas R. Swain ---------------------------------------- Name: Thomas R. Swain ---------------------------------- Its: Director of Real Estate Operations ---------------------------------- BUYER: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By: /s/ Lynn Anne Shapiro ---------------------------------------- Name: LYNN ANNE SHAPIRO ---------------------------------- Its: GENERAL COUNSEL ---------------------------------- 500 Arsenal Street, Watertown, Massachusetts S-1 (C) Alexandria Real Estate Equities, Inc. 2000 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Third Amendment as of the date first above written. SELLER: GENERAL SCANNING INC., a Massachusetts corporation By: ---------------------------------------- Name: ---------------------------------- Its: ---------------------------------- BUYER: ALEXANDRIA REAL ESTATE EQUITIES, INC., a Maryland corporation By: /s/ Lynn Anne Shapiro ---------------------------------------- Name: LYNN ANNE SHAPIRO ---------------------------------- Its: GENERAL COUNSEL ---------------------------------- 500 Arsenal Street, Watertown, Massachusetts S-1 (C) Alexandria Real Estate Equities, Inc. 2000 FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Fourth Amendment") is entered into as of August ___, 2000. by and between GENERAL SCANNING INC, a Massachusetts corporation ("Seller"), and ARE-500 ARSENAL STREET, LLC, a Delaware limited liability company ("Buyer"), with reference to the following Recitals: RECITALS: A. Seller and Buyer, as successor in interest to Alexandria Real Estate Equities, Inc., have entered into that certain Purchase and Sale Agreement and Joint Escrow Instructions dated as of February 29, 2000, which has been amended by that certain First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 15, 2000, that certain Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 17, 2000 (the "Second Amendment") and that certain Third Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of June __, 2000 (as so amended, the "Original Agreement"). All initially-capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or this Agreement" in the Original Agreement or in this Fourth Amendment shall mean and refer to the Original Agreement, as amended by this Fourth Amendment. B. Seller and Buyer desire to amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Purchase Price. The Second Amendment amended Section 2.2 of the Original Agreement. Section 2.2 of the Original Agreement is hereby further amended by deleting Section 2.2 in its entirety and substituting the following in its place: 2.2 Balance. On the Closing Date (as defined below), Buyer shall pay to Seller the balance of the Purchase Price over and above (i) the Deposit paid by Buyer under Section 2.1 above and (ii) an unconditional credit of $175,000 against the Purchase Price in favor of Buyer, by wire transfer of federal funds to Escrow Agent, net of all prorations and adjustments as provided herein. 2. Costs of Signalization Improvements. Buyer and Seller hereby agree that Buyer shall pay the proportional share allocated to the Property for the signalization improvement costs [500 Arsenal Street] -1- (C) Alexandria Real Estate Equities, Inc. 2000 described in that certain Decision by the Town of Watertown Board of Appeals dated June 7, 1982. 3. Effect of this Fourth Amendment. Except as amended and/or modified by this Fourth Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Original Agreement shall remain in full force and effect, unaltered and unchanged by this Fourth Amendment. In the event of any conflict between the provisions of this Fourth Amendment and the provisions of the Original Agreement, the provisions of this Fourth Amendment shall prevail. Whether or not specifically amended by this Fourth Amendment, all of the terms and provisions of the Original Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this Fourth Amendment. 4. Counterparts. This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Fourth Amendment attached thereto. [Signatures on next page] [500 Arsenal Street] -2- (C) Alexandria Real Estate Equities, Inc. 2000 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Fourth Amendment as of the date first above written. SELLER: GENERAL SCANNING INC., a Massachusetts corporation By: /s/ Thomas R. Swain ---------------------------------------- Name: Thomas R. Swain ---------------------------------- Its: Director of Real Estate Operations ---------------------------------- BUYER: ARE-500 ARSENAL STREET, LLC, a Delaware limited liability company By: ALEXANDRIA REAL ESTATE EQUITIES, LP., a Delaware limited partnership, its sole member By: ARE-QRS CORP., a Maryland corporation. its general partner By: -------------------------------- Name: -------------------------- Its: -------------------------- [500 Arsenal Street] S-1 (C) Alexandria Real Estate Equities, Inc. 2000 FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS THIS FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "Fourth Amendment") is entered into as of August __, 2000, by and between GENERAL SCANNING INC, a Massachusetts corporation ("Seller"), and ARE-500 ARSENAL STREET, LLC, a Delaware limited liability company ("Buyer"), with reference to the following Recitals: RECITALS: A. Seller and Buyer, as successor in interest to Alexandria Real Estate Equities, Inc., have entered into that certain Purchase and Sale Agreement and Joint Escrow instructions dated as of February 29, 2000, which has been amended by that certain First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 15,2000, that certain Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 17,2000 (the "Second Amendment") and that certain Third Amendment to Purchase and Sale Agreement and Joint Escrow instructions dated as of June ____, 2000 (as so amended, the "Original Agreement"). All initially-capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this Fourth Amendment shall mean and refer to the Original Agreement, as amended by this Fourth Amendment. B. Seller and Buyer desire to amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Purchase Price. The Second Amendment amended Section 2.2 of the Original Agreement. Section 2.2 of the Original Agreement is hereby further amended by deleting Section 2.2 in its entirety and substituting the following in its place: 2.2 Balance. On the Closing Date (as defined below), Buyer shall pay to Seller the balance of the Purchase Price over and above (i) the Deposit paid by Buyer under Section 2.1 above and (ii) an unconditional credit of $175,000 against the Purchase Price in favor of Buyer, by wire transfer of federal funds to Escrow Agent, net of all prorations and adjustments as provided herein. 2. Effect of this Fourth Amendment. Except as amended and/or modified by this Fourth Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Original Agreement shall remain in full force and effect, unaltered and unchanged by this [500 Arsenal Street] -1- (C) Alexandria Real Estate Equities, Inc. 2000 Fourth Amendment. In the event of any conflict between the provisions of this Fourth Amendment and the provisions of the Original Agreement, the provisions of this Fourth Amendment shall prevail. Whether or not specifically amended by this Fourth Amendment, all of the terms and provisions of the Original Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this Fourth Amendment. 3. Counterparts This Fourth Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Fourth Amendment attached thereto. [Signatures on next page] [500 Arsenal Street] -2- (C) Alexandria Real Estate Equities, Inc. 2000 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Fourth Amendment as of the date first above written. SELLER: GENERAL SCANNING INC., a Massachusetts corporation By: ---------------------------------------- Name: ---------------------------------- Its: ---------------------------------- BUYER: ARE-500 ARSENAL STREET, LLC, a Delaware limited liability company By: ALEXANDRIA REAL ESTATE EQUITIES, LP., a Delaware limited partnership, its sole member By: ARE-QRS CORP., a Maryland corporation. its general partner By: /s/ Peter J. Nelson -------------------------------- Name: PETER J. NELSON -------------------------- Its: SENIOR VICE PRESIDENT & CHIEF FINANCIAL OFFICER -------------------------- [500 Arsenal Street] S-1 (C) Alexandria Real Estate Equities, Inc. 2000 [LETTERHEAD OF HANIFY & KING] July 27, 2000 By Facsimile and Federal Express Carlos Matos, Esq. Mayer, Brown & Plait 3S0 South Grand Avenue, 25th Floor Los Angeles, CA 09971-1503 Re: General Scanning Inc./Alexandria Real Estate Equities, Inc. 500 Arsenal Street, Watertown, Massachusetts ("Property") Escrow No. 201005080 x70 Dear Carlos: This is to confirm that our clients have agreed to a Closing Date of August 10, 2000. The entity occupying the Property pursuant to the PCB Agreement has vacated and surrendered the Property, as of July 26, 2000, in accordance with section 7.1.5 of the Purchase and Sale Agreement. Please forward to me execution copies of the closing documents which you prepared as Exhibits to the Purchase and Sale Agreement. By copy of this letter, I am notifying Maggie Watson of Chicago Title insurance Company of the August 10th Closing Date and asking her to proceed with the closing preparation and to forward the Preliminary Closing Statement, as provided in section 10.2 of the Purchase and Sale Agreement. Please call me to discuss these Closing arrangements. Sincerely, /s/ Barbara W. Pfirrman Barbara W. Pfirrman 283408 cc: