SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
...........
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
......................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ................. to .................
Commission File Number 0-19306
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 11-2780242
(State or other jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
41 Research Way (631) 784-6175
E. Setauket, NY 11733 (Registrant's Telephone Number)
(Address of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
.......................................
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. [X] Yes [ ] 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. [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition
of "accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act (Check one):
Large Accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act. [ ] Yes [X] No
The aggregate market value of the common stock held by non-affiliates of
the registrant was $354,077,170 based on the last sale price of the
common stock as reported by NASDAQ on June 30, 2006. Shares held by
each officer and director and by each person who owns 10% or more of the
outstanding common stock have been excluded in that such persons may be
deemed to be affiliates. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares of the Registrant's common stock outstanding as of
February 15, 2007 was: 12,089,938.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement to be filed in connection with the
Registrant's 2007 Annual Meeting of Stockholders (incorporated by
reference under Part III)
PART I
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ITEM 1. BUSINESS
General
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Excel Technology, Inc. (the "Company") was organized under the laws
of Delaware in 1985. The Company manufactures and markets photonics-
based solutions, consisting of laser systems and electro-optical
components primarily for industrial and scientific applications. The
word laser is an acronym for "Light Amplification by Stimulated Emission
of Radiation." The essence of the laser is the ability of a photon
(light energy) to stimulate the emission of other photons, each having
the same wavelength (color) and direction of travel. The laser beam is
so concentrated and powerful that it can produce power densities
millions of times more intense than that found on the surface of the sun
and is capable of cutting, welding and marking industrial products, yet
it can be precisely controlled and directed and is capable of performing
delicate surgery on humans.
The Company's strategy is to grow internally and through
acquisitions of complementary businesses. Historically, the Company has
been successful in integrating acquired companies. The following is a
history of its acquisitions and new company formations since October
1992:
In October 1992, the Company acquired Quantronix Corporation
("Quantronix"). The acquisition of Quantronix and its then wholly-owned
subsidiaries, Control Laser Corporation ("Control Laser"), located in
Orlando, Florida, Excel Technology Europe GmbH ("Excel Europe"), located
in Germany, and The Optical Corporation ("TOC"), located in Oxnard,
California, provided the Company with its industrial, scientific and
semiconductor product lines and provided the Company with a significant
revenue base as well as established manufacturing, engineering,
marketing and customer service capabilities.
In February 1995, the Company acquired Cambridge Technology, Inc.
("Cambridge"), located in Cambridge, Massachusetts. Cambridge is
engaged primarily in the manufacture of laser scanners, essential
components to moving a laser beam with precision at a specified speed.
Laser scanners have both industrial and consumer applications, such as
laser marking and etching, high-density laser printing and writing,
digitized x-ray imaging and entertainment laser light shows and
displays. The acquisition allowed the Company to expand into new
markets and enhanced its market position in the industrial business.
In October 1995, the Company acquired the Photo Research Division
("Photo Research") of Kollmorgen Instruments Corporation. Photo
Research is engaged primarily in the business of developing,
manufacturing and marketing photometric and spectroradiometer
instruments and systems.
In August 1998, the Company acquired substantially all of the
assets and properties of Synrad, Inc. ("Synrad"), a company engaged in
the business of developing, manufacturing and marketing sealed CO2
lasers and related accessories.
In April 1999, the Company formed Excel Technology Asia Sdn. Bhd.
("Excel Asia"). Excel Asia primarily engages in the business of
marketing, selling, distributing, integrating and servicing certain of
the Company's products throughout Southeast Asia.
In July 2000, the Company acquired substantially all of the assets
and assumed certain liabilities of Baublys GmbH ("Baublys"), a company
located in Ludwigsburg, Germany and engaged in the manufacture and sale
of customized laser systems and engraving machines.
In January 2001, the Company formed Control Systemation, Inc.
("CSI") which focuses on turnkey laser based micro-machining systems and
parts handling workstations for factory automation. CSI is
headquartered in a Company- owned facility in Orlando, Florida.
In January 2002, the Company consolidated the product lines and
development efforts of Baublys and Control Laser to eliminate
duplicative products and efforts, to increase efficiencies, and to
create a unified market presence for the Company's laser marking and
engraving operations. While the subsidiaries remain legally separate
entities, with separate assembly, operations and selling and marketing
efforts, they are operating under one name, "Baublys-Control Laser," as
though they were one entity with operations in Florida and Germany.
On August 31, 2002, the Company, through a newly-formed, wholly-
owned subsidiary, Excel Technology Japan Holding Co., Ltd. ("Excel
Japan"), acquired all of the issued and outstanding shares of OptoFocus
Corporation ("OptoFocus"), a distribution organization representing the
Quantronix product line in Japan.
On October 1, 2002, the Company, through a newly-formed, wholly-
owned subsidiary, Continuum Electro-Optics, Inc., acquired substantially
all of the assets and properties of Hoya Photonics, Inc. d/b/a
Continuum, and Hoya Photonics' wholly-owned subsidiaries, Continuum
Electro-Optics GmbH, Continuum France EURL and Hoya Continuum
Corporation (collectively, "Continuum"), relating to the business of
developing, manufacturing and marketing pulsed lasers and related
accessories for the scientific and commercial marketplaces.
On April 23, 2003, the Company created Excel Laser Technology
Private Limited ("Excel SouthAsia JV") based in Mumbai, India as a joint
venture for the distribution, in Southern Asia, of certain products
manufactured by the Company's subsidiaries. Excel SouthAsia JV is
focusing on the marketing, sales, installation, applications development
and customer service of those products. The Company has a 50% equity
ownership interest in the joint venture.
In December 2003, the Company acquired D Green (Electronics)
Limited ("DGE"). DGE is engaged primarily in the business of
developing, manufacturing and marketing power supplies for laser
systems.
Terminated Merger
...................
On February 20, 2006, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with Coherent, Inc.
("Coherent"), and Spider Acquisition Merger Corporation, a wholly owned
subsidiary of Coherent ("Merger Sub"). Under the Merger Agreement,
Merger Sub was to be merged with and into the Company (the "Merger"),
the separate corporate existence of Merger Sub would cease and the
Company would have continued as the surviving corporation and as a
wholly-owned subsidiary of Coherent.
Pursuant to the Merger Agreement, at the effective time of the
Merger, each issued and outstanding share of common stock of the Company
issued and outstanding would have been automatically converted into the
right to receive $30.00 per share in cash.
The Merger was conditioned upon, among other things, the adoption
of the Merger Agreement by the stockholders of the Company pursuant to
applicable law, the termination or expiration of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and
obtaining material foreign antitrust approvals reasonably determined by
Coherent to be required.
On April 4, 2006, the stockholders of the Company voted to adopt
the Merger Agreement providing for the acquisition of the Company by
Coherent. The Antitrust Division of the Department of Justice as well
as the German Federal Cartel Office had requested additional information
and documentary material in connection with their review of the proposed
merger. On May 9, 2006, Coherent, Inc. received U.S. antitrust approval
to acquire the Company. On July 10, 2006, the German Federal Cartel
Office stated that it had decided to extend its investigation into the
acquisition of the Company by Coherent, and on October 25, 2006 issued a
prohibition order on the merger. On November 1, 2006, the Merger
Agreement between the Company and Coherent was terminated.
Current Products and Applications
..................................
Marking and Engraving Systems
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The Company designs, manufactures and markets industrial, computer-
controlled turnkey laser marking/engraving and mechanical
marking/engraving and 3D engraving systems.
The Company is a leading source of industrial beam-steered laser
marking systems and mechanical marking & engraving systems used for
coding, marking, engraving, deep engraving and 3D engraving, producing
high quality, permanent, high speed marks on any material. These
systems are used for marking part numbers, serial numbers, lot numbers,
date codes, graphics, logos, OCR codes, barcodes, 2D Matrix codes,
schematics, 2, 2-1/2 and 3D images and other identification marks for
the aerospace, automotive, coining and jewelry, consumer/commercial,
electronic/semiconductor, medical, mold and die, packaging, tools and
tooling and the trophy and award industries. The Company's integrated
automation solutions include a wide variety of fully automatic, semi-
automatic and manual parts handling systems for any part configuration
or material. The fully integrated and stand-alone marking systems offer
a comprehensive variety of user-friendly software allowing for seamless
integration into any production process.
The laser marking/engraving, deep engraving and 2-1/2 & 3D marking
systems include a full product range of CO2, fiber, lamp pumped and
diode pumped infrared, frequency doubled, tripled and quadrupled Nd:YAG
and Nd:YLF laser systems which are branded as "Concorde", "Comet",
"ProWriter F20", "ProWriter L80", "ProWriter L100", "ProWriter D50",
"ProWriter D10", "Deep Power Engraver", "BL65" and "BL150" Deep
engraving systems, and the Mint Laser Finishing system. The mechanical
engraving systems include a "Universal Marking & Engraving Machine", an
"Inclined Bed CNC Marking & Engraving Machine", a "Mold Engraving
Machine", a "Laser Digitizer" and a "Table Top Engraving Machine". The
Company's ProWriter, a new series of laser marking systems, is a new
version of Laser Marking Studio that incorporates IC Marking Software, a
new series of compact, low profile workstations, a two spindle Inclined
Bed Engraving Machine, a higher accuracy Laser Digitizer System, a
higher resolution camera system for the Mint Laser, a new integrated
version of the WinLaser and Laser Finish software, a new multi-focus
vision system for alignment and sample location recognition and several
new automated robot loaded workstations for marking crankshafts, gears
and knives.
Laser Micro-machining and Automation Systems
.............................................
The Company designs and manufactures laser micro-machining systems,
parts handling/automation, systems integration, and software engineering
solutions at CSI, the Company's subsidiary based in Orlando, Florida.
The Company produces a variety of micro-machining systems ("TaskMaster"
Series) for cutting, drilling, ablating and other micro machining
applications. The "TaskMaster" series of micro-machining systems
provides a versatile but affordable solution to almost any process
requirement. They are modular in design allowing lasers of any
wavelength such as green, UV, DUV, infrared, and CO2 in a variety of
power levels to be integrated into the same workstation. The workstation
can be taken from a basic XY system with a manually adjustable focusing
beam delivery system and enhanced with a variety of options such as XY
with a programmable focusing beam delivery system, vision system for
part alignment and semi-automatic focusing adjustment, gas assist with
programmable pressure regulator and part fixturing. The Company offers
a Vision Assisted graphical programming environment for CNC based laser
micro-machining centers. This software platform requires no
programming, simply place a part into the machine and the real time
vision system allows the user to draw right onto the part. CADD files
can be imported and "dragged and dropped" onto the part, scaled,
rotated, or moved and lased.
The Company's FA/Lit (trademark) product targets the integrated
circuit ("IC") failure analysis market. This system utilizes a process
for de-capping, cross-sectioning and performing material
characterization (Alpha Spectrometry) on ICs, providing a non-
destructive method of removing the mold compound and allowing parts to
be tested and visibly inspected. This makes it possible to inspect wire
bonds, dies and other internal components, even to the point of doing a
wire pull test on die leads. Scanning Acoustic Microscope (SAM), x-ray
and other failure analysis analytical instrument images of the internal
IC can be imported and used by the Company's FA-Pro software to locate
and target defects for analysis. These images are then used to navigate
the system directly to the defect. Options available include 3D
summation utilizing layer by layer spectral analysis data of the mold
compound, color vision system with auto zoom (also used for defect and
feature navigation), and even a second femtosecond laser system for
detailed die analysis on the ICs. Subsequently, the Company has
introduced a new version of its FA/Lit (trademark) called the Ultra/Lit,
targeting smaller scale independent failure analysis labs and production
lines that require quick failure analysis results. The new Ultra/Lit is
a streamlined limited capability failure analysis tool featuring a new
air cooled diode laser from Quantronix. The system is a table-top unit
running on 110 volts of power.
The Company also designs and builds custom micro-machining systems
such as active and passive resistor trimmers, glove box welders, diamond
cutting systems and specialized sub-micron processing systems utilizing
ultrafast lasers. In 2004, the Company launched a new Photomask Repair
System (Model 860X) to address the current industry requirements. The
Company continues to make updates on this system. Other products
include the L2S2 System for Lead-frame Singulation and the "BOARDmaster"
automated PCB Depaneling System.
The Company continues to actively pursue opportunities in
automation, parts handling, systems integration, and software
engineering.
CO2 Lasers
...........
The Company manufactures a range of sealed CO2 lasers for cutting,
marking, drilling, and other machining applications for a variety of
materials. The CO2 lasers range in power from 5W to 400W. Synrad's
"Firestar" series of sealed CO2 lasers, initially introduced in 2001,
offers users the choice of higher performance and smaller size, with
output powers from 20W to 100W. In 2002, further developments of the
"firestar" technology produced the f200, the world's only fully
integrated 200W CO2 laser. In 2003, we launched a wide range of new
products including a unique, fully-integrated 400W laser (""firestar""
f400), a single tube (linear polarization) fully-integrated 200W laser
("firestar" f201), and a compact, low cost 30W laser ("firestar" v30).
In addition, we extended our ""firestar"" t-technology to include an 80W
laser, available in either air or water-cooled versions. In 2004, the
Company introduced its high performance, air-cooled 100W laser
("firestar" t100), and in 2005 introduced a new, 5W laser. Developments
for 2006 included a new t-technology laser with an integrated RF power
supply, the production roll-out of new RF technology for the "firestar"
f-series lasers for improved reliability and performance, 9.3 and 9.6um
versions of our "firestar" v, t, and f-series lasers, and the
development of an innovative superpulse technology for both industrial
and medical applications.
The Company sells primarily to original equipment manufacturers
("OEMs") and system integrators who integrate the lasers with suitable
motion systems and optical assemblies and then sell the complete system.
Applications include desktop engraving systems found in many trophy and
award shops throughout the world, large area flatbed systems for cutting
dieboard or airbag material, and 3D prototyping using paper, sintered
metals and other materials to create 3D models and molds directly from
CAD packages. The Company's lower power lasers are the lasers of choice
for the majority of the CO2 marking and coding systems in use throughout
the world. Higher power lasers also are finding uses in manufacturing
plants for trimming flashing from injection-molded parts in the
automobile industry, cutting textiles and woven fabrics on continuous
production lines and slitting and sealing of plastic packaging.
The Company also manufactures the FH-Series of OEM marking-heads
which, when configured with its laser, provide a fast and effective
method of permanently marking parts with lot codes, serial number/date
information and bar codes. The FH-Series "Index" is ideal for
stationary marking applications while the "Tracker" version features the
capability to mark both moving and stationary parts. The Company's
WinMark software has been developed specifically for the FH-series
marking heads, and is available in multiple language versions, to run on
Windows (trademark) 95, 98, 2000 and Windows (trademark) NT. Launched
in December 2001, Synrad's FH-Series "Smart" marking head allows users
to build marking systems that can be operated without a PC. In 2006,
Synrad released the FH Flyer, a high speed marking head with an onboard
processor, and USB controller.
Scanners
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The Company is a market leader in galvanometer based optical
scanners, which are manufactured at Cambridge, the Company's subsidiary
based in Cambridge, Massachusetts. This technology is critical to a
broad, diversified and growing market of laser based system
applications. The breadth of laser applications served by the Company's
scanners include: product laser marking and coding, laser machining and
welding, high density via hole PCB drilling for the cell phone industry,
scanning microscopy for Genomic DNA research and drug discovery, retinal
scanning and OCT (Optical Coherence Tomography) imaging for laser-based
biomedical diagnostics, Laser-based Vision Correction, high resolution
printing, semiconductor wafer inspection and processing, 2D or 3D
imaging, and laser projection and entertainment.
The Company is recognized worldwide for its technology and its
leadership in the market for laser scanning systems that require the
highest accuracy and highest speed beam steering and positioning for
industrial, medical, scientific, military and academic applications and
environments. The strong growth of scanner sales is fueled by the
Company's R&D commitment to advancing optical scanner technology and the
enabling of new OEM applications in the laser systems market. In 2005
and 2006, the Company advanced its highest performance product line of
Optical Scanners to the newly patented model 6200H product line which
provides higher levels of laser scanning speed that has enabled volume
application growth in the above markets. These have set new standards
for scanning and application performance and extended the product line
with its new model 6260H for high speed laser welding. In addition the
Company extended its line of value-added product offerings with a new
higher speed and higher accuracy version of its industry leading DC900
State Space DSP Servo and its first digital controller products with the
model EC1000 Ethernet-based Digital Embedded Controller for both its
current customer base and to open new subsystem markets. The Company's
other major galvanometer product line is its' exclusive Moving Coil
Optical Scanner line with its patented capacitive position detection,
whose design was pioneered by Cambridge for applications requiring the
highest levels of scanning accuracy. In addition, the Company today
offers a more extensive line of high performance analog and digital
servo electronics products along with other value-added products such as
a wide range of optics from uV to iR and mounts for complete scanning
subassemblies and solutions.
High Power Solid-State Lasers and Ultrafast Lasers
...................................................
The Company designs, manufactures and markets solid-state lasers
for science, industry and OEM uses at Quantronix, which is located in E.
Setauket, NY. On a worldwide basis, scientific lasers (used by
chemists, biologists, physicists and engineers) represent one of the
most stable and long-established laser markets. In this market, end-
users are generally familiar with the various product specifications,
features and reliability, which are the major factors in choosing
between competing products.
The Company's current line of scientific products includes the
"Integra C", "Integra E", "Integra I" and "Odin II" Series of Ultrafast
Amplifiers and High Power Green lasers that include the "Falcon" and
"Darwin" series. The Company's Ultrafast Amplifiers incorporate a
material called Titanium-doped Sapphire ("Ti:Sapphire"), which has
created opportunities for a greater volume of research than previous
laser materials. Ultrafast Amplifiers deliver high-energy short pulses
on a femtosecond (one quadrillionth of a second) or picosecond (one
trillionth of a second) time scale. These short pulses enable the
investigation of a wide range of physical, chemical and biological
phenomena.
The Company's scientific systems utilize Nd:YLF lasers to produce
high-energy pulses at a rate of 1 kHz (1,000 pulses per second). These
pulses drive the Ti:Sapphire Amplifier that pump other optical systems
such as optical parametric amplifiers, (also marketed by Quantronix),
which deliver tunable light from ultraviolet to infrared regions of the
spectrum. In 2006, the Company expanded its Integra-C line of amplifiers
to include systems with higher energies and shorter pulse durations.
The Company has also used its experience designing software controlled
scanning beam delivery systems for industrial applications to deliver
ultrafast material processing systems with integrated scanning beam
delivery optics. In addition, the Company released a higher energy, 25-
mJ frequency-doubled Nd:YLF laser optimized for Ti:Sapphire pumping.
Using this new technology, the Company further expanded its custom laser
program for scientific applications by releasing an integrated 12-mJ,
35-fs pulsed laser using a cryogenically cooled Ti:Sapphire crystal.
In 2006, the Company expanded its Darwin-Duo line of kilohertz
Particle Image Velocimetry (PIV) lasers. These lasers are widely used in
both scientific and industrial applications for studying high speed
fluid flows. The Company's PIV lasers now cover economical 30-mJ
versions for small area studies and up to 200-W high power systems for
measuring large areas of turbulent flows such as in jet engines.
The Company's industrial and OEM offerings consist of a variety of
high power lamp pumped and diode pumped Nd:YVO4, Nd:YAG and Nd:YLF
lasers, available in infrared, green, and ultraviolet wavelengths.
These lasers are ideal for a wide range of marking and micromachining
applications. The Company has expanded its Osprey series of air-cooled
vanadate lasers to powers of more than 20 Watts in the infrared. The
Company has also increased the Osprey's output power in the green and
ultraviolet regions of the spectrum while maintaining the air-cooling
and ease-of-use required by system integrators and industrial laser
users.
The Company has launched a series of 90-Watt, diode-pumped Nd:YAG
lasers specifically designed for deep material penetration. Also, the
Company released a new version of its "Design Commander' marking and
engraving software to include features for deep engraving, more advanced
marking features, and expanded laser controls as well as capabilities
for ultrafast marking and micromachining. In addition to its lasers,
the Company offers a variety of laser options and accessories such as
power monitoring systems, beam delivery systems, laser energy
controllers, pulse shapers and motorized apertures. These options are
available with software drivers and can be integrated with any laser
system.
High Energy Solid State Lasers
...............................
The Company is a leading manufacturer of high energy solid-state
laser systems, which are manufactured at Continuum, the Company's
subsidiary located in Santa Clara, California. These systems produce
pulsed laser energy outputs with very short duration (less than 10
billionths of a second) and very high (gigawatt) levels of peak power
for a variety of scientific and industrial applications.
The unique performance characteristics of these lasers allow
researchers in the fields of chemistry, biology, and physics to explore
a wide range of chemical and physical phenomena. Spectroscopic
applications include Laser Induced Breakdown Spectroscopy (LIBS) for
metallurgical analysis of alloys, laser absorption and laser induced
fluorescence (LIF) spectroscopy for chemical analysis, nonlinear
spectroscopic techniques for combustion diagnostics, time of flight mass
spectroscopy for isotopic analysis, and time-resolved spectroscopy for
analysis of chemical reaction rates. These high energy lasers can be
coupled to tunable dye lasers or devices known as Optical Parametric
Oscillators (OPO's) to provide laser outputs that can be continuously
tuned in wavelength from the deep ultraviolet to the far infrared region
of the electromagnetic spectrum. These tunable laser systems are
required for many spectroscopy applications.
Continuum's scientific product offerings include the "Minilite" and
"Surelite" product lines, a series of "single oscillator" self-contained
laser systems that do not require external water cooling and offer
turnkey performance in a compact package. For advanced higher energy
lasers, the Company manufactures and sells the "Powerlite" series of
lasers. The Precision II 8000 and Precision II 9000 and "Powerlite"
Plus operate in oscillator/amplifier configurations that provide
enhanced output energies with excellent beam quality. The Company's
wavelength tunable product lines, the "Surelite" OPO, the
"Panther"(Registered Trademark) EX OPO and the ND 6000 dye laser,
produce laser light with wavelengths from 200 nm to 4500 nm, providing
researchers with full wavelength coverage over the range of greatest
interest for optical spectroscopy. 2006 was a year of activity in the
high energy community, with key labs all over the world investing in
upgrading their multiple TeraWatt laser systems with additional
amplifiers to reach even higher energies. The Company designed a series
of pump lasers with improved beam quality for this application and they
have been well received.
In 2004, the Company introduced "Inlite", the industrial YAG laser
system, to meet the needs of users in industrial applications. The
basic design features include an on-board microprocessor to manage laser
head housekeeping functions, harmonic generators for 532 nm, 355 nm and
266 nm that fit inside the laser head, and Pyro detectors that can be
added to control the laser in power mode or diagnose harmonics
conversion efficiency. In 2005, the Company added the higher power
Inlite III and a new integrated PIV platform. The Company also
developed an interleaved, 500 Hz system with integrated control for
generating X-rays for EUV lithography. In 2006, the Company focused on
emerging OEM applications using this technology. We delivered a high
energy YAG laser system for laser shock peening, as well as a version of
the Inlite for ultrasonic defect inspection.
Homeland security is driving a host of new industrial applications
from remote sensing and measurement to a number of important
spectroscopic techniques. Specific examples in the remote sensing area
include atmospheric analysis of airborne contaminants and pollutants,
Particle Image Velocimetry (PIV) for measuring fluid dynamic properties
in gases and liquids, and laser range finding techniques for precise
distance measurements and terrain mapping. The reliability and cost-
effectiveness of Continuum's industrial lasers are also driving new
applications in metals sorting, inspection and measurement, particle
detection, laser shock peening and defect detection.
The Company is also investing in developing intelligent systems for
control and operation of all of our Inlite technology-based products.
We have developed a series of graphical user interfaces for the standard
Inlite family, Inlite PIV and custom laser systems in glass and YAG.
These have ranged from standard interfaces operating on a laptop or
desktop computer to a Bluetooth (trademark) enabled wireless remote
control. We will continue to move our products in this direction to
improve functionality and ease of use.
In addition to standard high energy laser products, the Company
offers custom laser solutions to fit precise customer needs. These
include mode-locked picosecond and long-pulse Nd:YAG lasers, chirped
pulse amplification systems, Nd:glass macropulse systems, and
Ti:Sapphire pump laser systems. Modular design and time proven
reliability make these lasers flexible, versatile and easy to operate or
upgrade. In 2006, the Company delivered a novel custom system that
generates a beam that is spatially and temporally flat - the first of
its kind. This laser has generated multiple orders from the high energy
community, interested in amplifying laser pulses to the petawatt class.
A derivative of this laser system that is flexible in pulse width has
also generated repeat sales. We also completed the migration of our
custom systems power supplies to the power supply technology of our
Inlite products, including the development of a set of graphical user
interfaces. Our customers now have complete control of these
sophisticated laser systems within a convenient, full-featured, easy to
use graphical user interface.
Optical Products
.................
TOC, a subsidiary of the Company based in Oxnard, California,
specializes in the manufacturing of custom precision optical components.
TOC is an industry leader in the manufacturing of flying height test
disks used in the disk drive industry. For more than 74 years, TOC has
provided precision fabrication and coating services to meet demanding
applications.
The Company offers custom optics services which incorporate
polishing optics to extreme flatness (better than 1/20 wave) with low
surface roughness and difficult aspect ratios. The Company provides a
complete range of thin film coatings in the UV-Visible-Near IR. This
includes Edge Filters, Bandpass Filters, Hot Mirrors, Cold Mirrors,
Beamsplitters, Neutral Density Filters, Enhanced Metallics, Polarizer's,
Broadband AntiReflection Coatings, V Coats, High Reflectors, Dielectric
and Metallic Mirrors and Scanning Mirrors. The substrates and coated
components are used in various systems such as optical scanners, laser
systems, professional motion picture cameras and a myriad of other
industrial and scientific applications, as well as interferometry and
research and development.
Light and Color Measurement
............................
The Company is a world leader and innovator in high precision,
state-of-the-art electro-optical instrumentation and systems, which are
manufactured at Photo Research, the Company's Chatsworth, California
subsidiary. Photo Research has delivered world-class light and color
measurement solutions, serving the cathode ray tube ("CRT")/flat panel
display ("FPD"), automotive, aerospace, lighting, motion picture,
research and development and related industries for over 65 years.
The Company has three main product lines. The "Spectra" (registered
trademark) product line offers systems to a wide variety of industries
for research, quality control and on-line testing. This line includes
the only truly portable battery operated Spectroradiometer; the PR-650
fast scanning SpectraColorimeter. The PR-705/715 SpectraScan complements
this line with an automated aperture wheel that accommodates six
apertures.
The "Pritchard" (registered trademark) line originated with the
industry workhorse the PR-1980 series. The Pritchard is the most widely
used photometer in the world. The newer addition to this series is the
PR-880. This is the only fully automated filter photometer available
today. The PR-880 is ideal for today's automated factory and ATE/OEM
environments.
Photo Research developed the first commercially available video
photometer over 20 years ago. The newest and most advanced video
photometer, the PR-920 digital video photometer, is the latest addition
to this product line. Video instrumentation provides high-resolution
inspection of CRT and flat panel displays and instrument panels.
Photo Research Optical Metrology Laboratory (PROML) is a supplier
of optical radiation standards and calibration and measurement services
to major manufacturers of instruments, displays, devices and materials.
All Photo Research instruments are calibrated to NIST-traceable
standards.
The Company has developed many industry standards, such as Spectra?
Pritchard Optics, utilized in astronomical and star-simulation
measurements. The Company is also instrumental in supporting standards
for organizations including VESA, ISO and SAE.
In 2006, the Company introduced three new products; the PR-655
SpectraScan Colorimeter, the PR-670 four aperture Spectroradiometer and
the PR-680 SpectraDuo (patent pending).
The new PR-655 replaces the PR-650 with a plethora of enhancements.
For nearly 15 years, the PR-650 has been the most widely used
spectroradiometer. The PR-655 utilizes a fast-scanning 128 detector
element spectrometer with a spectral resolution of 3.13 nm per pixel.
The PR-670 instrument utilizes a fast-scanning 256 detector element
spectrometer with a spectral resolution of 1.56 nm per pixel and is
supplied with four automated measuring apertures and an automated
measure shutter. These devices are used in a myriad of industries and
applications. Some of these applications include motion picture, digital
cinema post-production, display, LED, automotive, aerospace, projector,
lighting and mobile phone manufacturers for R&D and for quality control.
In the medical field they are used in applications from measuring the
color of teeth, to measuring brain wave patterns, to diagnosing Anemia
by measuring the color of the eye. They are also used by toothpaste and
dental prosthetic manufacturers, universities and colleges, neurologists
and psychologists and the National Institute of Health.
The PR-680 SpectraDuo marks the beginning of a new era in light
measurement. This unique patent pending, battery powered portable
instrument is the first and only combined fast-scanning 256 detector
element spectroradiometer and PMT based photometer on the market. The
PR-680 has three operating modes: as a fast scanning spectroradiometer
(like the PR-670), as a highly sensitive photometer (like the PR-880)
and an auto Select mode which automatically selects between detectors
based on the available signal. Prior to the introduction of this
instrument, display manufacturers had to use two instruments, the PR-655
and the PR-880 in tandem to perform display luminance, color, contrast
and screen brightness measurements.
All three instruments described above feature full color touch
screen LCD displays, Secure Digital (SD) card storage, Lithium-ion
rechargeable batteries, USB ports and Bluetooth wireless communication.
All three instruments can be also controlled via our SpectraWin software
over the USB or Bluetooth interface or using text (ASCII) based commands
(Remote Mode).
Marketing and Sales
....................
The Company markets its products and services through several media
sources in addition to the presentation of its product lines at domestic
and international trade shows. The marketing and sales staff's efforts
are enhanced by means of presentations and training at conferences,
professional meetings, and through in-person and telephone sales and
support calls. The Company also engages independent manufacturers'
representatives for the sale of its products. Foreign sales of the
Company's products are made primarily through foreign equipment
distribution organizations, by representatives at:
Sales
Relationship Territory Staff Operations
to Company Covered Size Located In/Near
........................................................
Excel Europe German Europe 92 Munich, Germany
Subsidiary Frankfurt, Germany
Ludwigsburg, Germany
Savigny sur Orge,
France
Milan, Italy
Excel Japan Japanese Japan 27 Tokyo, Japan
Subsidiary
Excel Asia Malaysian Southeast Asia 12 Penang, Malaysia
Subsidiary
Excel SouthAsia Joint Venture
in India SouthAsia 54 Mumbai, India
These subsidiaries engage in the business of marketing,
distributing, installing, integrating and servicing laser systems (for
industrial, semiconductor, scientific, and electronic products)
manufactured at the Company's facilities in East Setauket, New York;
Santa Clara, California; Orlando, Florida; and Mukilteo, Washington. In
addition, they also provide spare parts for their installed base.
Net sales for foreign and domestic operations by origin is as
follows (in thousands):
The year ended December 31,
2006 2005 2004
......... ........ ........
Net sales and services to
unaffiliated customers from:
United Stated operations $116,984 $ 98,997 $ 96,927
European operations 28,908 28,867 27,928
Asian operations 8,604 9,853 11,776
......... ........ ........
$154,496 $137,717 $136,631
......... ........ ........
......... ........ ........
The following table presents the Company's net sales and services by
destination for the years ended December 31, 2006, 2005 and 2004 (in
thousands):
2006 2005 2004
Dollars Percent Dollars Percent Dollars Percent
........ ....... ........ ....... ........ .......
To U.S. Customers $ 57,713 37% $ 53,793 39% $ 50,907 37%
To Non-U.S. Customers 96,783 63% 83,924 61% 85,724 63%
........ ....... ........ ....... ........ .......
TOTAL $154,496 100% $137,717 100% $136,631 100%
........ ....... ........ ....... ........ .......
........ ....... ........ ....... ........ .......
Of the net sales and services to non-U.S. customers above, net
sales and services to customers in Germany accounted for approximately
$20.1 million, $19.8 million and $17.8 million of total consolidated net
sales and services for 2006, 2005, and 2004, respectively, and net sales
and services to customers in Japan accounted for approximately $17.0
million, $15.3 million and $19.1 million of total consolidated net sales
and services for 2006, 2005 and 2004, respectively. No other individual
foreign country accounted for more than 10% of total consolidated net
sales and services in 2006, 2005 or 2004.
Manufacturing
..............
The Company manufactures its products at its facilities in East
Setauket, New York; Orlando, Florida; Oxnard, California; Cambridge,
Massachusetts; Chatsworth, California; Santa Clara, California;
Mukilteo, Washington and Ludwigsburg, Germany. The Company relies upon
unaffiliated suppliers for the material components and parts used to
assemble its products. Most parts and components purchased from
suppliers are available from multiple sources. To date, the Company has
not experienced any significant delays in obtaining parts and components
for its products. The Company believes that it will be able to continue
to obtain most required components and parts from a number of different
suppliers, although there can be no assurance thereof. Lack of
availability of certain components could require major redesign of the
products and could result in production delays.
Warranty and Customer Services
...............................
The Company's warranty for its new products generally varies
between three months and twelve months. The Company also provides field
support services on an individual call basis and through service
maintenance contracts, and provides customer support services by
telephone to customers with operational and service problems.
Research and Development
.........................
Due to the intense competition and rapid technological change in
the photonics industry, and specifically for laser and optical products,
the Company believes that it must continue to improve and refine its
existing products and systems and develop new applications for its
technology. Research and development expenses for the years ended
December 31, 2006, 2005, and 2004 were $14.5 million, $14.5 million, and
$13.7 million, respectively.
Competition
............
The laser industry is subject to intense competition and rapid
technological change. Several of the Company's competitors are
substantially larger and have greater financial and other resources than
the Company. Competition among laser manufacturers extends to
attracting and retaining qualified technical personnel. The overall
competitive position of the Company will depend primarily upon a number
of factors, including the price and performance of its products, the
compatibility of its products with existing laser systems and the
Company's overall reputation in the laser industry.
The Company's marking/engraving systems compete primarily with
those manufactured by Rofin-Sinar, Electrox, Foba, Laservall, SEI
s.p.A., Cheval Frere, Fotona, E.O. Technics, Trumpf-Haas, IPG Photonics
and Hans Laser. These products are subject to intense price competition
in recent years.
The Company's laser micro-machining and automation systems compete
primarily with GSI Lumonics, Rofin-Sinar, Electro Scientific Industries
and other specialized systems manufacturers.
Competition for sealed carbon dioxide lasers comes from Coherent
(Bloomfield, CT), Rofin (Hull, UK), ULS (Scottsdale, AZ), and GSI
Lumonics (Rugby, UK).
In the optical scanner market, GSI Lumonics is a significant
competitor of the Company and there are a number of other small
competitors in the international markets.
The Company's scientific and industrial solid-state laser products
face a number of competing product lines from Spectra-Physics, Coherent,
Clark-MXR, Femtolaser, Thales Laser, Rofin-Sinar, GSI Lumonics and Cyber
Laser.
Competition for the high energy solid state laser products comes
from New Wave Research, Quantel Lasers and Big Sky Lasers, Spectra-
Physics, Thales Laser, Amplitide, GSI Lumonics, Litron and Ekspla.
In light and color measurement, the major competitor to the
Company's Spectra product is Minolta. Topcon is the prime competitor to
the Pritchard line. In video-based products, the company's video
photometer is utilized to characterize new display technologies, with
Radiant Imaging as its key competitor.
Backlog
........
As of December 31, 2006, the Company had a backlog of firm orders
of approximately $36.0 million as compared to a backlog of $33.0 million
as of December 31, 2005. The Company believes that the current backlog
will be filled during the present fiscal year. Historically, backlog is
shipped within 90 days from the order date.
Patents and Licenses
.....................
The Company has several United States patents covering a wide
variety of its products and has applications pending in the United
States patent office. There can be no assurance that any other patents
will be issued to the Company or that such patents, if and when issued,
will provide any protection or benefit to the Company. Although the
Company believes that its patents and its pending patent applications
are valuable, the Company does not consider the ownership of patents
essential to its business. The Company believes that, in general, the
best protection of proprietary technology in the laser industry will
come from market position, technical innovation and product performance.
There is no assurance that the Company will realize any of these
advantages.
Government Regulation
......................