Thomas R. Swain (by fax) Maggie Watson, Esq. (by fax) ALEXANDRIA CONFIDENTIAL FOR ADDRESSEE ONLY- DO NOT COPY OR DISTRIBUTE [LOGO] 125 N. LOS ROBLES AVENUE SUITE 250 o PASADENA, CA 91101 TEL: 626-578-0777 FAX: 626-578-0770 August 10, 2000 VIA FACSIMILE General Scanning Inc. 1650 N. Voyager Avenue Simi Valley, California 93063 Attention: Thomas R. Swain Facsimile: (605) 578-5296 Re: 500 Arsenal Street, Watertown, Massachusetts Ladies and Gentlemen: Reference is made to that certain Purchase and Sale Agreement and Joint Escrow Instructions dated as of February 29,2000, which has been amended by that certain First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 15, 2000, that certain Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of March 17, 2000, that certain Third Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of June ___, 2000, and that certain Fourth Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of August ___, 2000, by and between ARE-500 Arsenal Street, LLC, a Delaware limited liability company, as successor in interest to Alexandria Real Estate Equities, Inc., and General Scanning Inc., a Massachusetts corporation (as so amended, the "Original Agreement"). All initially-capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this letter shall mean and refer to the Original Agreement, as amended by this letter. Buyer and Seller hereby agree that the date of the Closing shall be August 11, 2000. Except as amended and/or modified by this letter all other terms of the Original Agreement shall remain in full force and effect, unaltered and unchanged by this letter. In the event of any conflict between the provisions of this letter and the provisions of the Original Agreement, the provisions of this letter shall prevail. This letter may be executed in as many counterparts as may be deemed necessary and convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same instrument. Mr. Thomas R. Swain CONFIDENTIAL FOR ADDRESSEE ONLY- August 10, 2000 DO NOT COPY OR DISTRIBUTE Page 2 If the foregoing accurately reflects your understanding, please execute and return this letter to the undersigned. Sincerely, Peter J. Nelson cc: Joel S. Marcus James H. Richardson Jane Ledwig Thomas J. Andrews Shelly Kroll AGREED AND ACCEPTED AS OF AUGUST __, 2000 GENERAL SCANNING INC., a Massachusetts corporation By: ____________________________ Name: ______________________ Title: _____________________ EX-10.18 3 0003.txt EMPLOYMENT AGREEMENT, CHARLES D. WINSTON EXHIBIT 10.18 EMPLOYMENT AGREEMENT THIS AGREEMENT is made as of the 1ST day of JANUARY, 2000 between GSI LUMONICS INC. (the "company"), a corporation continued under the laws of New Brunswick and CHARLES D. WINSTON (the "executive"); WHEREAS the Company and the Executive have entered into an employment relationship for their mutual benefit; NOW THEREFORE THIS AGREEMENT WITNESSES that the parties have agreed that the terms and conditions of the relationship shall be as follows: 1. DUTIES 1.1 The Company confirms the appointment of the Executive as Chief Executive Officer of the Company to undertake the duties requested of the Executive from time to time by the Board of Directors (the "Board") of the Company or such committee of the Board designated by the Board and the Executive accepts the office, on the terms and conditions set forth in this Agreement. 1.2 The Executive, throughout the term of this Agreement shall devote his full time and attention to business and affairs of the Company and shall not, without the consent in writing of the Chairman of the Board undertake any other business or occupation or become an officer, employee, agent or consultant of any company, firm or individual nor hold more than 5% of the issued shares or stock of any company. 1.3 The Executive shall faithfully serve the Company and use his reasonable best efforts to promote the interests thereof. 2. TERM 2.1 The appointment of the Executive shall be for three years from the date hereof unless terminated sooner in accordance with the provisions of this Agreement. 2.2 If the employment of the Executive by the Company continues, in accordance with the provisions of this Agreement, until December 31, 2003, the Executive shall have the right to remain in the employ of the Company, in an advisory and consulting capacity, for an additional two years (ie. until December 31, 2005) (the "Extended Period"). During the Extended Period the Executive shall perform such services as may be assigned to him from time to time by the Board of Directors provided he shall not be required to spend more than 50% of his normal working time on Company business. During the Extended Period the Executive shall be entitled to an annual salary equal to 50% of his base salary during the last year of this Agreement and he shall be entitled to continue to participate in the Company's stock option plans. 3. COMPENSATION 3.1 The compensation of the Executive shall be as agreed upon from time to time between the Executive and the Company and in no case shall it be less than his 2000 base salary of US $400,000 plus bonus at target of 70% of base salary. 4. BENEFITS AND VACATION 4.1 The Executive shall be entitled to all benefit coverage offered by the Company during the term of this agreement. 5. NON COMPETITION 5.1 The Executive agrees that the nature of the services to be provided by the Executive (which the Executive acknowledges are of a special, unique, extraordinary and intellectual character), places the Executive in a position of confidence and trust with suppliers, customers and employees of the Company. The Executive also acknowledges that the suppliers and customers serviced by the Company are located throughout the world and, accordingly, it is reasonable that the restrictive covenants set forth herein are not limited by any geographical area. The Executive understands and accepts the provisions of this Agreement may limit the employment opportunities available to the Executive following the termination of this Agreement. The Executive understands and agrees that it is reasonable and necessary for the protection and goodwill of the business of the Company that the Executive makes the covenants contained herein. 5.2 Accordingly, it is agreed that the Executive will not, at any time during the 24 months next following the termination of this Agreement for any reason (and for greater certainty, whether such termination is for cause or not for cause or by resignation of the Executive or by frustration of this Agreement or by passage of time) directly or indirectly either alone or in conjunction with any individual or firm, corporation, association or other entity, whether as principal, agent, shareholder, investor or in any other capacity whatsoever: (i) carry on, or be engaged in, concerned with or interested in, directly or indirectly, any business which relates to the establishment, development, promotion, marketing, sales or other provision of products or services which are engaged (except for an equity share investment in a public company whose shares are listed on a stock exchange where such investment does not in the aggregate exceed 5% of the issued equity shares of such company); (ii) attempt to solicit away from the Company any person or entities with whom the Company or both are engaged including suppliers, employees, customers, agents or distributors; 2 (iii)take any act as a result of which the relations between the Company and any of their suppliers, customers, employees, agents, distributors or others may be impaired or which may otherwise be detrimental to the business of the Company. 6. CONFIDENTIALITY 6.1 The Executive acknowledges that, by virtue of his position in the Company he will have access to confidential information belonging to the Company. The Executive therefore undertakes that he shall neither during the term of this agreement nor at any time thereafter publish, disclose or otherwise communicate to any person, company, business entity or other organization whatsoever or make use of any confidential information belonging or relating to the Company, except with the prior written approval of the Company or strictly in accordance with the terms of this Agreement. 6.2 For the purposes of this Agreement, "Confidential Information" means all materials relating to the business or affairs of the Company, whether of a technical, operational or economic nature, including, without limitation, all unpublished information, prices and discounts, data, designs, trade secrets, know-how, formulae, plans, techniques, processes, manuals, documents, records, drawings, specifications, samples, studies, findings, inventions, software, source-code, ideas whether patented, patentable or not, reports, information concerning employees or officers, financial information and plans, information relating to business and financial dealings, research activities, business marketing or strategic plans and projects whether present or future, equipment, working materials, and lists or identity of customers whether they be in written, graphic, oral form or other form whatever prepared by the Company or by the Executive on behalf of or for the Company or otherwise disclosed to the Executive in the course of his engagement and any know-how of the Company or information relating to the Company or to any person, firm or other entity with which the Company does business which is not generally known to persons outside the Company, and any document marked "Confidential" or which the Executive might reasonably expect the Company would regard as confidential. The Executive acknowledges that the foregoing is intended to be illustrative and that other confidential information may exist or arise in the future. 