The Company is subject to the laser radiation safety regulations of
the Radiation Control for Health and Safety Act administered by the
Center for Devices and Radiological Health (CDRH) of the United States
Food and Drug Administration ("FDA"). Among other things, these
regulations require a laser manufacturer to file new product and annual
reports, to maintain quality control and sales records, to perform
product testing, to distribute appropriate operating manuals, to
incorporate certain design and operating features in lasers sold to end-
users and to certify and label each laser sold to end-users as one of
four classes (based on the level of radiation from the laser that is
accessible to users). Various warning labels must be affixed and
certain protective devices installed depending on the class of product.
The National Center for Devices and Radiological Health is empowered to
seek fines and other remedies for violations of the regulatory
requirements. The Company believes that it is currently in compliance
with these regulations.
The FDA also imposes various requirements on manufacturers and
sellers of products under its jurisdiction, such as labeling,
manufacturing practices, record keeping and reporting requirements. The
FDA also may require post-market testing and surveillance programs to
monitor a product's effects. There can be no assurance that the
appropriate approvals from the FDA will be granted, that the process to
obtain such approvals will not be excessively expensive or lengthy or
that the Company will have sufficient funds to pursue such approvals at
the time they are sought. The failure to receive requisite approvals
for the Company's products or processes, when and if developed, or
significant delays in obtaining such approvals would prevent the Company
from commercializing its products as anticipated and would have a
materially adverse effect on the business of the Company.
Employees
..........
As of December 31, 2006, the Company had 704 full-time employees
consisting of 2 executive officers; 22 subsidiary executive officers;
223 scientists, engineering and technical personnel; and 456
manufacturing, administrative, sales support and finance personnel. The
Company believes that its relations with its employees are satisfactory.
None of the Company's employees is represented by a union.
Financial Information About Foreign and Domestic Operations and Export
.......................................................................
Sales
......
Net sales and services to customers in the domestic U.S. amounted
to approximately $57.7 million, $53.8 million and $50.9 million for the
years ended December 31, 2006, 2005, and 2004, respectively
(approximately 37%, 39% and 37% of total net sales and services,
respectively).
For the years ended December 31, 2006, 2005, and 2004, the Company
had net sales and services to customers in foreign countries amounting
to approximately $96.8 million, $83.9 million and $85.7 million,
respectively (approximately 63%, 61% and 63%, of total net sales and
services, respectively). These sales included sales by Excel Europe,
Excel Asia, Excel Japan, and Excel SouthAsia JV, the Company's foreign
subsidiaries. Excel Europe buys laser systems, spare parts and related
consumable materials from Quantronix, Baublys-Control Laser and Synrad
for resale to European and other foreign customers, and also furnishes
field repair services. Excel Asia primarily engages in the business of
marketing, selling, distributing, integrating and servicing Quantronix
and Baublys-Control Laser products in Southeast Asia. Excel Japan
engages in the business of marketing, selling, distributing, integrating
and servicing Quantronix and Continuum products in Japan. Excel
SouthAsia JV focuses on the business of marketing, sales, installation,
applications and service of Quantronix, Baublys-Control Laser and CSI
products in South Asia. See Note 13 of the "Notes to Consolidated
Financial Statements."
The carrying amounts of long-lived assets held by the Company's
foreign subsidiaries (Excel Europe, Excel Asia , Excel Japan and Excel
SouthAsia JV) at December 31, 2006, 2005 and 2004 primarily include
property, plant and equipment and goodwill whose combined carrying
amounts were approximately $8.1 million, $7.1 million and $7.0 million,
respectively. The carrying amounts of the aforementioned long-lived
assets held by the Company's domestic subsidiaries at December 31, 2006,
2005 and 2004 were approximately $49.7 million, $50.5 million and $51.8
million, respectively.
Access to Information
......................
The Company is required to file its annual reports on Forms 10-K
and quarterly reports on Forms 10-Q, and other reports and documents as
required from time to time with the United States Securities and
Exchange Commission (the "SEC"). The public may read and copy any
materials that we file with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, NW, Washington, DC 20549. Such information may be
obtained from the Public Reference Room by calling the SEC at 1-800-SEC-
0330. The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information regarding the
Company's electronic filings with the SEC at http://www.sec.gov.
The Company's website is located at http://www.exceltechinc.com.
At this website, users can access, free of charge, the Company's filings
with the SEC and annual, quarterly, and current reports as soon as
reasonably practicable after such material is electronically filed with
or furnished to the SEC. In addition, the Company will provide
electronic or paper copies of such reports free of charge upon request.
Requests may be made by calling Investor Relations at (631) 784-6175 or
by writing to Investor Relations at 41 Research Way, East Setauket, New
York 11733.
Safe Harbor For Forward-Looking Statements Under the Securities
Litigation
.........................................................................
...
Reform Act of 1995
...................
This Annual Report on Form 10-K and the other reports, releases,
and statements (both written and oral) issued by the Company and its
officers from time to time may contain statements concerning the
Company's future results, future performance, intentions, objectives,
plans, and expectations that are deemed to be "forward-looking
statements." Such statements are made in reliance upon safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
Company's actual results, performance, and achievements may differ
significantly from those discussed or implied in the forward-looking
statements as a result of a number of known and unknown risks and
uncertainties including, without limitation, those discussed below and
in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." In light of the significant uncertainties
inherent in such forward-looking statements, the inclusion of such
statements should not be regarded as a representation by the Company or
any other person that the Company's objectives and plans will be
achieved. Words such as "believes," "anticipates," "expects,"
"intends," "may," and similar expressions are intended to identify
forward-looking statements, but are not the exclusive means of
identifying such statements. The Company undertakes no obligation to
revise any of these forward-looking statements.
Sometimes the Company communicates with securities analysts. It is
against the law and the Company's policy to disclose to analysts any
material non-public information or other confidential commercial
information. You should not assume that the Company agrees with any
statement or report issued by any analyst regardless of the content of
the statement or report. The Company has a policy against issuing
financial forecasts or projections or confirming the accuracy of
forecasts or projections issued by others. If reports issued by
securities analysts contain projections, forecasts or opinions, those
reports are not the responsibility of the Company.
ITEM 1A. RISK FACTORS
The risks presented below may not be all of the risks the Company
may face. These are the factors that the Company believes could cause
actual results to be different from expected and historical results.
Other sections of this report include additional factors that could have
an effect on the Company's business and financial performance. The
industry that the Company competes in is very competitive and changes
rapidly. Sometimes new risks emerge and management may not be able to
predict all of them, or be able to predict how they may cause actual
results to be different from those contained in any forward-looking
statements. You should not rely upon forward-looking statements as a
prediction of future results.
Uncertain Market Acceptance. The Company's overall marketing
objective is to strengthen its presence in existing markets, and
establish its market presence in other industrial markets. With any
technology, there is the substantial risk that the market may not
appreciate the benefits or recognize the potential applications of the
technology. Market acceptance of the Company's products will depend, in
large part, upon the ability of the Company to demonstrate the potential
advantages of its products over products manufactured by other
companies. There can be no assurance that the Company will be able to
achieve all or any of its marketing objectives, or that the Company's
products will be accepted in their intended marketplaces on any
significant basis.
Intense Competition. The photonics industry, particularly for
laser and electro-optical component products, generally is subject to
intense competition. The Company's current and proposed products
compete with existing and proposed products marketed by other
manufacturers. Some of the Company's competitors are substantially
larger in size and have substantially greater financial, managerial,
technical and other resources than the Company. There can be no
assurance that the Company will successfully differentiate its current
and proposed products from the products of its competitors or that the
marketplace will consider the Company's products to be superior to
competing products.
Technological Obsolescence. The laser and electro-optical
component industry is characterized by extensive research and rapid
technological change. The development by others of new or improved
products, processes or technologies may make the Company's current or
proposed products obsolete or less competitive.
Compliance with Government Regulations. The Company currently is
subject to the laser radiation safety regulations of the Radiation
Control for Health and Safety Act administered by the National Center
for Devices and Radiological Health of the FDA. The National Center for
Devices and Radiological Health is empowered to seek fines and other
remedies for violations of these regulatory requirements.
Patent Protection. The Company's ability to effectively compete
may depend upon the proprietary nature of its technologies. The Company
owns several patents and has other applications pending. The Company
expects to file additional patent applications in the future. There can
be no assurance, however, that other companies are not investigating or
developing other technologies that are similar to the Company's
technologies, or that any additional patents will be issued to the
Company or that such patents will afford the Company sufficiently broad
patent coverage to provide any significant deterrent to competitive
products. Even if a competitor's products were to infringe products
owned by the Company, it could be very costly for the Company to enforce
its rights in an infringement action. The validity and enforceability
of such patents may be significant to the Company and may be important
to the success of the Company. The Company, however, believes that the
best protection of proprietary technology in the laser industry comes
from market position, technical innovation and product performance.
There can be no assurance that any of these will be realized or
maintained by the Company.
The Company has obtained licenses under certain patents covering
lasers and related technology incorporated into the Company's products.
However, there may be other patents covering the Company's current or
proposed products. If valid patents are infringed, the patent owner
will be able to prevent the future use, sale and manufacture of the
subject products by the Company and also will be entitled to damages for
past infringement. Alternatively, the Company may be required to pay
damages for past infringement and license fees or royalties on future
sales of the infringing components of its systems. Infringement of any
patents also may render the Company liable to purchasers and end-users
of the infringing products. If a patent infringement claim is asserted
against the Company, the defense of such claim may be very costly
(whether or not the Company is successful in defending such claim).
While the Company is unable to predict what such costs, if any, will be
incurred if the Company is obligated to devote substantial financial or
management resources to patent litigation, its ability to fund its
operations and to pursue its business goals may be substantially
impaired.
Dependence on Suppliers. The Company relies on outside suppliers
for most of its manufacturing supplies, parts and components. Most
parts and components used by the Company currently are available from
multiple sources. There can be no assurance that, in the future, its
current or alternative sources will be able to meet all of the Company's
demands on a timely basis. Unavailability of necessary parts or
components could require the Company to re-engineer its products to
accommodate available substitutions which would increase costs to the
Company and/or have a material adverse effect on manufacturing
schedules, product performance and market acceptance.
Dependence on Resellers, Distributors and OEMs. The Company sells
some of its products through resellers, distributors and OEMs. Reliance
upon third party distribution sources subjects the Company to risks of
business failure by these individual resellers, distributors and OEMs,
and potential credit, inventory and business concentration risks.
Dependence on Foreign Sales. A significant amount of the Company's
product sales are made to customers outside the United States. These
sales are subject to the normal risks of foreign operations, such as:
- Currency fluctuations
- Protective tariffs
- Trade barriers and export/import controls
- Transportation delays and interruptions
- Reduced protection for intellectual property rights in some
countries
- The impact of recessionary foreign economies
- Longer receivable collection periods
The Company cannot predict whether the United States or any other
country will impose new quotas, tariffs, taxes or other trade barriers
upon the importation of the Company's products or supplies, or gauge the
effect that new barriers would have on its financial position or results
of operations.
Manufacturing. The Company assembles its products at its various
facilities in the United States and Germany. If use of any of the
Company's manufacturing facilities were interrupted by natural disaster
or otherwise, the Company's operations could be negatively affected
until the Company could establish alternative production and service
operations. In addition, the Company may experience production
difficulties and product delivery delays in the future as a result of:
- Changing process technologies
- Ramping production
- Installing new equipment at its manufacturing facilities
- Shortage of key components
Financial Performance. The Company's operating results may vary in
the future as a result of a number of factors, including:
- Changes in technology
- New competition
- Economic conditions
- Customer demand
- A shift in the mix of the Company's products
- A shift in sales channels
- The market acceptance of new or enhanced versions of the
Company's products
- The timing of introduction of other products and
technologies
- Any cancellation or postponement of orders
- Any charges to earnings associated with the foregoing
Research and Development. The Company is active in research and
development of new products and technologies. The Company's research
and development efforts may not lead to the successful introduction of
new or improved products. The Company may encounter delays or problems
in connection with its research and development efforts. New products
often take longer to develop, have fewer features than originally
considered desirable and cost more to develop than initially estimated.
There may be delays in starting volume production of new products and
new products may not be commercially successful. Products under
development are often announced before introduction and these
announcements may cause customers to delay purchases of existing
products until the new or improved versions of those products are
available. Delays or deficiencies in development, manufacturing,
delivery of, or demand for, new products or higher development cost,
could have a negative affect on the Company's business, operating
results or financial condition.
Acquisitions. The Company has in the past and may in the future
acquire businesses or product lines as a way of expanding its product
offerings and acquiring new technology. If the Company does not
identify future acquisition opportunities and/or integrate businesses
that it may acquire effectively, the Company's growth may be negatively
affected.
Product Liability Claims. The testing, manufacturing, marketing
and sale of laser products subjects the Company to the risk of liability
claims or product recalls. Although the Company maintains product
liability insurance in the countries in which it conducts business, the
Company cannot assure that such coverage is adequate or will continue to
be available at affordable rates. Product liability insurance is
expensive and may not be available in the future on acceptable terms, if
at all. A product recall or successful product liability claim could
inhibit or prevent commercialization of the Company's products, impose a
significant financial burden on the Company, or both, and could have a
material adverse effect on the Company's business and financial
condition.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
North America
..............
East Setauket, New York
........................
Quantronix owns a building that is approximately 65,000 square
feet. The facility is utilized for manufacturing operations,
administrative offices, research and development, engineering and laser
applications.
Orlando, Florida
.................
Baublys-Control Laser owns and occupies 50% of a building that is
approximately 80,000 square feet, which it utilizes for administrative
offices, manufacturing, and research and development. In addition, CSI
occupies approximately 50% of this building, which it utilizes for all
of its operating activities.
Oxnard, California
...................
TOC leases a 14,000 square foot building in Oxnard, California from
an unaffiliated landlord for manufacturing purposes, at an annual rent
of approximately $102 thousand. The lease term expires in August 2009.
Lexington, Massachusetts
.........................
Cambridge leases a 33,339 square foot building in Lexington,
Massachusetts and an office in Auburn, California from unaffiliated
landlords for manufacturing operations, administrative and sales
offices. The leases expire in December 2016 and May 2007, respectively,
at an average aggregate annual rent of approximately $566 thousand.
Chatsworth, California
.......................
Photo Research owns and occupies a 22,000 square foot building in
Chatsworth, California used for manufacturing operations and
administrative offices.
Mukilteo, Washington
.....................
Synrad owns and occupies a 63,000 square foot building in Mukilteo,
Washington used for its administrative offices and manufacturing
operations.
Santa Clara, California
........................
Continuum leases a 47,000 square foot building from an unaffiliated
landlord for manufacturing purposes, at an annual rent of approximately
$240 thousand. The lease is for a five-year period ending in December
2008.
Europe
.......
Darmstadt, Germany
...................
Excel Europe and its division Quantronix Europe lease approximately
7,800 square feet of office space in Darmstadt, Germany, which it uses
for sales, marketing and services. The space is leased from an
unaffiliated landlord at an average annual rent of approximately ? 84
thousand. The lease expires in December 2009.
Munich, Germany
................
Excel Europe maintains a satellite office in Munich, Germany, for
Synrad's European sales, marketing and service operation. The office
occupies approximately 7,800 square feet of space. The space is leased
from an unaffiliated landlord, at an average annual rent of
approximately 74 thousand euros. The lease expires in December 2008.
Ludwigsburg, Germany
.....................
Baublys-Control Laser operates out of a 22,500 square foot facility
located in Ludwigsburg, Germany, which houses its sales and marketing,
research and development, manufacturing and services operations and
executive offices. The facility is leased from an unaffiliated landlord
at an average annual rent of approximately ? 146 thousand. The lease
expires in June 2008.
Milan, Italy
.............
Excel Europe also maintains a sales and service office near Milan,
Italy. The lease provides approximately 750 square feet of office space
from an unaffiliated landlord at an approximate annual rent of 8.5
thousand euros. The lease expires in November 2009.
Savigny Sur Orge, France
.........................
Excel Europe also maintains a sales and service office in Savigny
Sur Orge, France, located outside of Paris. The lease provides
approximately 2,800 square feet of office space from an unaffiliated
landlord at an approximate annual rent of 30.5 thousand euros. The
lease expires in December 2007.
Northumberland, United Kingdom
...............................
DGE operates out of a facility located in Northumberland, England,
which it uses for sales and marketing, manufacturing and administrative
offices. The lease provides approximately 4,000 square feet of space
from an unaffiliated landlord at an approximate annual rent of 18
thousand GBP. The lease expires in February 2010.
Asia
.....
Penang, Malaysia
.................
Excel Asia leases a 7,597 square foot facility in Penang Free
Industrial Zone, Penang, Malaysia and a sales office in Kuala Lumpur,
Malaysia from unaffiliated landlords. The buildings are utilized as a
regional operations hub which houses the administrative offices, the
light repair and integration services, technical and support offices, as
well as applications laboratories for regional support. The annual rent
is approximately $40 thousand. The leases expire in December 2008 and
March 2007.
Tokyo, Japan
.............
Excel Technology Japan leases approximately 5,500 square feet of
facilities in Tokyo, Japan from unaffiliated landlords. The spaces
house all its operations, administration and sales and marketing and a
warehouse. The annual rent is approximately $150 thousand. The leases
expire in September 2008 and October 2008.
Mumbai, India
..............
Excel SouthAsia JV owns and occupies a 16,769 square foot building
in Mumbai, India. Sales offices, service and repair centers, and a
laser applications laboratory are all contained within this facility.
Colombo, Sri Lanka
...................
Excel Technology-Lanka leases a 4,500 square foot office in
Colombo, Sri Lanka from an unaffiliated landlord. This space houses our
operations to support our internal use software development activities.
The annual rent is approximately $19 thousand. The lease expires in
April 2008.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are subject to various claims,
which have arisen in the normal course of business. The impact of the
final resolution of these matters on the Company's results of operations
or liquidity in a particular reporting period is not known. Management
is of the opinion, however, that the ultimate outcome of such matters
will not have a material adverse effect upon the Company's financial
condition or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on December
6, 2006. At the Meeting:
(i) The following persons were elected as directors of the
Company, to serve until the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified, each receiving
the number of votes set forth opposite their names:
FOR WITHHELD
......... ........