6.3 Without prejudice to the generality of this Article the Executive acknowledges that the following "Confidential Information" if disclosed or used in contravention of this Article would cause the Company substantial damage or loss: (i) names of clients, customers or suppliers of the Company prior to the termination of this Agreement; (ii) discounts, special prices or special contact terms offered to or agreed with clients, customers or suppliers of the Company; (iii) marketing and sales strategies/plans of the Company; (iv) planned new services or products of the Company; (v) existing or proposed research activities of the Company; 3 (vi) existing or proposed marketing and sales expenditures of the Company; (vii) any drawings, plans, designs, processes, formulae, specifications, know-how, trade secrets or any other technical data relating to any existing products or services offered to customers by the Company prior to the termination of this Agreement; (viii) any financial dealings of the Company (ix) any business transactions or dealings of the Company, or; (x) the decisions or contents of any board meetings of the Company. 6.4 The Executive's obligations under this Article shall apply both during the term of this Agreement and thereafter without limitation in time and shall survive the variation, renewal, extension or termination of this Agreement. 6.5 The Executive's obligations shall not apply in relation to any Confidential Information which: (i) the Executive is authorized by the Company to disclose, publish, communicate or make use of, or which it is necessary for the Executive to disclose, publish, communicate or make use of for the proper and efficient discharge of his duties as an employee of the Company; (ii) the Executive is required by law or any court or other similar judicial body or authority to disclose, publish or communicate; or (iii) has come into the public domain other than by way of unauthorized disclosure by the Executive. 6.6 The Executive agrees that in the event of any violation of the provisions of this Agreement, the Company in addition to any other right or relief to which it may be entitled, shall be entitled to an injunction restraining further breaches of this Agreement and the Company, upon applying for an injunction, will not be required to prove the inadequacy remedies at law. 7. REASONABLENESS OF NON-COMPETITION AND CONFIDENTIALITY 7.1 The Executive understands and agrees that the Company has a material interest in preserving the relationship it has developed with its suppliers and customers against impairment by competitive activities of a former employee. Accordingly, the Executive agrees that the restrictions and covenants contained in Articles 5 and 6 and the Executive's agreement to them by the execution of this Agreement, are of the essence of this Agreement. 7.2 The Executive understands and agrees that the restrictions and covenants contained in Articles 5 and 6 constitute material inducements to the Company to enter into this Agreement and that the Company would not enter into this Agreement without such covenants. 4 7.3 No claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, nor any assertion that the Company has not complied with the terms of this Agreement or has breached this Agreement fundamentally or otherwise, shall constitute a defence or bar to the enforcement by the Company of the covenants or restrictions set out in Articles 5 or 6. 8. TERMINATION OF EMPLOYMENT 8.1 The parties understand and agree that this Agreement may be terminated in the following manner in the specified circumstances; 8.1.1 By the Company, in its absolute discretion, without any notice or pay in lieu thereof, for cause. Any exercise of discretion pursuant to this paragraph shall require the affirmative vote of not less than six members of the Board of Directors excluding the Executive. For the purposes of this Agreement, cause includes the following: (i) any material breach of the provisions of this Agreement; (ii) the failure or refusal of the Executive to comply with the lawful directions or instructions of the Company on any material matter; (iii) any conduct of the Executive which in the reasonable opinion of the Company, tends to bring himself or the Company into disrepute; (iv) conviction of the Executive of a criminal offence punishable by felony conviction; (v) any material act of dishonesty directed at the Company or any client of the Company; (vi) any mental or physical disability or illness which results in the Executive being unable to substantially perform the duties assigned pursuant to this Agreement for a continuous period of 150 days or for periods aggregating 180 days in any period of 365 days; (vii) use by the Executive of drugs or of alcohol in a manner which materially affects his ability to perform his employment duties. 