J. Donald Hill 9,883,395 259,936
Antoine Dominic 9,714,430 428,901
Steven Georgiev 9,424,796 718,535
Ira J. Lamel 9,598,924 544,407
Donald E. Weeden 9,597,132 546,199
(ii) The appointment of KPMG LLP as the Company's independent
registered public accounting firm for the year ending December 31, 2006
was ratified, with 10,096,963 shares voting in favor of the appointment,
39,123 shares voting against, and 7,244 shares abstaining from voting.
(iii) The Company's 2006 Stock Option / Stock Issuance Plan was
ratified and approved, with 5,674,181 shares voting in favor of the
plan, 1,054,356 shares voting against, 21,746 shares abstaining from
voting and 3,393,048 shares unvoted.
(iv) The Company's 2006 Annual Incentive Compensation Plan for Key
Executives was ratified and approved, with 9,954,552 shares voting in
favor of the plan, 152,912 shares voting against, and 35,865 shares
abstaining from voting.
PART II
........
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
The Company's Common Stock trades on the NASDAQ National Market
System under the symbol "XLTC." The following table sets forth the high
and low closing sales prices reported on the NASDAQ for the Common Stock
for the periods indicated.
Year ended: High Low
December 31, 2006
First Quarter $29.95 $23.86
Second Quarter $29.92 $29.43
Third Quarter $29.84 $28.90
Fourth Quarter $29.64 $24.87
December 31, 2005
First Quarter $26.66 $21.04
Second Quarter $27.21 $20.13
Third Quarter $26.77 $22.44
Fourth Quarter $26.49 $23.03
As of February 15, 2007, there were approximately 623 holders of
record of the Common Stock.
Dividend Policy
The Company has never paid cash dividends on its common stock.
Payment of dividends to holders of the common stock is within the
discretion of the Company's Board of Directors and will depend, among
other factors, on earnings, capital requirements and the operating and
financial condition of the Company. At the present time, the Company's
anticipated capital requirements are such that it intends to follow a
policy of retaining its earnings, if any, in order to finance the
development of its business.
Issuer Purchases
Effective November 1, 2006, the Company's Board of Directors
authorized a stock buy-back program for the repurchase of up to
2,000,000 shares of its common stock. Purchases have occurred and will
continue to occur from time to time in open market transactions or
privately negotiated transactions at the Company's discretion, including
the quantity, timing and price thereof. This program replaced the
program that the Board of Directors had authorized in January 1998.
A summary of the activity by month is as follows:
Total number Maximum Number
of shares pur- of shares that
Total number chased as part may yet be
of shares Average price of publicly purchased
purchased paid per announced plan under the plan
Period (In thousands) share (In thousands) (In thousands)
.............. .............. ............ ............... ..............
October 2006 0 N/A 0 1,211
November 2006 80 $25.72 80 1,920
December 2006 0 N/A 1,920
Total 80 80 1,920
Equity Compensation Plans
The following table summarizes the Company's equity compensation
plans as of December 31, 2006:
Number of securities
to be issued upon Weighted average Number of securities
exercise of exercise price of remaining available
outstanding options outstanding options for future issuance
Plan category (In thousands) (In thousands)
........................................................... .................... ................... .....................
Equity compensation plans approved by security holders 1,299 $ 21.51 760 <F1>
Equity compensation plans not approved by security holders 0 0 0
..... ....... .....
Total 1,299 $ 21.51 760 <F1>
<F1> Includes 750,000 shares which are available to be issued as restricted stock pursuant to the Company's 2006 Stock Option /
Stock Issuance Plan.
</FN>
STOCK PERFORMANCE GRAPH
The following chart compares the yearly percentage change in the
cumulative total stockholder return on the Common Stock during the
period from December 31, 2001 through December 31, 2006, with the
cumulative total return on the S&P 500 and the Company Peer Group. The
Company Peer Group is made up of the following 6 companies all of which
are in the laser technology field: Coherent, Inc., Electro Scientific
Industries, Inc., Rofin-Sinar Technologies, Inc., Spectranetics
Corporation (The), Cymer, Inc. and GSI Lumonics, Inc.
Comparison of 5 Year Cumulative Total Return
(Assumes Initial Investment of $100 & Reinvestment of Dividends)
2001 2002 2003 2004 2005 2006
.... ...... ...... ...... ...... ......
EXCEL TECH INC $100 102.82 188.84 149.42 136.66 147.08
S&P 500 Index -
Total Return $100 77.89 100.23 111.13 116.57 134.98
Peer Only $100 81.69 120.81 109.29 122.23 135.23
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statement of income data for the years
ended December 31, 2006, 2005 and 2004, and the consolidated balance
sheet data as of December 31, 2006 and 2005, have been derived from the
Company's audited consolidated financial statements included elsewhere
in this Annual Report on Form 10-K. The selected consolidated statement
of income data for the years ended December 31, 2003 and 2002, and the
selected consolidated balance sheet data as of December 31, 2004, 2003
and 2002, are derived from the Company's audited consolidated financial
statements which are not included in this Annual Report on Form 10-K.
The following tables summarize (in thousands, except per share
data) the Company's consolidated statement of income and balance sheet
data. You should read this information together with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's consolidated financial statements and
notes to those statements included elsewhere in this Annual Report on
Form 10-K.
Statement of Income Data (in thousands, except per share data)
Year Ended December 31,
..............................................
2006 2005 2004 2003 2002
........ ........ ........ ........ .......
Net sales and services $154,496 $137,717 $136,631 $122,681 $94,513
Net income $ 14,019 $ 15,208 $ 14,762 $ 11,318 $ 8,512
Net income per share
Basic $1.16 $1.26 $1.23 $0.95 $0.72
Diluted $1.12 $1.24 $1.20 $0.93 $0.71
Weighted average common
and common equivalent
shares outstanding
Basic 12,071 12,054 12,026 11,853 11,792
Diluted 12,488 12,246 12,351 12,231 12,071
Balance Sheet Data (in thousands)
As of December 31,
............................................
2006 2005 2004 2003 2002
........ ........ ........ ........ ........
Total assets $181,979 $164,038 $152,478 $133,738 $118,724
Total liabilities $ 18,254 $ 15,348 $ 16,477 $ 16,466 $ 16,467
Working capital $110,548 $ 94,656 $ 80,006 $ 59,540 $ 44,765
Stockholders' equity $163,725 $148,690 $136,001 $117,272 $102,257
Long-term liabilities $ 4,612 $ 3,540 $ 2,807 $ 997 $ 180
Refer to Item 1 "Business" and Item 8 "Financial Statements and
Supplementary Data" for additional information affecting the
comparability of amounts above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
General
........
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and notes thereto set
forth in Item 8.
Overview
.........
The Company designs, manufactures and markets a variety of
photonics-based solutions primarily consisting of laser systems and
electro-optical components for industrial and scientific applications.
The company's current range of products include laser marking and
engraving systems, laser micro-machining systems, CO2 lasers, optical
scanners, high power solid state CW and Q-switched lasers, Ultrafast
lasers, high energy solid state pulsed lasers, precision optical
components and light and color measurement instruments. The laser and
electro-optical industry is subject to intense competition and rapid
technological developments. Our strength and success is dependent upon
us developing and delivering successful, timely and cost effective
solutions to our customers. The Company believes, for it to maintain
its performance, it must continue to increase its operational
efficiencies, improve and refine its existing products, expand its
product offerings and develop new applications for its technology. The
Company's strategy is to grow internally and through acquisitions of
complementary businesses. Historically the Company has successfully
integrated acquired companies into its existing operations.
Details on our operations are discussed in our MD&A.
Critical Accounting Policies and Estimates
...........................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations discusses the Company's consolidated financial
statements, which have been prepared in accordance with U.S. generally
accepted accounting principles. The preparation of these financial
statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the 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. On an on-going basis, management evaluates its
estimates and judgments, including those related to revenue recognition,
bad debts, inventories, and income taxes. Management bases its
estimates and judgments on historical experience and on various other
factors that are believed to be relevant under the circumstances, the
results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Management believes the following critical accounting policies
affect its more significant judgments and estimates used in the
preparation of its consolidated financial statements.
Revenue Recognition
....................
The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements" ("SAB 104"), as amended. SAB 104 requires that the
following four basic criteria must be met before revenue can be
recognized: 1) persuasive evidence of an arrangement exists; 2) delivery
has occurred or services have been rendered; 3) the fee is fixed and
determinable; and 4) collectibility is reasonably assured. Generally,
the Company receives a customer purchase order as evidence of an
arrangement and product shipment terms are F.O.B. shipping point.
The Company's revenues are generated from: 1) product sales,
product upgrades and replacement part sales; 2) maintenance agreements;
and 3) services. The Company's product lines principally consist of
laser-based systems and electro-optical components used in a wide range
of applications by different types of end-users and are often used as
sub-assemblies required for end products manufactured by the customer.
Revenue relating to these products is recognized upon transfer of title
and risk of loss to the customer, which is generally the shipment date,
assuming the other criteria of SAB 104 are met. If title and risk of
loss do not pass to the customer until the product reaches the
customer's delivery site, then recognition of revenue is deferred until
that time. Related shipping and handling costs are included in cost of
sales and services. With respect to maintenance agreements, revenue is
recognized and customers are generally billed on a monthly or quarterly
basis over the term of the agreement. When a customer pays an annual
maintenance fee, it is recorded as deferred revenue and recognized as
revenue ratably over the term of the agreement. For services rendered,
customers are billed and revenues are recognized as the related services
are performed. When a sales arrangement involves multiple elements,
such as the sale of products that require installation, training or
other services, the Company records deferred revenue for the fair value
of the undelivered element and recognizes the revenue when the revenue
recognition criteria for that element is met. Fair value is established
for an element based on the price when the element is sold separately.
The Company has entered into contracts to design, develop and
produce laser systems to customer specifications. These contracts
specify milestones and related progress billings and typically include
terms that specify progress payments are non-refundable or the customer
may terminate the contract for convenience, at which time the Company
will be paid a percentage of the contract price that reflects the
percentage of work performed to that date. Such contracts are accounted
for in accordance with AICPA Statement of Position 81-1, "Accounting for
Performance of Construction - Type and Certain Production - Type
Contracts," whereby revenue is recognized under the percentage-of-
completion method with the extent of progress towards completion
measured by the achievement of contractual milestones.
The Company manufactures one product called a Photomask Defect
Repair System ("DRS") that is a laser-based system for use in
semiconductor photomask repair. The DRS provides a means to repair
defects on the complex photomasks used to produce integrated circuits.
These are very large, highly complex machines, customized for each
customer and ranging in price from $1.5 million to $2.0 million per unit
(based upon the most recent range of historical sales prices). The
terms of sale with respect to DRS's require that the Company perform
installation due to the technical expertise required for this product.
Due to the nature of the post-shipment installation obligations with
respect to the DRS's, the Company defers revenue recognition on the sale
of DRS's until installation has been completed.
Allowances for Doubtful Accounts
.................................
The Company is required to estimate the collectibility of its trade
receivables. A considerable amount of judgment is required in assessing
the ultimate realization of receivables, including the current credit-
worthiness of each customer. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of
its customers to make required payments. If the financial condition of
the Company's customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be
required. The collectibility of accounts receivable is evaluated based
on a combination of factors. In circumstances where the Company is
aware of a specific customer's inability to meet its financial
obligations (e.g., bankruptcy filings), a specific reserve for bad debts
is recorded against amounts due, to reduce the net recognized receivable
to the amount the Company reasonably believes will be collected. For
all other customers, management estimates an allowance for bad debts
based upon the total accounts receivable balance and the percentage
expected to be realized through subsequent cash collections. If
circumstances change (i.e., higher than expected defaults or an
unexpected material adverse change in a major customer's ability to meet
its financial obligations to us), the Company's estimates of the
recoverability of amounts due to the Company could be reduced by a
material amount.
Inventories
............
On a quarterly basis, the Company compares the amount of inventory
on hand and under commitment with its latest forecasted requirements and
historical usage or sales to determine whether write-downs for excess or
obsolete inventory are required. Although the write-downs for excess or
obsolete inventory reflected in the Company's consolidated balance sheet
at December 31, 2006 and 2005 are considered adequate by the Company's
management, there can be no assurance that these write-downs will prove
to be adequate over time to cover ultimate losses in connection with the
Company's inventory. In addition, the Company will reduce the carrying
value of its finished goods inventory to net realizable value, if the
selling price of the product is less than its cost.
Income Taxes
.............
The Company records a valuation allowance to reduce its deferred
tax assets to the amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the
need for the valuation allowance, in the event the Company were to
determine that it would not be able to realize all or part of its net
deferred tax assets in the future, an adjustment to the deferred tax
assets would be charged to income in the period such determination was
made. Likewise, should the Company determine that it would be able to
realize its deferred tax assets in the future in excess of its net
recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made. As of December 31,
2006 and 2005, the Company has approximately $1.0 million and $1.8
million of net deferred tax liabilities, respectively, related
principally to inventory basis differences and tax deductible goodwill
amortization. Should future pretax book income and taxable income be
considerably lower than projected, an increase to the valuation
allowance may be required.
Recent Accounting Pronouncements
.................................
In September 2006, the FASB issued FASB Staff Position AUG AIR-1,
"Accounting for Planned Major Maintenance Activities" which is effective
for fiscal years beginning after December 15, 2006. This position
statement eliminates the accrue-in-advance method of accounting for
planned major maintenance activities. Management has evaluated the new
statement and has determined that it will not have a material affect on
the Company's consolidated financial statements.
In September 2006, the FASB issued SFAS No. 158, "Employers'
Accounting for Defined Benefit Pension and Other Postretirement Plans -
an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("SFAS
158"). SFAS 158 requires that employers recognize on a prospective
basis the funded status of their defined benefit pension and other
postretirement plans on their consolidated balance sheet and recognize
as a component of other comprehensive income, net of tax, the gains or
losses and prior service costs or credits that arise during the period
but are not recognized as components of net periodic benefit cost. SFAS
No. 158 also requires additional disclosures in the notes to financial
statements. SFAS No. 158 is effective as of the end of fiscal years
ending after December 15, 2006. Management concluded that this
statement will not impact the Company's consolidated financial
statements, as the Company has no defined benefit pension or other
postretirement plans.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" ("SFAS 157"), which defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements. Adoption is required as of the beginning of the first
fiscal year that begins after November 15, 2007. SFAS No. 157 applies
under other accounting pronouncements that require or permit fair value
measurements and does not require any new fair value measurements.
Management is evaluating the impact the adoption of this statement will
have on the Company's consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation No. ("FIN") 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation of SFAS
No. 109," which clarifies the accounting for uncertainty in income taxes
recognized in the financial statements in accordance with SFAS No. 109,
"Accounting for Income Taxes." FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be
taken in a tax return. Any change in the net assets or liabilities
recognized as a result of adopting the provisions of FIN 48 would be
recorded as an adjustment to the opening balance of retained earnings.
FIN 48 is effective for the Company for 2007. Management is evaluating
the impact, if any, the adoption of FIN 48 will have on the Company's
consolidated financial statements.
In March 2006, the Emerging Issues Task Force ("EITF") issued EITF
Issue 06-3, "How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement
(That Is, Gross verses Net Presentation)." A consensus was reached that
entities may adopt a policy of presenting sales taxes and other similar
taxes in the income statement on either a gross (included in revenues
and costs) or net (excluded from revenues) basis. If these types of
taxes are significant, an entity should disclose its policy of
presenting taxes and the amounts of taxes. The guidance is effective
for periods beginning after December 15, 2006. The Company presents
sales net of sales taxes. This Issue will not impact the method for
recording these sales taxes in the Company's consolidated financial
statements.
In March 2006, the FASB issued SFAS No. 156, "Accounting for
Servicing of Financial Assets" ("SFAS 156"), which requires all
separately recognized servicing assets and servicing liabilities be
initially measured at fair value. SFAS 156 permits, but does not
require, the subsequent measurement of servicing assets and servicing
liabilities at fair value. Adoption is required as of the beginning of
the first fiscal year that begins after September 15, 2006. Management
has evaluated the new statement and has determined that it does not have
a material affect on the Company's consolidated financial statements.
In February 2006, the FASB issued SFAS No. 155, "Accounting for
Certain Hybrid Financial Instruments." This Statement amends SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" and
SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" and provides for simplified
accounting for certain hybrid financial instruments by permitting fair
value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation and by
eliminating a restriction on the passive derivative instruments that a
qualifying special-purpose entity (SPE) may hold. This Statement is
effective for all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September
15, 2006. Management has evaluated the new statement and has determined
that it does not have a material affect on the Company's consolidated
financial statements.
Results of Operations
......................
The following table presents consolidated financial data for the
years ended December 31, 2006, 2005 and 2004 (in thousands of dollars
and as a percentage of total net sales and services).
2006 2005 2004
................ ................ ................
Dollars Percent Dollars Percent Dollars Percent
........ ....... ........ ....... ........ .......
Net Sales and
Services $154,496 100.0% $137,717 100.0% $136,631 100.0%
Cost of Sales and
Services 85,602 55.4% 72,295 52.5% 72,723 53.2%
........ ....... ........ ....... ........ .......
Gross Profit/Margin 68,894 44.6% 65,422 47.5% 63,908 46.8%
Operating Expenses:
Selling and
Marketing 18,745 12.1% 18,959 13.8% 18,850 13.8%
General and
Administrative 13,051 8.4% 12,448 9.0% 11,341 8.3%
Research and
Development 14,523 9.4% 14,477 10.5% 13,710 10.0%
Merger Related and De-
ferred Compensation 2,875 1.9% 0 0% 0 0%
........ ....... ........ ....... ........ .......
Income from Operations 19,700 12.8% 19,538 14.2% 20,007 14.6%
Non-Operating Income 742 0.5% 1,133 0.8% 973 0.7%
........ ....... ........ ....... ........ .......
Income before
Provision for
Income Taxes 20,442 13.3% 20,671 15.0% 20,980 15.4%
Provision for
Income Taxes 6,423 4.2% 5,463 4.0% 6,218 4.6%
........ ....... ........ ....... ........ .......
Net Income $ 14,019 9.1% $ 15,208 11.0% $ 14,762 10.8%
........ ....... ........ ....... ........ .......
........ ....... ........ ....... ........ .......
Net Sales and Services
.......................