8.1.2 Failure by the Company to rely on the provision of this Article to terminate this Agreement or to sanction or admonish the Executive in any given instance or instances, shall not constitute a ratification of the act or acts in question nor be deemed a waiver of the strict terms of this Article. 8.2 The parties understand and agree that any offer or giving of notice (or payment of pay in lieu of notice) by the Company to the Executive on termination or proposed termination of this Agreement shall be without prejudice and shall not prevent the Company from alleging cause for the termination. 5 8.3 In the event that the employment of the Executive is terminated by the Company during the term of this Agreement without cause, the Executive shall be entitled to the salary and benefits described in Appendix A to this Agreement. Upon compliance by the Company of this paragraph, the Executive shall not be entitled to pursue any legal action of any kind for any additional payment or notice required to be given. 8.4 The Executive may voluntarily resign his employment at any time provided he shall give the Company 90 days notice in writing of his intention to do so. In the event of his voluntary resignation the Executive shall be entitled to receive his salary and other benefits up to, but not after, the date of termination of his employment. 8.5 On termination of employment the Executive shall immediately resign all offices held (including directorships in the Company and save as provided in this Agreement, the Executive shall not be entitled to receive any severance payment or compensation for loss of office or otherwise by reason of the resignation. If the Executive fails to resign as set out herein on seven days notice, the Company is irrevocably authorized to appoint some person in the Executive's name and on the Executive's behalf to sign any documents or do any things necessary or requisite to give effect to it. 9. EMPLOYER'S PROPERTY 9.1 The Executive acknowledges that all things furnished by the Company to the Executive, and all equipment, automobiles, credit cards, books, records, reports, files, manuals, literature, confidential information or other materials shall remain and be considered the exclusive property of the Company at all times and shall be surrendered to the Company, in good condition, promptly on the termination of the Executive's employment irrespective of the time, manner or cause of the termination unless expressly provided in this Agreement. The foregoing shall not include anything purchased with the Executive's personal expense allowance. 9.2 Any and all documents, drawings, things, techniques, computer programs or related data, inventions or improvements of which the Executive may conceive or make or assist in the conception or making during the period of this Agreement relating or in any way appertaining to or connected with the duties, responsibilities or work of the Executive pursuant to this Agreement or any of the matters which have been, are, may become or were intended to become the subject of the undertakings of the Company shall be the sole and exclusive property of the Company, as the case may be. The Executive will, whenever requested by the Company whether during or after the termination of this Agreement, execute any and all applications, assignments and other instruments which the Company shall deem necessary in order to apply for and obtain patents, copyright, trademark protection or other rights or protection in any country for the said documents, drawings, things, 6 techniques, computer programs or related data, inventions or improvements and in order to assign and convey to the Company the sole and exclusive right, title and interest in and to the said documents, drawings, things, techniques, computer programs or related data, inventions or improvements. 10. ASSIGNMENT OF RIGHTS 10.1 The rights which accrue to the Company under this Agreement shall pass to its successors or assigns. The rights of the Executive under this Agreement are not assignable or transferable in any manner. 11. NOTICES 11.1 Any notice required or permitted to be given to the Executive shall be sufficiently given if delivered to the Executive personally or if mailed by registered mail to the Executive=s address last known to the Company. 11.2 Any notice required or permitted to be given to the Company shall be sufficiently given if mailed by registered mail to the Company's Head Office at its address last known to the Executive, Attention: Chief Financial Officer. 