Net sales and services for 2006 increased to $154.5 million from
$137.7 million in 2005, an increase of $16.8 million or 12.2%. Net
sales and services for 2005 increased to $137.7 million from $136.6
million in 2004. Sales of CO2 lasers, scanners, marking systems and high
energy solid-state laser systems were the primary contributors towards
our increase in sales from 2005 to 2006. The increase from 2004 to 2005
of $1.1 million or 0.8% was attributable to increased sales of most
product lines with the exception of scanners.
Gross Margins and Cost of Sales
................................
Gross margins in 2006 were 44.6% compared to 47.5% in 2005. Cost
of sales and services increased by $13.3 million or 18.4% to $85.6
million in 2006 from $72.3 million in 2005. The decrease in gross
margins is due to the mix of products being sold, which have different
levels of variable costs. Gross margins also vary from direct sales to
distributor sales. In addition, the gross profit and margins were
negatively affected in 2006 due to a higher provision for excess
inventory for some discontinued product lines and lower margins
associated with a newly introduced product during the initial phase of
production. The increase in cost of sales and services from 2005 to
2006 is primarily attributable to the increased sales volume. Gross
margins in 2005 were 47.5% compared to 46.8% in 2004. Cost of sales and
services decreased by $428 thousand or 0.6% to $72.3 million in 2005
from $72.7 million in 2004. The increase in gross margins and the
decrease in cost of sales and services from 2004 to 2005 are primarily
attributable to the product mix.
Operating Expenses
...................
Selling and Marketing
Selling and marketing expenses were $18.7 million in 2006 compared
to $19.0 million in 2005 and $18.9 million in 2004. The decrease of
$213 thousand or 1.1% from 2005 to 2006 was primarily attributable to
lower costs associated with a reduced sales force due to loss of
personnel while the terminated merger with Coherent was pending.
Increased sales by distributors as contrasted to direct sales also
reduced selling costs. The increase of $109 thousand or 0.6% from 2004
to 2005 was primarily attributable to the variable costs, such as
commissions, associated with increased sales volume and our additional
fixed costs associated with expanding our US and global sales and
marketing efforts. Selling and marketing expenses as a percentage of
sales were 12.1% in 2006 and 13.8% in 2005 and 2004. The decrease in
selling and marketing expenses as a percentage of sales from 2005 to
2006 is primarily attributable to fixed personnel costs being absorbed
by higher sales volume. Selling and marketing expenses as a percentage
of sales remained the same in 2005 and 2004.
General and Administrative
General and administrative expenses from 2005 to 2006 increased
$602 thousand or 4.8% to $13.1 million. The increase is primarily
attributable to higher bonus expense as a result of higher operating
income. General and administrative expenses were $12.4 million in 2005
as compared with $11.3 million in 2004. The increase of $1.1 million or
9.8% from 2004 to 2005 was primarily attributable to a litigation
settlement charge of $575 thousand and increased legal fees, primarily
for the Dr. Phillips lease dispute litigation. General and
administrative expenses as a percentage of sales decreased to 8.4% in
2006 as compared to 9.0% in 2005 and 8.3% in 2004. From 2005 to 2006,
general and administrative expense as a percentage of sales decreased
due to an increased sales volume, as many general and administrative
costs are fixed in nature and do not significantly fluctuate as sales
volume changes. From 2004 to 2005, general and administrative expense
as a percentage of sales increased as a result of an increase in
expenses in 2005 from the lease dispute litigation, while the sales
remained comparable for those periods.
Research and Development
Research and development expenses in 2006 and 2005 were $14.5
million and in 2004 were $13.7 million. There was a small increase in
research and development expenses of $46 thousand or 0.3% from 2005 to
2006. The increase of $767 thousand or 5.6% from 2004 to 2005 was
primarily attributable to increased investments throughout our product
lines, most notably the expansion of our development efforts in software
embedded in our products, CO2 lasers, scanners, and high power solid
state lasers.
Merger Related and Deferred Compensation Expenses
Merger related and deferred compensation expenses for 2006 of $2.9
million consisted primarily of $1.4 million of deferred executive
compensation, $1.0 million of compensation in lieu of option grants, and
$500 thousand of bonus expense.
Other Income/Expense
Interest income for 2006 was $2.5 million, as compared to $1.2
million in 2005 and $387 thousand in 2004. The increases in interest
income of $1.4 million or 115.7% from 2005 to 2006 and $793 thousand or
205% from 2004 to 2005 are primarily due to the increase in the average
investable cash balances. In addition, during 2006 and 2005 the average
interest rates increased.
Merger expenses of $2.2 million for 2006 were primarily for
professional fees related to the terminated merger with Coherent, Inc.
more fully described above and in note 2 to the consolidated financial
statements.
Other income, net for 2006 was $410 thousand, compared to $1
thousand in 2005 and $580 thousand in 2004. Other income in 2006 and
2004 includes $307 thousand and $621 thousand, respectively of foreign
currency transaction gains. Other income in 2005 includes $77 thousand
of foreign currency transaction losses. The foreign currency gains in
2006 and 2004 were primarily attributable to the recording of foreign
currency exchange transaction gains at Excel Europe for the settlement
of payables due in U.S. dollars for the purchase of inventories from the
Company's U.S. domestic subsidiaries as a result of the decline in the
value of the U.S. dollar against the Euro.
Provision for Income Taxes
The provision for income taxes for 2006 was $6.4 million, compared
to $5.5 million in 2005 and $6.2 million in 2004. The Company's
effective tax rate was 31.4% for 2006, as compared to 26.4% in 2005 and
29.6% in 2004. In 2006, due to the non-deductibility of certain
expenses, the reduction of a tax exposure liability due to a settlement
in 2005 that did not reoccur in 2006 and investing in increased taxable
versus non-taxable instruments, the Company's effective tax rate
increased approximately 5 percentage points. The decrease of $755
thousand or 12.1% from 2004 to 2005 was primarily attributable to lower
pre-tax income in 2005 combined with a lower effective tax rate. The
decrease in the Company's effective tax rate from 2004 to 2005 is
primarily due to an increase in tax-exempt investment income and $655
thousand for the settlement of income tax contingencies for less than
the amount previously accrued.
Liquidity and Capital Resources
................................
Cash Flow Overview
...................
Cash and investments increased $12.8 million during the year 2006
to $63.1 million. The increase during the year was primarily due to the
net cash provided by operating activities of $15.3 million partially
offset by net cash used for capital expenditures of $2.0 million and
cash used for financing activities of $573 thousand. The Company also
experienced a favorable foreign exchange effect on cash and equivalents
of $74 thousand in 2006. As of December 31, 2006 the Company had no
bank debt.
Net cash provided by operating activities was $15.3 million for the
year ended December 31, 2006 and $12.7 million for the year ended
December 31, 2005, which was primarily attributable to net income plus
the depreciation and amortization expenses, offset partially by net
changes in working capital items, primarily accounts receivable,
inventory, accounts payable and other accrued expenses. Depreciation
and amortization for the year ended December 31, 2006 was $2.7 million.
Accounts receivable at December 31, 2006 of $22.7 million decreased $163
thousand from December 31, 2005 due to increased focus on collections in
2006. Inventory at December 31, 2006 of $34.9 million increased $4.6
million from December 31, 2005 due to the higher average sales volume
for 2006 and higher backlog at December 31, 2006. Accounts payable at
December 31, 2006 of $6.4 million increased $1.6 million from December
31, 2005 due to the timing of payments. Accrued expenses and other
current liabilities at December 31, 2006 of $6.9 million increased $1.0
million primarily as a result of an increase in accrued bonuses of $1.1
million, partially offset by decreases in other liabilities.
Net cash used in investing activities of $21.2 million for the year
ended December 31, 2006 was attributable to the purchase of short-term
auction rate notes for $19.2 million, purchase of property, plant and
equipment for $2.3 million offset partially by the proceeds from the
sale of equipment of $354 thousand. Net cash used in investing
activities of $6.8 million for the year ended December 31, 2005 was
primarily attributable to the purchase of short-term auction rate notes
for $3.6 million and equipment for $3.3 million.
Net cash used in financing activities of $573 thousand for the year
ended December 31, 2006 was primarily attributable to the repurchase of
common stock for $2.0 million, offset by $655 thousand of proceeds
received upon the exercise of employee stock options and an $816
thousand income tax benefit from employee stock option exercises. Net
cash provided by financing activities of $41 thousand for the year ended
December 31, 2005 was from the proceeds received upon the exercise of
employee stock options.
As of December 31, 2006, the Company has working capital of $110.5
million including cash and investments of $63.1 million, compared to
working capital of $94.7 million including cash and investments of $50.3
million at December 31, 2005. The working capital increased by $15.8
million and cash and investments increased by $12.8 million during the
year ended December 31, 2006.
As of December 31, 2006, the Company's contractual obligations were
as follows (in thousands):
Contractual Obligations Payments Due by Period
Less than 1 - 3 3 - 5 More than
Total 1 Year Years Years 5 Years
..................................................
Operating Leases $8,706 $1,880 $2,393 $1,263 $3,170
Line of Credit
As of December 31, 2006, the Company has no lines of credit.
Stock Repurchases
Repurchases of the Company's common stock have occurred from time
to time in the open market. The following table presents stock
repurchase activity during the last three fiscal years under programs
authorized by the Board of Directors, disclosing total shares
repurchased under each program and the associated cost. Upon
authorization of each new stock repurchase program, the former program
is superseded and replaced. The current repurchase program has no set
expiration date. In addition to shares purchased in the open market
under the buy-back program, the Company may also purchase shares of
common stock in privately negotiated transactions at the Company's
discretion, including the quantity, timing and price thereof.
(in thousands)
Year Ended December 31, 2006 2005 2004
........................ ............. ............ ...........
Shares Cost Shares Cost Shares Cost
...... ...... ...... ..... ...... ....
Stock repurchase programs:
2 million, authorized
January 1998 0 $ 0 0 $ 0 0 $ 0
2 million, authorized
November 2006 80 $2,044 0 $ 0 0 $ 0
...... ...... ..... ..... ..... .....
Total stock repurchases 80 $2,044 0 $ 0 0 $ 0
...... ...... ..... ..... ..... .....
...... ...... ..... ..... ..... .....
The Company intends to continue to invest in support of its growth
strategy. These investments aid in retaining and acquiring new
customers, expanding the Company's current product offerings and further
developing its operating infrastructure. The Company believes that
current cash and investments will be sufficient to meet these
anticipated cash needs for at least the next twelve months. However,
any projections of future cash needs and cash flows are subject to
substantial uncertainty. If current cash and investments and those that
may be generated from operations are insufficient to satisfy the
Company's liquidity requirements, the Company may seek to sell
additional equity or debt securities or secure lines of credit. The
sale of additional equity or convertible debt securities could result in
additional dilution to the Company's stockholders. In addition, the
Company will, from time to time, consider the acquisition of, or
investment in, complementary businesses, products, services and
technologies, which might impact the Company's liquidity requirements or
cause the Company to issue additional equity or debt securities. There
can be no assurance that financing will be available, on terms that are
acceptable to the Company or at all.
Selected Quarterly Financial Data
..................................
Unaudited quarterly financial data (in thousands, except per share amounts)
for 2006 and 2005 is summarized as follows:
2006 2005
................................................. .................................................
Q1 Q2 Q3 Q4 YEAR Q1 Q2 Q3 Q4 YEAR
........ ........ ........ ......... ......... ........ ........ ........ ........ .........
<C
Net sales and services $36,325 $39,530 $40,299 $38,343 $154,496 $30,215 $33,296 $37,842 $36,364 $137,717
Cost of sales and services 19,056 21,484 22,350 22,713 85,602 16,192 17,073 19,803 19,227 72,295
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Gross profit 17,269 18,046 17,949 15,630 68,894 14,023 16,223 18,039 17,137 65,422
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Operating expenses:
Selling and marketing 4,776 4,965 4,611 4,393 18,745 4,349 4,718 5,027 4,865 18,959
General and administrative 2,895 3,070 3,724 3,362 13,051 3,233 2,727 3,536 2,952 12,448
Research and development 3,625 3,655 3,527 3,716 14,523 3,336 3,755 3,757 3,629 14,477
Merger related and deferred
compensation expenses 0 0 2,875 0 2,875 0 0 0 0 0
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
11,296 11,690 14,737 11,471 49,194 10,918 11,200 12,320 11,446 45,884
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Income from operations 5,973 6,356 3,212 4,159 19,700 3,105 5,023 5,719 5,691 19,538
Non-operating (expenses)
income:
Interest income 435 581 755 774 2,545 183 274 337 386 1,180
Minority interest (3) (10) (28) 22 (19) 0 0 (34) (12) (48)
Merger expenses (838) (1,146) (210) 0 (2,194) 0 0 0 0 0
Foreign currency gains
(losses) and other
income, net 120 165 (15) 140 410 155 5 (58) (103) 1
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Income before provision for
income taxes 5,687 5,946 3,714 5,095 20,442 3,443 5,302 5,964 5,962 20,671
Provision for income taxes 1,820 1,956 1,226 1,421 6,423 930 1,313 1,610 1,610 5,463
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Net income $ 3,867 $ 3,990 $ 2,488 $ 3,674 $ 14,019 $ 2,513 $ 3,989 $ 4,354 $ 4,352 $ 15,208
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Basic income per common share $ 0.32 $ 0.33 $ 0.21 $ 0.30 $ 1.16 $ 0.21 $ 0.33 $ 0.36 $ 0.36 $ 1.26
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Weighted average common
shares outstanding 12,060 12,066 12,066 12,089 12,071 12,053 12,054 12,054 12,054 12,054
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Diluted income per
common share $ 0.31 $ 0.32 $ 0.20 $ 0.30 $ 1.12 $ 0.21 $ 0.33 $ 0.36 $ 0.36 $ 1.24
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Weighted average common and
common equivalent shares
outstanding 12,614 12,531 12,522 12,437 12,488 12,235 12,237 12,259 12,254 12,246
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
....... ....... ....... ....... ........ ....... ....... ....... ....... ........
Note 1: The Company's quarterly closing dates are on the last Friday
prior and closest to the last day of each calendar quarter. The
Company's fiscal year always ends on December 31st.
Note 2: The sum of the quarterly earnings per common share amounts do
not always equal the annual amount reported, as per share amounts are
computed independently for each quarter and for the year based on the
weighted average common and common equivalent shares outstanding in each
such periods.
Inflation
..........
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks (i.e. the risk of loss arising from
adverse changes in market rates and prices) to which the Company is
exposed are interest rates on demand deposits with banks and money
market funds and exchange rates, generating translation and transaction
gains and losses.
Interest Rates
...............
The Company manages its cash and investment portfolios considering
investment opportunities and risks, tax consequences and overall
investing strategies. The Company's investment portfolios consist
primarily of cash and investments, with carrying amounts approximating
market value. Assuming year-end 2006 cash and investment levels, a one-
point change in interest rates would have an approximate $631 thousand
impact on the annual interest income of the Company.
Foreign Currency Exchange Rates
................................
Operating in international markets involves exposure to movements
in currency exchange rates that are volatile at times. The economic
impact of currency exchange rate movements on the Company is complex
because such changes are often linked to variability in real growth,
inflation, interest rates, governmental actions and other factors.
These changes, if material, could cause the Company to adjust its
financing and operating strategies. Consequently, isolating the effect
of changes in currency does not incorporate these other important
economic factors.
The Company's net sales and services to foreign customers
represented approximately 63% of total net sales and services in 2006,
61% in 2005 and 63% in 2004. The Company expects net sales and services
to foreign customers will continue to represent a large percentage of
its total net sales and services. The Company's net sales and services
denominated in foreign currencies represented approximately 24% of its
total net sales and services in 2006, 28% of its total net sales and
services in 2005 and 29% in 2004. The Company generally has not engaged
in foreign currency hedging transactions. The aggregate foreign
exchange gains and (losses) included in determining consolidated results
of operations were $307 thousand, $(77) thousand and $621 thousand in
2006, 2005 and 2004, respectively.
Changes in the Euro and Yen have the largest impact on the
Company's operating profits. The Company estimates that a 10% change in
foreign exchange rates would not materially impact reported operating
profits.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements and supplementary data follow on
pages 33 to 54.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and
Financial Statement Schedule filed with the Annual
Report of the Company on Form 10-K
For the Year ended December 31, 2006.
Page
....
Reports of Independent Registered Public Accounting Firm 33
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2006 and 2005 35
Consolidated Statements of Income for the years
ended December 31, 2006, 2005 and 2004 36
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
for the years ended December 31, 2006, 2005 and 2004 37
Consolidated Statements of Cash Flows for the years
ended December 31, 2006, 2005 and 2004 38
Notes to Consolidated Financial Statements 39
Consolidated Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts 54
.........................
Schedules not listed above have been omitted because they are either not
applicable or the required information has been provided elsewhere in
the consolidated financial statements or notes thereto.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Excel Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Excel
Technology, Inc. and subsidiaries as of December 31, 2006 and 2005, and
the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-
year period ended December 31, 2006. In connection with our audits of
the consolidated financial statements, we also have audited the
financial statement schedule. These consolidated financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Excel Technology, Inc. and subsidiaries as of December 31, 2006 and
2005, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2006, in
conformity with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set
forth therein.
As discussed in Note 1 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment," effective January 1, 2006.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of
Excel Technology, Inc.'s internal control over financial reporting as of
December 31, 2006, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated February 16,
2007 expressed an unqualified opinion on management's assessment of, and
the effective operation of, internal control over financial reporting.
/s/ KPMG LLP
Melville, New York
February 16, 2007
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Excel Technology, Inc.:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that
Excel Technology, Inc. and subsidiaries maintained effective internal
control over financial reporting as of December 31, 2006, based on
criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Excel Technology, Inc.'s management is responsible for
maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that Excel Technology, Inc.
maintained effective internal control over financial reporting as of
December 31, 2006, is fairly stated, in all material respects, based on
criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Also, in our opinion, Excel Technology, Inc. maintained, in all
material respects, effective internal control over financial reporting
as of December 31, 2006, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated
balance sheets of Excel Technology, Inc. and subsidiaries as of December
31, 2006 and 2005, and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 2006, and our
report dated February 16, 2007 expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Melville, New York
February 16, 2007
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2006 and 2005
(In thousands, except per share amounts)
2006 2005
....... .........