12. SEVERABILITY 12.1 In the event that any provision or part of this Agreement shall be deemed void or invalid by a court of competent jurisdiction, the remaining provisions or parts shall be and remain in full force and effect. 12.2 In the event that any provision of this Agreement shall in its stated terms or breadth be deemed void or invalid or unenforceable as a result a decision by a court of competent jurisdiction, the said provision shall be valid and enforceable to the extent consistent with the principle or principles underlying the said decision. 13. ENTIRE AGREEMENT 13.1 This Agreement constitutes the entire agreement between the parties with respect to the employment and appointment of the Executive and any and all previous agreements, written or oral, express or implied, between the parties or on their behalf, relating to the employment and appointment of the Executive by the Company, are terminated and cancelled. 14. MODIFICATION OF AGREEMENT 14.1 Any modification to this Agreement must be in writing and signed by the parties or it shall have no effect and shall be void. 15. HEADINGS 15.1 The headings used in this Agreement are for convenience only and are not to be construed in any way as additions to or limitations of the covenants and agreements contained in it. 7 16. GOVERNING LAW 16.1 This Agreement shall be construed in accordance with the laws of Ontario and the laws of Canada applicable therein. 17. FACSIMILE 17.1 This Agreement will be valid and binding whether executed by original or facsimile signature. 18. COUNTERPARTS 18.1 This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF this Agreement has been executive by the parties to it on the day, month and year first written above. "Charles Gardner" "Charles D. Winston" - -------------------------------- ------------------------------------- Witness CHARLES D. WINSTON GSI LUMONICS INC. Per: "Paul Ferrari" ------------------------------------- PAUL FERRARI, CHAIRMAN OF THE BOARD Per: "Benjamin Virgilio" ------------------------------------- BENJAMIN VIRGILIO, Chairman, Compensation Committee 8 APPENDIX A TERMINATION WITHOUT CAUSE In the event that the employment of the Executive is terminated by the Company during the term of this Agreement without cause, the Executive shall be entitled to the following: 1. Base salary plus bonus at 70% of base salary as at the date of termination to be continued for two years from the date of termination; 2. All Company medical and insurance benefits to be continued for a period of two years from the date of termination. 3. Use of leased automobile to be continued for a period of two years from the date of termination; 4. Annual US $7,000 allowance for tax planning and preparation to be continued for a period of two years from the date of termination; 5. All unexercised stock options that have not vested shall vest on date of termination. For greater certainty it is acknowledged that all options will expire if not exercised within 90 days of the date of termination. 9 EX-21.1 4 0004.txt GSI LUMONICS SUBSIDIARIES EXHIBIT 21.1 GSI LUMONICS INC. SUBSIDIARIES AS OF MARCH 15, 2001 DIRECT SUBSIDIARIES, 100% OWNED BY GSI LUMONICS INC. LOCATION - ---------------------------------------------------- -------- GSI Lumonics Corporation US GSI Lumonics Limited UK Lumonics Systems (S) Pte. Ltd. Singapore GSI Lumonics GmbH Germany GSI Lumonics Hungary Trade Company Limited by Shares Hungary Lumonics (Barbados) Inc. Barbados 124988 Ontario Inc. Canada GSI Lumonics Japan KK Japan WavePrecision Inc. Canada INDIRECT SUBSIDIARIES, 100% OWNED BY GSI LUMONICS INC. - ------------------------------------------------------ GSI Lumonics, EURL France Lumonics FSC Corporation Barbados Lumonics do Brazil Limitada Brazil WavePrecision Corp. US General Scanning Inc. US GSI Lumonics Asia Pacific Ltd. Hong Kong General Scanning Limited UK GSI Lumonics Trust Inc. US GSLI Investments, Inc. US GSI Lumonics Engineering Inc. US General Scanning Securities Corp. US GSI Export Corp. US EX-23.1 5 0005.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 Consent of Independent Chartered Accountants We consent to the incorporation by reference in the Registration Statements (Form S-8, No. 333-43080 and Form S-8, No. 333-76849), pertaining to the 1995 Stock Plan for Employees and Directors of GSI Lumonics Inc., of our report dated February 16, 2001, with respect to the consolidated financial statements and schedules of GSI Lumonics Inc. included in its Annual Report on Form 10-K for the year ended December 31, 2000. March 22, 2001 Ernst & Young LLP Ottawa, Canada Chartered Accountants -----END PRIVACY-ENHANCED MESSAGE-----