Assets
.......
Current assets:
Cash $ 9,903 $ 16,303
Investments 53,220 34,000
Accounts receivable, less allowance
for doubtful accounts of $784 and $810
in 2006 and 2005, respectively 22,716 22,879
Inventories 34,906 30,269
Deferred income taxes 2,131 1,660
Other current assets 1,314 1,353
......... .........
Total current assets 124,190 106,464
....... .........
Property, plant and equipment 25,503 25,983
Other assets 391 158
Goodwill 31,895 31,433
......... .........
Total Assets $ 181,979 $ 164,038
......... .........
......... .........
Liabilities and Stockholders' Equity
.....................................
Current liabilities:
Accounts payable $ 6,386 $ 4,829
Accrued expenses and other current liabilities 6,902 5,882
Income taxes payable 354 1,097
......... .........
Total current liabilities 13,642 11,808
......... .........
Deferred income taxes 3,171 3,492
Accrued deferred compensation 1,375 0
Minority interest in subsidiary 66 48
Stockholders' equity:
Preferred stock, par value $.001 per share:
2,000 shares authorized, none issued 0 0
Common stock, par value $.001 per share:
20,000 shares authorized, 12,088 and 12,055
shares issued and outstanding in 2006 and 2005,
respectively 12 12
Additional paid-in capital 49,161 49,621
Retained earnings 111,602 97,583
Accumulated other comprehensive income 2,950 1,474
......... .........
Total stockholders' equity 163,725 148,690
......... .........
Total Liabilities and Stockholders' Equity $ 181,979 $ 164,038
......... .........
......... .........
See Accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2006, 2005 and 2004
(In thousands, except earnings per share)
2006 2005 2004
........ ........ ........
Net sales and services $154,496 $137,717 $136,631
Cost of sales and services 85,602 72,295 72,723
........ ........ ........
Gross profit 68,894 65,422 63,908
Operating expenses:
Selling and marketing 18,745 18,959 18,850
General and administrative 13,051 12,448 11,341
Research and development 14,523 14,477 13,710
Merger related and deferred
compensation expenses 2,875 0 0
........ ........ ........
49,194 45,884 43,901
........ ........ ........
Income from operations 19,700 19,538 20,007
Non-operating income (expenses):
Interest income 2,545 1,180 387
Minority interest (19) (48) 6
Merger expenses (2,194) 0 0
Foreign currency gains and other income, net 410 1 580
........ ........ ........
Income before provision for income taxes 20,442 20,671 20,980
Provision for income taxes 6,423 5,463 6,218
........ ........ ........
Net income $ 14,019 $ 15,208 $ 14,762
........ ........ ........
........ ........ ........
Basic income per common share $1.16 $1.26 $1.23
........ ........ ........
........ ........ ........
Weighted average common shares outstanding 12,071 12,054 12,026
........ ........ ........
........ ........ ........
Diluted income per common share $1.12 $1.24 $1.20
........ ........ ........
........ ........ ........
Weighted average common and
common equivalent shares outstanding 12,488 12,246 12,351
........ ........ ........
........ ........ ........
See Accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 2006, 2005 and 2004
(In thousands)
Accumulated
Additional Other
Preferred Stock Common Stock Treasury Stock Paid-In Retained Comprehensive Comprehensive
Shares Amounts Shares Amounts Shares Amounts Capital Earnings Income Total Income
....... ....... ........ ....... ...... ....... ........... ......... ............. .......... .............
Balances at
December 31, 2003 0 $ 0 11,943 $ 12 0 $ 0 $ 47,514 $ 67,613 $ 2,133 $ 117,272
Exercise of common
stock options 0 0 110 0 0 0 1,108 0 0 1,108
Tax benefit from
employee stock
option exercises 0 0 0 0 0 0 951 0 0 951
Net income
for the year 0 0 0 0 0 0 0 14,762 0 14,762 $ 14,762
Foreign currency
translation
adjustment 0 0 0 0 0 0 0 0 1,908 1,908 1,908
...........
Comprehensive
income 0 0 0 0 0 0 0 0 0 0 $ 16,670
....... ....... ........ ....... ...... ....... ........... ......... ............. .......... ...........
...........
Balances at
December 31, 2004 0 0 12,053 12 0 0 49,573 82,375 4,041 136,001
Exercise of common
stock options 0 0 2 0 0 0 41 0 0 41
Tax benefit from
employee stock
option exercises 0 0 0 0 0 0 7 0 0 7
Net income
for the year 0 0 0 0 0 0 0 15,208 0 15,208 $ 15,208
Foreign currency
translation
adjustment 0 0 0 0 0 0 0 0 (2,567) (2,567) (2,567)
...........
Comprehensive
income 0 0 0 0 0 0 0 0 0 0 $ 12,641
....... ....... ........ ....... ...... ....... ........... ......... ............. .......... ...........
...........
Balances at
December 31, 2005 0 0 12,055 12 0 0 49,621 97,583 1,474 148,690
Exercise of common
stock options 0 0 113 0 0 0 655 0 0 655
Tax benefit from
employee stock
option exercises 0 0 0 0 0 0 816 0 0 816
Stock compensation
expense 0 0 0 0 0 0 113 0 0 113
Repurchases of
common stock 0 0 0 0 (80) (2,044) 0 0 0 (2,044)
Retirement of
treasury stock 0 0 (80) 0 80 2,044 (2,044) 0 0 0
Net income
for the year 0 0 0 0 0 0 0 14,019 0 14,019 $ 14,019
Foreign currency
translation
adjustment 0 0 0 0 0 0 0 0 1,476 1,476 1,476
...........
Comprehensive
income 0 0 0 0 0 0 0 0 0 0 $ 15,495
....... ....... ........ ....... ...... ....... ........... ......... ............. .......... ...........
...........
Balances at
December 31, 2006 0 $ 0 12,088 $ 12 0 $ 0 $ 49,161 $111,602 $ 2,950 $ 163,725
....... ....... ........ ....... ...... ....... ........... ......... ............. ..........
....... ....... ........ ....... ...... ....... ........... ......... ............. ..........
See Accompanying Notes to Consolidated Financial Statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2006, 2005 and 2004
(In thousands)
2006 2005 2004
........ ........ ........
Operating activities:
Net income $ 14,019 $ 15,208 $ 14,762
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interes 19 48 (6)
Depreciation and amortization 2,695 2,891 2,687
Stock compensation expense 113 0 0
Tax benefit from employee stock
option exercises 0 7 951
Excess income tax benefit from employee
stock options (816) 0 0
(Gain) loss on sale of equipment (120) 7 0
(Recovery) provision for doubtful accounts (16) 252 297
Deferred income taxes (792) 622 1,507
Changes in operating assets and liabilities:
Accounts receivable 822 (4,534) 2,334
Inventories (3,928) (1,777) (3,269)
Other current assets 85 282 (613)
Other assets (507) 1,101 (480)
Accounts payable 1,422 (290) 362
Accrued expenses and other
current liabilities 933 (1,088) (2,425)
Accrued deferred compensation 1,375 0 0
........ ........ ........
Net cash provided by operating activities 15,304 12,729 16,107
........ ........ ........
Investing activities:
Purchases of investments,
net of redemptions (19,220) (3,575) (14,425)
Purchases of property, plant and equipment (2,339) (3,272) (1,392)
Proceeds from the sale of equipment 354 18 0
........ ........ ........
Net cash used in investing activities (21,205) (6,829) (15,817)
........ ........ ........
Financing activities:
Proceeds from exercise of common
stock options 655 41 1,108
Repurchases of common stock (2,044) 0 0
Excess income tax benefit from
employee stock options 816 0 0
........ ........ ........
Net cash (used in) provided by
financing activities (573) 41 1,108
........ ........ ........
Effect of exchange rate changes on cash 74 (967) 191
........ ........ ........
Net (decrease) increase in cash (6,400) 4,974 1,589
Cash - beginning of year 16,303 11,329 9,740
........ ........ ........
Cash - end of year $ 9,903 $ 16,303 $ 11,329
........ ........ ........
........ ........ ........
Supplemental Cash Flow Information
...................................
Cash paid for:
Interest $ 0 $ 0 $ 0
........ ........ ........
........ ........ ........
Income taxes $ 7,144 $ 5,411 $ 5,604
........ ........ ........
........ ........ ........
See Accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
December 31, 2006 and 2005
(1) Summary of Significant Accounting Policies
.......................................
Excel Technology, Inc. and Subsidiaries (the "Company")
manufactures and markets laser systems and electro-optical components
primarily for industrial and scientific applications. The significant
accounting policies used in the preparation of the consolidated
financial statements of the Company are as follows:
Basis of Presentation
.....................
The consolidated financial statements include the accounts of Excel
Technology, Inc. (Excel), its 50% owned joint venture, Excel
Laser Technology Private Limited (Excel SouthAsia JV) since it
is a variable interest entity and the Company is the primary
beneficiary of the joint venture and its wholly-owned
subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.
Revenue Recognition
...................
The Company recognizes revenue in accordance with SEC Staff
Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements" ("SAB 104"), as amended. SAB 104 requires that the
following four basic criteria must be met before revenue can be
recognized: 1) persuasive evidence of an arrangement exists; 2)
delivery has occurred or services have been rendered; 3) the fee
is fixed and determinable; and 4) collectibility is reasonably
assured.
The Company's revenues are generated from: 1) product sales,
product upgrades and replacement part sales; 2) maintenance
agreements; and 3) services. The Company's product lines
principally consist of laser-based systems and electro-optical
components used in a wide range of applications by different
types of end-users and are often used as sub-assemblies required
for end products manufactured by the customer. Revenue relating
to these products is recognized upon transfer of title and risk
of loss to the customer, which is generally upon shipment,
assuming the other criteria of SAB 104 are met. If title and
risk of loss do not pass to the customer until the product
reaches the customer's delivery site, then recognition of
revenue is deferred until that time. Related shipping and
handling costs are included in cost of sales and services. With
respect to maintenance agreements, revenue is recognized and
customers are generally billed on a monthly or quarterly basis
over the term of the agreement. When a customer pays an annual
maintenance fee, it is recorded as deferred revenue and
recognized as revenue ratably over the term of the agreement.
For services rendered, customers are billed and revenues are
recognized as the related services are performed. When a sales
arrangement involves multiple elements, such as the sale of
products that require installation, training or other services,
the Company records deferred revenue for the fair value of the
undelivered element and recognizes the revenue when the revenue
recognition criteria for that element is met. Fair value is
established for an element based on the price when the element
is sold separately. Product returns have historically been
insignificant.
The Company has entered into contracts to design, develop and
produce laser systems to customer specifications. These
contracts specify milestones and related progress billings and
typically include terms that specify progress payments are non-
refundable or the customer may terminate the contract for
convenience, at which time the Company will be paid a percentage
of the contract price that reflects the percentage of work
performed to that date. Such contracts are accounted for in
accordance with AICPA Statement of Position 81-1, "Accounting
for Performance of Construction - Type and Certain Production -
Type Contracts," whereby revenue is recognized under the
percentage-of-completion method with the extent of progress
towards completion measured by the achievement of contractual
milestones.
The Company manufactures one product, a Photomask Defect Repair
System ("DRS"), which is a large, highly complex customized
machine. The terms of sale with respect to DRS's require that
the Company perform installation due to the technical expertise
required for this product. Due to the nature of the post-
shipment installation obligations with respect to the DRS's, the
Company defers revenue recognition on the sale of DRS's until
installation has been completed.
Cash and Investments
....................
Cash of $9.9 million and $16.3 million at December 31, 2006 and
2005, respectively, consists of demand deposits with banks and
highly liquid money market funds. The Company considers
investments with maturities of three months or less when
purchased to be cash equivalents. Available-for-sale
investments of $53.2 million and $34.0 million at December 31,
2006 and 2005, respectively, consist of auction rate notes for
which the carrying value equaled their fair value. Included in
other long-term assets at December 31, 2006 are $111 thousand of
held to maturity securities for which their carrying value
equaled their fair value.
Inventories
...........
Inventories consist of material, labor and overhead and are stated
at the lower of cost on a first-in, first-out basis or market.
On a quarterly basis, the Company compares the amount of the
inventory on hand and under commitment with its latest
forecasted requirements and historical usage or sales to
determine whether write-downs for excess or obsolete inventory
are required. In addition, the Company will reduce the carrying
value of its finished goods inventory to net realizable value,
if the selling price of the product is less than its cost.
Depreciation and Amortization
.............................
The Company's property, plant and equipment, recorded at cost, are
depreciated or amortized over their estimated useful lives under
the straight-line method. Leasehold improvements are amortized
over the life of the lease or over the estimated life of the
asset, whichever is less.
Goodwill represents the excess of cost over fair value of net
assets of businesses acquired. Goodwill and intangible assets
with indefinite lives are not amortized but are evaluated
annually for impairment. The Company's annual assessment for
impairment is performed on December 31st of each year.
Research and Development Costs
..............................
Research and development costs include material, labor and overhead
associated with Company-sponsored projects. Such costs are
expensed as incurred.
Long-Lived Assets
.................
The Company reviews long-lived assets for impairment when
circumstances indicate the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amounts of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Accrued Warranty Costs
......................
The Company analyzes its warranty liability for reasonableness on a
quarterly basis. Based upon a five-year history of warranty
costs incurred, the nature of the products shipped subject to
warranty and anticipated warranty trends, the Company believes
that its warranty liability at December 31, 2006 and 2005 is
reasonable.
Changes in the warranty liability in 2006 and 2005 were as follows
(In thousands):
2006 2005
...... .....
Balance at January 1 $ 720 $ 765
Provision for warranties during the year 706 630
Costs of warranty obligations during the year (672) (675)
...... .....
Balance at December 31 $ 754 $ 720
Income Taxes
............
The Company recognizes deferred tax assets and liabilities for the
future tax consequences attributable to temporary differences
between the financial reporting bases and the tax bases of the
Company's assets and liabilities at enacted rates in effect when
such amounts are expected to be realized or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
Foreign Currency Translation
............................
The financial statements of foreign subsidiaries have been
translated into U.S. dollars in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 52, "Foreign
Currency Translation." All balance sheet accounts have been
translated using the exchange rates in effect at the balance
sheet date. Income statement amounts have been translated
using the average exchange rate for the year. The resulting
cumulative translation adjustment of approximately $3.0 million
and $1.5 million at December 31, 2006 and 2005, respectively,
is reflected as accumulated other comprehensive income, a
component of stockholders' equity. In addition, there were
transaction gains and losses and inter-company balances not
deemed long-term in nature at the balance sheet date that
resulted in net transaction gains (losses) of $307 thousand,
$(77) thousand and $621 thousand for the years ended
December 31, 2006, 2005 and 2004, respectively, which is
reflected in foreign currency gains and other income, net in the
consolidated statements of income.
Income Per Share
................
The Company presents two income per share amounts, basic and
diluted. Basic income per share is calculated based on net
income and the weighted-average number of common shares
outstanding during the reported period. Diluted income per
share includes the effect of potentially dilutive securities
(stock options), using the treasury stock method, on weighted-
average shares outstanding.
Fair Value of Financial Instruments
...................................
The recorded amounts of the Company's cash, investments, accounts
receivable, accounts payable and accrued expenses approximate
their fair values because of the short-term nature of these
items.
Use of Estimates
................
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Concentration of Credit Risk
............................
Financial instruments that potentially subject the Company to a
concentration of credit risk consist primarily of its holdings
of cash, investments and accounts receivable. Cash and
investments are deposited with high credit quality financial
institutions. Concentration of credit risk with respect to
accounts receivable is limited due to the Company's large number
of customers and their dispersion throughout the United States,
Europe and Asia. The Company performs periodic credit
evaluations of its customers' financial condition and generally
does not require collateral.
Accounting for Stock-Based Compensation
.......................................
The Company's stock-based employee compensation plans are described
in note 8. Prior to January 1, 2006, the Company accounted for
stock-based compensation related to those plans under the
recognition and measurement provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and related Interpretations, as permitted by
Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). As such, prior to
January 1, 2006, no stock-based employee compensation expense
was recognized in net income, as all options granted under those
plans had an exercise price equal to the fair market values of
the underlying common stock on the date of grant.
Effective January 1, 2006, the Company adopted the fair value
recognition provisions of SFAS No. 123(R), "Share-Based Payment"
("SFAS No. 123 (R)"), using the modified prospective transition
method. Under that transition method, compensation expense
recognized for 2006 includes compensation expense for all share-
based payments granted prior to, but not yet vested as of
January 1, 2006, based on the grant date fair value determined
in accordance with the original provisions of SFAS No. 123. The
fair value of the options was determined at the date of grant
using the Black-Scholes option pricing model and is being
amortized to expense over the options' vesting periods. Stock
based compensation expense for an award with only service
conditions that has a graded vesting schedule is recognized on a
straight-line basis over the requisite service period for the
entire award, with such amount recognized at any date at least
equaling the portion of the grant date fair value of the award
that is vested at that date. There were no stock option or
other share-based award grants during the year ended
December 31, 2006. Results for prior periods have not been
restated.
The following table illustrates the stock based compensation
expense recorded in the statement of income in 2006 and the
impact of adopting SFAS No. 123(R) effective January 1, 2006 on
the Company's income before provision for income taxes, net
income and income per share (In thousands, except per share
data).
Year ended
December 31, 2006
Stock based compensation expense $ 113
Impact on income before provision for taxes $ 113
Impact on net income $ 113
Impact on basic income per common share $0.01
Impact on diluted income per common share $0.01
Prior to the adoption of SFAS No. 123(R), the Company reported
excess tax benefits from employee stock option exercises as
operating cash flows in its consolidated statement of cash
flows. In accordance with SFAS No. 123(R), effective January 1,
2006, the Company reports excess tax benefits as financing cash
inflows. The actual income tax benefit realized for the tax
deductions from stock option exercises for the years ended
December 31, 2006, 2005 and 2004 was $816 thousand, $7 thousand
and $951 thousand, respectively. There was no tax benefit
recognized related to the $113 thousand of compensation expense
for share-based payment arrangements for the year ended
December 31, 2006, as all the related options were incentive
stock options and the tax benefit associated with disqualified
incentive stock options is recognized by the Company only after
such incentive stock options are exercised and disqualified.
The following table illustrates the effect on net income and income
per share for the years ended Decmeber 31, 2005 and 2004 as if
the Company had applied the fair value recognition provisions of
SFAS No. 123 to options granted under the Company's stock plans
prior to adoption of SFAS No. 123(R) on January 1, 2006. No pro
forma disclosure has been made for 2006, as all stock-based
compensation has been recognized in net income. For purposes of
this pro forma disclosure and compensation expense recorded in
the Company's consolidated financial statements, the value of
the options is estimated using a Black-Scholes option pricing
model and amortized to expense over the options' vesting
periods.
(In thousands, except
per share data)
Year ended December 31,
2005 2004
........ ........
Net income, as reported $ 15,208 $ 14,762
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (3,018) (3,027)
........ ........
Proforma net income $ 12,190 $ 11,735
........ ........
........ ........
Income per share:
Basic - as reported $1.26 $1.23
........ ........
Basic - proforma $1.01 $0.98
........ ........
Diluted - as reported $1.24 $1.20
........ ........
Diluted - proforma $1.00 $0.95
........ ........
The per share weighted-average fair value of stock options granted
during 2005 and 2004 was $8.20 and $13.67, respectively, on the
date of grant using the Black Scholes option-pricing model with
the following weighted-average assumptions:
2005- expected dividend yield of 0%, risk free interest rate
of 3.60%-4.31%, expected stock volatility of 39%-41% and
expected life of approximately 3.9 years;
2004- expected dividend yield of 0%, risk free interest rate
of 3.6%, expected stock volatility of 50% and expected
life of approximately 4.0 years;
Stock-based employee compensation expense under the fair value
method for the years ended December 31, 2005 and 2004, includes
$3.7 million and $2.5 million, respectively, which represents
the entire fair value of 449 thousand and 185 thousand options
granted to employees and directors in 2005 and 2004,
respectively, all of which had an exercise price equal to or
greater than the market value of the common stock on the date of
the grants, as those options were vested as of the date of the
grants.
The Company has placed exclusive reliance on historical volatility
in its estimate of expected volatility. The Company used a
sequential period of historical data equal to the expected term
(or expected life) of the options using a simple average
calculation based upon the daily closing prices during the
aforementioned period.
The expected life (years) represents the period of time for which
the options granted are expected to be outstanding. This
estimate was derived from historical share option exercise
experience, which management believes provides the best estimate
of the expected term.
Accumulated Other Comprehensive Income
......................................
Accumulated other comprehensive income ("comprehensive income")
refers to revenues, expenses, gains and losses that under U.S.
generally accepted accounting principles are included in
comprehensive income but are excluded from net income as these
amounts are recorded directly as an adjustment to stockholders'
equity, net of tax. The Company's comprehensive income is
composed of net income and unrealized gains and losses on
foreign currency translation adjustments.
Reclassification
................
Income taxes payable of $1.1 million in the 2005 consolidated
balance sheet have been reclassified from accrued expenses and
other current liabilities to conform with the 2006 presentation.
(2) Terminated Merger
.................
On February 20, 2006, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") with Coherent, Inc.
("Coherent"), and Spider Acquisition Merger Corporation, a
wholly owned subsidiary of Coherent ("Merger Sub"). Under the
Merger Agreement, Merger Sub was to be merged with and into the
Company (the "Merger"), the separate corporate existence of
Merger Sub would cease and the Company would have continued as
the surviving corporation and as a wholly-owned subsidiary of
Coherent.
Pursuant to the Merger Agreement, at the effective time of the
Merger, each issued and outstanding share of common stock of the
Company issued and outstanding would have been automatically
converted into the right to receive $30.00 per share in cash.
The Merger was conditioned upon, among other things, the adoption
of the Merger Agreement by the stockholders of the Company
pursuant to applicable law, the termination or expiration of the
waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, and obtaining material foreign
antitrust approvals reasonably determined by Coherent to be
required.
On April 4, 2006, the stockholders of the Company voted to adopt
the Merger Agreement providing for the acquisition of the
Company by Coherent. The Antitrust Division of the Department
of Justice as well as the German Federal Cartel Office had
requested additional information and documentary material in
connection with their review of the proposed merger. On May 9,
2006, Coherent, Inc. received U.S. antitrust approval to acquire
the Company. On July 10, 2006, the German Federal Cartel Office
stated that it had decided to extend its investigation into the
acquisition of the Company by Coherent, and on October 25, 2006
issued a prohibition order on the merger. On November 1, 2006,
the Merger Agreement between the Company and Coherent was
terminated.
In connection with the merger, the Company incurred $2.2 million of
expenses, which consist primarily of legal and other
professional fees and have been included in the consolidated
statement of income for the year ended December 31, 2006. Such
amount includes $200 thousand for the law firm of one director
of the Company for reimbursement of expenses by the director's
law firm in connection with the merger. In addition, the
employment agreements of certain key executives included a
change in control clause that provided for payments aggregating
$6.1 million, which were not recorded as a liability as such
payments were contingent upon consummation of the merger, which
has been terminated. In the third quarter of 2006, as a result
of effectively addressing all merger-related matters while the
announced merger was pending for eight months and as payment in
lieu of options that, but for the proposed merger, would have
been granted towards the end of 2005, an executive of the
Company was awarded $1.5 million of compensation, of which the
payment of $1.0 million was subject to the attainment of
specified Company performance criteria that were achieved as of
December 31, 2006. Such compensation, along with $1.4 million
of deferred executive compensation awarded for prior services
during the third quarter of 2006 (under a deferred compensation
plan approved by the Board of Directors), is included in
operating expenses in the 2006 consolidated statement of income.
(3) Inventories
...........
Inventories consist of the following (In thousands):
December 31,
2006 2005
........ ........
Raw materials $ 18,584 $ 16,474
Work-in-process 9,410 8,158
Finished goods 4,907 4,246
Consigned inventory 2,005 1,391
........ ........
$ 34,906 $ 30,269
........ ........
........ ........
(4) Property, Plant and Equipment
.............................
Property, plant and equipment at cost consists of the following (In
thousands):
December 31,
Useful life 2006 2005
........... ........ ........
Land 0 $ 4,659 $ 4,236
Buildings 30 years 20,067 20,054
Leasehold improvements Lease term 715 682
Fixtures and computer
equipment 3-10 years 2,898 2,576
Machinery and equipment 3-10 years 7,120 6,494
Laboratory equipment 3-10 years 3,707 3,031
........ ........
39,166 37,073
Less accumulated
depreciation and
amortization 13,663 11,090
........ ........
$ 25,503 $ 25,983
........ ........
........ ........
Depreciation and amortization expense aggregated approximately $2.7
million, $2.9 million and $2.7 million for the years ended
December 31, 2006, 2005 and 2004, respectively.
(5) Goodwill
........
The change in the net carrying amount of goodwill for the years
ended December 31, 2006 and 2005 is attributable to the change
in foreign currency exchange rates used to translate the
goodwill contained in the financial statements of foreign
subsidiaries.
(6) Income Taxes
............
Pre-tax income for the years ended December 31, 2006, 2005, and
2004 was comprised of domestic income of $20.6 million, $20.6
million and $20.7 million, respectively, and foreign (loss)
income of $(177) thousand, $77 thousand, and $234 thousand,
respectively.
The provision for income taxes consists of (In thousands):
Year ended December 31,
2006 2005 2004
..... ....... .......
Current:
Federal $ 6,624 $ 4,088 $ 3,736
State and local 545 712 697
Foreign 46 41 278
..... ....... .......
7,215 4,841 4,711
..... ....... .......
Deferred:
Federal (697) 622 1,507
Foreign (95) 0 0
..... ....... .......
(792) 622 1,507
..... ....... .......
$ 6,423 $ 5,463 $ 6,218
..... ....... .......
..... ....... .......
The current provision for income taxes includes a tax benefit of $192
thousand for 2004 for utilizing Federal net operating loss
carryforwards.
The effective income tax rate differed from the statutory Federal income
tax rate due to the following items (In thousands):
Year ended December 31,
2006 2005 2004
....... ....... .......
Taxes at statutory Federal
income tax rate $ 7,155 $ 7,235 $ 7,241
State income taxes, net of
Federal benefit 546 464 453
Tax credits (498) (426) (420)
QPAI / ETI benefit (868) (825) (943)
Change in valuation allowance (8) 75 173
Foreign tax rate differential 13 15 49
Non-taxable income (144) (248) (78)
Settlement of and change in
tax contingencies (228) (655) 0
Non-deductible expenses 550 42 28
Other (95) (214) (285)
....... ....... .......
$ 6,423 $ 5,463 $ 6,218
....... ....... .......
....... ....... .......
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and
liabilities at December 31, 2006 and 2005 are as follows
(In thousands):
December 31,
2006 2005
....... .......
Deferred tax assets:
Excess of tax over financial statement
basis of inventory $ 1,516 $ 1,118
Allowance for doubtful accounts 153 199
Accrued warranty costs 137 136
Other accrued expenses 230 207
Deferred compensation expenses 495 0
Benefits of foreign net operating
loss carryforwards 3,603 3,082
....... .......
Total deferred tax assets 6,134 4,742
Less valuation allowance (3,508) (3,082)
....... .......
2,626 1,660
....... .......
Deferred tax liabilities:
Plant and equipment depreciation (270) (651)
Goodwill amortization (3,396) (2,841)
....... .......
Total deferred tax liabilities (3,666) (3,492)
....... .......
Net deferred tax liabilities $(1,040) $(1,832)
....... .......
....... .......
As of December 31, 2006, the Company has foreign tax net operating
loss carryforwards of $8.6 million (6.5 million Euro) in
Germany, $203 thousand in the U.K. and $231 thousand in Japan.
A valuation allowance of $3.5 million, as of December 31, 2006
has been provided against the Company's net operating loss
carryforwards in Germany and the U.K. There can be no
assurance that the Company will generate sufficient taxable
earnings in future years to fully realize the tax benefits
associated with foreign net operating loss carryforwards in
Germany and the U.K. The Company believes it is more likely
than not that the results of future operations will
generate sufficient taxable income to realize the other
deferred tax assets.
Undistributed earnings of the Company's foreign subsidiaries
amounted to approximately $1.8 million, at December 31, 2006.
Those earnings are considered to be indefinitely reinvested
and, accordingly, no provision for U.S. federal and state
income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries. Determination of
the amount of unrecognized deferred U.S. income tax liability
is not practicable because of the complexities associated with
its hypothetical calculation; however, unrecognized foreign
tax credit carryforwards would be available to reduce some
portion of the U.S. tax liability. Foreign currency
translation adjustments are not adjusted for income taxes, as
they relate to indefinite investments in non-U.S.
subsidiaries.
(7) Accrued Expenses and Other Current Liabilities
..............................................
Accrued expenses and other current liabilities consist of the
following (In thousands):
December 31,
...................
2006 2005
........ ........
Salaries, wages, commissions
and bonuses $ 3,396 $ 2,558
Accrued vacation/holiday/sick pay 949 833
Deferred revenue 214 201
Customer deposits 541 477
Accrued warranty costs 754 720
Professional fees payable 183 192
Other 865 901
........ ........
$ 6,902 $ 5,882
........ ........
........ ........
(8) Stockholders' Equity
....................
Stock Option Plans
..................
In 1990, Excel adopted a stock option plan (the "Plan") which
provided for the granting of incentive stock options and non-
incentive stock options to certain key employees, including
officers and directors, to purchase an aggregate of 2,000,000
shares of common stock, as amended, at prices and terms
determined by the Board of Directors. Options granted under the
Plan, which terminated on July 30, 2000, may be exercisable for
a period of up to ten years. All options granted to employees
under the Plan have exercise prices equal to the market value of
the stock on the date of grant, vest ratably over three or five
years and expire either five or ten years from date of grant.
In 1998, the Company adopted a stock option plan (the "1998 Plan")
which provides for the granting of incentive stock options and
non-incentive stock options to certain key employees, including
officers and directors, and consultants to purchase an aggregate
of 1,000,000 shares of common stock at prices and terms
determined by the Board of Directors. The exercise price per
share of incentive stock options must be at least 100% of the
market value of the stock on the date of the grant, except in
the case of shareholders owning more than 10% of the outstanding
shares of common stock, the option price must be at least 110%
of the market value on the date of the grant, and for non-
incentive stock options such price may be less than 100% of the
market value of the stock on the date of grant. Options granted
under the 1998 Plan, which terminates on April 8, 2008, may be
exercisable for a period up to ten years. Through December 31,
2006, all options granted to employees under the 1998 Plan have
exercise prices equal to the market value of the stock on the
date of grant, vest ratably over three or five years, and expire
either five or ten years from the date of grant. As of
December 31, 2006, options for the purchase of 10,092 shares
were available for future grant under the 1998 Plan.
In 2004, the Company adopted a stock option plan (the "2004 Plan")
which provides for the granting of incentive stock options and
non-incentive stock options to certain key employees, including
officers and directors of the Company and consultants to
purchase an aggregate of 1,000,000 shares of common stock at
prices and terms determined by the Board of Directors. The
option price per share of incentive stock options must be at
least 100% of the market value of the stock on the date of the
grant, except in the case of shareholders owning more than 10%
of the outstanding shares of common stock, the option price must
be at least 110% of the market value on the date of the grant,
and for non-incentive stock options such price may be less than
100% of the market value of the stock on the date of grant.
Options granted under the 2004 Plan, which terminates on
February 23, 2014, may be exercisable for a period up to ten
years. Through December 31, 2006, all options granted to
employees under the 2004 Plan have exercise prices equal to the
market value of the stock on the date of grant, vest
immediately, and expire ten years from the date of grant.
Although there were 445,000 shares of common stock available for
issuance under the 2004 Plan, when the 2006 option plan
discussed below was approved, the Company agreed to discontinue
granting options under the 2004 Plan.
In 2006, the Company adopted a stock option / stock issuance plan
(the "2006 Plan"), which was approved by the Company's
shareholders on December 6, 2006 and provides for an aggregate
of up to 750,000 shares of common stock, which may be directly
issued to eligible participants, granted as incentive stock
options to employees of the Company or granted as non-statutory
stock options to employees, including officers and directors of
the Company, as well as to certain advisors and consultants.
Shares of common stock issued under the 2006 Plan may, in the
discretion of the Company's Compensation Committee ("the
Committee"), be fully and immediately vested upon issuance or
may vest in one or more installments over the participant's
period of service and / or upon attainment of specified
performance objectives. Recipients of common stock under the
stock issuance program have full stockholder rights with respect
to those shares, whether or not their interest in those shares
is vested. The exercise price for the common stock underlying
the options is determined by the Committee, but in no event
shall it be less than 100% of the fair market value of the
Company's common stock on the date the option is granted (110%
in the case of incentive stock options granted to optionees who
own more than 10% of the voting power of all classes of stock of
the Company). No option granted under the 2006 Plan may be
exercised after the expiration of the option, which may not, in
any case, exceed ten years from the date of grant (five years in
the case of incentive options granted to persons who own more
than 10% of the voting power of all classes of the stock of the
Company). Options granted under the 2006 Plan are exercisable on
such basis as determined by the Committee, and become fully
exercisable upon the sale or merger of the Company, as defined
in the 2006 Plan. As of December 31, 2006, no options were
granted and no restricted common shares were awarded under the
2006 Plan.
A summary of activity related to the Company's stock option / stock
issuance plans is as follows:
Weighted
Number of Average Aggregate
restricted Number of Weighted Remaining Intrinsic
shares (in stock options Average Contractual Value
thousands) (in thousands) Exercise Price Term (in years) (in thousands)
.......... .............. .............. ............... ..............
Outstanding at December 31, 2003 0 973 $ 16.56
Granted 0 191 $ 31.98
Exercised 0 (149) $ 16.85
Cancelled 0 (13) $ 23.50
...........................
Outstanding at December 31, 2004 0 1,002 $ 19.37
Granted 0 449 $ 22.60
Exercised 0 (2) $ 15.89
Cancelled 0 (8) $ 19.79
...........................
Outstanding at December 31, 2005 0 1,441 $ 20.38
Granted 0 0 $ 0
Exercised 0 (142) $ 10.05
Cancelled 0 0 $ 0
...........................
...........................
Outstanding at December 31, 2006 0 1,299 $ 21.51 6.01 $ 6,590
Shares / Options expected to vest
at December 31, 2006 0 10 $ 20.82 6.25 $ 57
Exercisable at December 31, 2006 0 1,289 $ 21.51 6.00 $ 6,533
The aggregate intrinsic value in the table above represents the
total pre-tax intrinsic value (the difference between the
Company's closing common stock price on the last trading day of
2006 and the exercise price, multiplied by the number of in-the-
money options) that would have been received by the option
holders had all option holders exercised their options on
December 31, 2006. This amount changes based on the fair market
value of the Company's common stock. Total intrinsic value of
options exercised for the years ended December 31, 2006, 2005
and 2004 was $2,331 thousand, $20 thousand and $2,717 thousand,
respectively.
As of December 31, 2006, there was $72 thousand of unrecognized
stock-based compensation expense related to non-vested stock
options, which is expected to be recognized over a weighted
average period of 1.2 years.
When an option is exercised, the Company issues new shares of
common stock.
In 2006 and 2004, 29 thousand and 39 thousand shares of common
stock, respectively, were used by employees to exercise options.
Such shares, which had a market value of $770 thousand and $1.4
million, respectively, were retired. No shares were used by
employees to exercise options in 2005.
At December 31, 2006, 2005 and 2004, a total of 1,289 thousand,
1,410 thousand and 812 thousand options were exercisable at
weighted average exercise prices of $21.51, $20.37 and $19.85,
respectively, and at December 31, 2006 options for the purchase
of an aggregate of 760 thousand common shares were available
for future grants under the 1998 Plan and 2006 Plan.
The options outstanding as of December 31, 2006 are summarized as
follows:
Number Weighted
options average Options
Exercise outstanding contractual Exercisable
price (In thousands) remaining life (In thousands)
........ .............. .............. ..............
$ 6.50 2 1.80 years 2
$ 7.00 68 1.60 years 68
$13.06 24 2.47 years 24
$15.15 278 5.13 years 278
$16.66 32 5.78 years 25
$19.71 23 4.30 years 23
$22.16 68 6.38 years 68
$22.59 418 8.11 years 418
$23.03 5 8.79 years 5
$23.04 4 8.98 years 4
$24.63 162 3.23 years 162
$26.51 40 8.00 years 40
$27.41 20 7.79 years 20
$29.00 30 3.42 years 30
$29.70 5 7.23 years 2
$34.68 120 7.33 years 120
.............. ..............
1,299 6.01 years 1,289
.............. ..............
.............. ..............
Shares Reserved for Issuance
............................
At December 31, 2006, the Company had reserved 2,058,901 authorized
and unissued common shares for the following purposes (In
thousands):
Shares
......
1990 Stock option plan 60
1998 Stock option plan 716
2004 Stock option plan 533
2006 Stock option /issuance plan 750
(9) Income Per Share
The following is a reconciliation of the numerators and denominators of
the basic and diluted income per share computations (In thousands,
except per share amounts):
2006
..................................
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
.......... ............. .........
Basic Income Per Share $ 14,019 12,071 $1.16
Effect of Dilutive Securities:
Stock Options 417
.............
Diluted Income Per Share $ 14,019 12,488 $1.12
.......... ............. .........
.......... ............. .........
2005
..................................
Earnings Shares Per-Share
(Numerator) (Denominator) Amount
.......... ............. .........
Basic Income Per Share $ 15,208 12,054 $1.26
Effect of Dilutive Securities:
Stock Options 192
.............
Diluted Income Per Share $ 15,208 12,246 $1.24
.......... ............. .........
.......... ............. .........
2004
..................................
Net Income Shares Per-Share
(Numerator) (Denominator) Amount
.......... ............. .........
Basic Income Per Share $ 14,762 12,026 $1.23
Effect of Dilutive Securities:
Stock Options 325
.............
Diluted Income Per Share $ 14,762 12,351 $1.20
.......... ............. .........
.......... ............. .........
There were 175 thousand, 378 thousand, and 175 thousand unexercised
stock options outstanding as of December 31, 2006, 2005 and
2004, respectively, not included as part of the diluted income
per share calculations for 2006, 2005 and 2004, respectively,
because their effect would have been antidilutive for the
periods presented.
(10) Treasury Stock
Effective November 1, 2006, the Company's Board of Directors
authorized a stock buy-back program for the repurchase of up
to 2,000,000 shares of its common stock. Purchases have
occurred and will continue to occur from time to time in open
market transactions or privately negotiated transactions at
the Company's discretion, including the quantity, timing and
price thereof. This program replaced the program that the
Board of Directors had authorized in January 1998. As of
December 31, 2006, the Company repurchased 79,500 shares of
common stock as treasury stock in 2006 for $2.0 million. In
December 2006, the Company retired all of its treasury stock.
(11) Employee Benefit Plan
.....................
The Company has a voluntary defined contribution plan, which
complies with Section 401(k) of the Internal Revenue Code, as
amended. The plan permits employees to make a voluntary
contribution of pretax dollars, with a matching contribution
by the Company equal to 50% of an employee's basic
contribution to the plan up to a maximum of 3% of their
salaries. Company contributions to the plan were
approximately $558 thousand, $546 thousand and $524 thousand
in 2006, 2005 and 2004, respectively.
(12) Commitments and Contingencies
.............................
Litigation
..........
Dr. Phillips, Inc. ("Phillips"), the landlord of a facility leased
by Baublys-Control Laser ("Baublys"), a wholly owned
subsidiary of the Company, through 2001, filed a lawsuit
against Baublys and the Company, for not repairing or
replacing certain personal property related to the use of the
property while Baublys leased the facility. The Company
guaranteed the lease. In September 2005, the Court ruled that
the Company was liable for damages, interest and an
unspecified amount of plaintiff legal fees. The liability for
the damages and estimated legal fees was recorded in general
and administrative expenses in the consolidated statement of
income for the quarter ended September 30, 2005. In December
2005, the Company settled the lawsuit with Phillips and paid
$575 thousand for damages, interest and plaintiff legal fees.
The Company and its subsidiaries are subject to various claims,
which have arisen in the normal course of business. The
impact of the final resolution of these matters on the
Company's results of operations or liquidity in a particular
reporting period is not known. Management is of the opinion,
however, that the ultimate outcome of such matters will not
have a material adverse effect upon the Company's financial
condition or liquidity.
Operating Leases
................
The Company and its subsidiaries lease certain buildings, vehicles
and equipment under non-cancelable operating leases. At
December 31, 2006, the future minimum lease payments under
non-cancelable operating leases are as follows (In thousands):
2007 $ 1,880
2008 1,624
2009 769
2010 680
2011 583
Thereafter 3,170
........
$ 8,706
........
........
Rent expense, which is recorded on a straight line basis over the
lease term, approximated $1.4 million for each of the years
ended December 31, 2006, 2005 and 2004.
Employment Agreements
.....................
Excel has entered into employment agreements with certain key
executives that provide for severance upon termination without
cause, as of December 31, 2006, aggregating approximately $5.5
million. In addition, certain employment agreements include a
change of control clause that call for payments equal to the
product of (a) 2.99 and (b) the employee's annualized
includable compensation as defined under Internal Revenue Code
Section 280 (G).
On February 15, 2007, the Company entered into a new employment
agreement with Alice Varisano, its Chief Financial Officer.
The agreement is substantially the same as her prior
agreement, except that it provides for a higher base salary,
expires February 15, 2011, and the Change of Control clause
provides for a payment equal to 2.99 times her annualized
includible compensation as defined under Internal Revenue Code
Section 280(G) for the period consisting of the most recent
five taxable years ending before the date of the Change of
Control.
(13) Foreign and Domestic Operations and Export Sales
................................................
The Company conducts its business in the following geographic
regions that are aggregated into one reportable segment. The
Company provides photonics-based solutions, primarily
consisting of laser systems and electro-optical components, in
a broad range of commercial, scientific research and
semiconductor applications. The Company's product lines have
similar long-term economic characteristics and utilize similar
manufacturing processes. The Company distributes, sells and
services its products to similar customers in all regions.
Information concerning foreign and domestic operations,
including net sales by origin is as follows (In thousands):
As of or the year ended
December 31,
2006 2005 2004
......... ......... .........
Net sales and services to
unaffiliated customers:
United States operations $ 116,984 $ 98,997 $ 96,927
European operations 28,908 28,867 27,928
Asian operations 8,604 9,853 11,776
......... ......... .........
$ 154,496 $ 137,717 $ 136,631
......... ......... .........
......... ......... .........
Operating income (loss):
United States operations $ 19,898 $ 19,014 $ 19,889
European operations (356) (112) (809)
Asian operations 158 636 927
......... ......... .........
$ 19,700 $ 19,538 $ 20,007
......... ......... .........
......... ......... .........
Identifiable assets:
United States operations $ 154,439 $ 137,694 $ 127,251
European operations 21,863 20,413 18,635
Asian operations 5,677 5,931 6,592
......... ......... .........
$ 181,979 $ 164,038 $ 152,478
......... ......... .........
......... ......... .........
Identifiable assets are those tangible and intangible assets used
in operations in each geographic area.
During the years ended December 31, 2006, 2005 and 2004, the
Company had foreign and export sales of approximately $96.8
million, $83.9 million and $85.7 million, representing 63%,
61% and 63%, respectively, of total net sales and services.
Of the net sales and services to non-U.S. customers above, net
sales and services to customers in Germany accounted for
approximately $20.1 million, $19.8 million and $17.8 million
of total consolidated net sales and services for 2006, 2005,
and 2004, respectively, and net sales and services to
customers in Japan accounted for approximately $17.0 million,
$15.3 million and $19.1 million of total consolidated net
sales and services for 2006, 2005 and 2004, respectively. No
other individual foreign country accounted for more than 10%
of total consolidated net sales and services in 2006, 2005 or
2004.
No single customer accounted for more than 10% of the Company's net
sales and services in 2006, 2005 and 2004. No accounts receivable from
a customer exceeded 5% of the Company's total accounts receivable at
December 31, 2006. One customer accounted for 5.3% of the Company's
total accounts receivable at December 31, 2005.
(14) Related Party Transactions
..........................
During 2006, 2005 and 2004, one director of the Company provided
services to the Company as legal counsel, and the Company paid
approximately $219 thousand, $51 thousand and $115 thousand,
respectively for legal services rendered by the director's law
firm. As of December 31, 2006, no amounts were due to the
director's law firm.
(15) Deferred Compensation
.....................
The Company has a deferred compensation plan whereby certain
compensation earned by a participant can be deferred and, if
funded, the related assets are placed in an employee benefit
trust, also known as a "rabbi trust." Under the deferred
compensation plan, the participant may choose from several
investment designations. At December 31, 2006, the Company
has a $1.4 million deferred compensation obligation under the
plan, which is unfunded and presented in the accompanying
consolidated balance sheet as a long-term liability.
Schedule II
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2006, 2005 and 2004
Column A Column B Column C Column D Column E
........ ........ ........ ........ ........
(Recoveries)
Balance at Additions charged (Deductions) Balance at
beginning to cost and additions - end of
Description of period expenses describe period
........... ......... ........ .......... .......
Allowance for doubtful accounts (In thousands):
Year ended December 31,:
2006 $ 810 $ (16) $ (10) (1) $ 784
2005 $ 796 $ 252 $(238) (1) $ 810
2004 $ 1,001 $ 297 $(502) (1) $ 796
(1) Uncollectible accounts written off, net of recoveries.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures
As of the end of the period covered by this Annual Report on Form 10-K,
the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the CEO and
CFO, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.
Based upon that evaluation, the Company's CEO and CFO concluded that the
Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Company's
periodic SEC filings.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company, as such term
is defined in Exchange Act Rules 13a-15(f). Under the supervision and
with the participation of our management, including our CEO and CFO, we
conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on our evaluation under the framework
in Internal Control - Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of
December 31, 2006.
Our management's assessment of the effectiveness of our internal control
over financial reporting as of December 31, 2006 has been audited by
KPMG, an independent registered public accounting firm, as stated in
their report, which is included herein.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company's internal control over financial
reporting during the quarterly period ended December 31, 2006 that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
.........
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item 10 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2006.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2006.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by this Item 12 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2006.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by this Item 13 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2006.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item 14 is incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed within 120 days after the end of the Company's
year ended December 31, 2006.
PART IV
........
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements (included in Part II, Item 8):
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2006 and 2005
Consolidated Statements of Income for the years ended
December 31, 2006, 2005 and 2004.
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended December 31, 2006, 2005 and 2004.
Consolidated Statements of Cash Flows for the years ended
December 31, 2006, 2005 and 2004.
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule (included in Part II
Item 8)*
Schedule
.........
II Valuation and Qualifying Accounts
3. Exhibits included herein:
See Exhibit Index below for exhibits filed as part of this Annual Report
on Form 10-K.
............................................
* Financial statement schedules other than those listed are omitted
because they are either not applicable or not required, or because the
information sought is included in the Consolidated Financial Statements
or the Notes thereto.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EXCEL TECHNOLOGY, INC.
By: /s/ Antoine Dominic
.........................................
Antoine Dominic, Chief Executive Officer
By: /s/ Alice H. Varisano
..........................................
Alice H. Varisano, Chief Financial Officer
Date: February 20, 2007
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 AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
...................... .......................... ..................
/s/ J. Donald Hill Chairman of the Board February 20, 2007
...................... and Director
J. Donald Hill
/s/ Antoine Dominic Director, Chief Executive February 20, 2007
..................... Officer, President, and
Antoine Dominic Chief Operating Officer
(Principal Executive Officer)
/s/ Alice H. Varisano Chief Financial Officer February 20, 2007
...................... (Principal Financial Officer)
Alice H. Varisano
/s/ Steven Georgiev Director February 20, 2007
......................
Steven Georgiev
/s/ Donald Weeden Director February 20, 2007
......................
Donald Weeden
/s/ Ira J. Lamel Director February 20, 2007
......................
Ira J. Lamel
INDEX TO EXHIBITS
Exhibit
Number Document
.........
3.1 Restated Certificate of Incorporation dated November 13, 1990,
as amended. Incorporated by reference to the Company's
Registration Statement on Form S-1, File No. 33-39375.
3.2 By-Laws, as amended. Incorporated by reference to the
Company's Registration Statement on Form S-4,
File No. 33-47440.
4 Specimen Certificate for Company's Common Stock.
Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-39375.
10.1 1990 Stock Option Plan, as amended. Incorporated by reference
to the Company's Registration Statement on Form S-1,
File No. 33-52612.(2)
10.2 Employment Agreement, dated as of October 10, 2000, between
the Company and J. Donald Hill (Incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000), as amended by letter
agreement, dated October 3, 2002 (Incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2002), as further amended by
letter agreements, dated March 11, 2005, March 21, 2005 and
May 5, 2005 (Incorporated by reference to the Company's
Current Reports on Form 8-K filed on March 14, 2005, March 21,
2005 and May 6, 2005, respectively).(2)
10.3 Employment Agreement, dated as of October 9, 2006, between the
Company and Antoine Dominic.(1) (2)
10.4 1998 Stock Option Plan. Incorporated by reference as Exhibit
A to the Company's Definitive Proxy Statement, dated April 27,
1998 for the Annual Meeting of Stockholders held on
June 24, 1998.(2)
10.5 2004 Stock Option Plan. Incorporated by reference to the
Company's Registration Statement on Form S-8,
File No. 333-117513.(2)
10.6 Employment Agreement, dated as of February 15, 2007 between
the Company and Alice Varisano.(1) (2)
10.7 2006 Stock Option / Stock Issuance Plan. Incorporated by
reference to the Company's Registration Statement on Form S-8,
File No. 333-140063.(2)
10.8 Form of Stock Issuance Agreement under the Company's 2006
Stock Option / Stock Issuance Plan. (1) (2)
10.9 Form of Stock Purchase Agreement For Shares Not Fully Vested
under to the Company's 2006 Stock Option /
Stock Issuance Plan. (1) (2)
10.10 Form of Stock Option Agreement under the Company's 2006 Stock
Option / Stock Issuance Plan. (1) (2)
14 Code of Ethics. Incorporated by reference to the Company's
Form 10-K, dated March 15, 2004.
21 List of subsidiaries.(1)
23.1 Consent of KPMG LLP.(1)
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.(1)
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.(1)
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350.(1)
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350.(1)
(1) filed herewith
(2) compensatory plan or arrangement
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of the 9th day of October, 2006, by and between
EXCEL TECHNOLOGY, INC., a Delaware corporation with its principal
corporate offices located at 41 Research Way, E. Setauket, NY 11733 (the
"Company"), and ANTOINE DOMINIC currently residing at 30 Legend Circle,
Melville, NY 11747 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of designing,
developing, manufacturing and marketing lasers and laser systems; and
WHEREAS, the Employee is the President, Chief Executive Officer,
and Chief Operating Officer of the Company; and
WHEREAS, the Company and the Employee entered into an Employment
Agreement dated as of October 10, 2000, and entered into agreements
dated as of March 11, 2005 and May 3, 2005 amending such Employment
Agreement (such Employment Agreement as so amended being hereinafter
referred to as the "Prior Employment Agreement"); and
WHEREAS, the Company and the Employee desire to enter into a new
agreement setting forth the terms and conditions of the Employee's
employment, which shall replace the Prior Employment Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT; PRIOR EMPLOYMENT AGREEMENT SUPERSEDED
.................................................
1.01 The Company hereby employs and engages the Employee to
serve as the President, Chief Executive Officer, and Chief Operating
Officer of the Company, and the Employee hereby accepts employment with
the Company, on the terms and conditions herein set forth.
1.02 This Agreement supersedes the Prior Employment
Agreement, and the Prior Employment Agreement shall be of no further
force and effect, effective as of October 9, 2006.
2. COMMENCEMENT; TERM OF AGREEMENT
...............................
2.01 The term of employment hereunder (the "Employment
Period") shall commence on October 9 and shall continue through October
31, 2008, unless terminated sooner pursuant to the express provisions
hereof or extended pursuant to Section 2.02 hereof.
2.02 The parties agree to enter into good faith negotiations
regarding the Employee's continued employment with the Company at least
90 days prior to the expiration of the Employment Period. In the event
the parties do not reach an agreement prior to the expiration of the
Employment Period, the terms of this Agreement shall automatically be
renewed for a period of one year, and shall continue to renew at the end
of each subsequent year until (i) the parties agree to new terms of
employment, or (ii) employment is terminated sooner pursuant to the
express provisions hereof.
3. DUTIES
......
3.01 During the Employment Period, the Employee shall be
employed in an executive capacity as the President, Chief Executive
Officer, and Chief Operating Officer of the Company, to perform such
functions as are normally carried out by the President, Chief Executive
Officer, and Chief Operating Officer of a business of the type in which
the Company is engaged, and such other functions as the Board of
Directors of the Company shall from time to time reasonably determine.
The Employee shall devote his full business time exclusively to
performing the aforestated duties and advancing the best interests of
the Company, and will faithfully adhere to and fulfill such business
policies and procedures as may be established from time to time by the
Board of Directors of the Company. Notwithstanding the foregoing, it
shall not be a violation of this Agreement for the Employee to (i) serve
on corporate, civic or charitable boards or committees, (ii) manage
personal investments, and (iii) engage in other business endeavors, so
long as such activities do not significantly interfere with the
performance of the Employee's duties hereunder or violate Section 6
hereof.
3.02 The Employee shall report and be responsible to the
Board of Directors of the Company.
4. COMPENSATION
............
4.01 During the Employment Period, the Employee shall be
entitled to a base salary ("Base Salary"), payable in accordance with
the Company's normal payroll procedures for executive employees and
subject to annual review and adjustment by the Company in January of
each year. The Employee's Base Salary was increased to SIX HUNDRED
TWENTY FIVE THOUSAND DOLLARS ($625,000) per annum effective as of
January 1, 2006.
4.02 In addition to the Employee's Base Salary, the Employee
shall be eligible to receive bonus compensation in accordance with the
Company's Annual Incentive Compensation Plan for Key Executives (the
"Key Executive Bonus Plan"); provided, however, that in the event of a
Change of Control (as defined in Section 4.08 hereof) the Employee's
bonus under the Key Executive Bonus Plan for the performance period in
which the Change of Control occurs in no event shall be less than the
bonus that the Employee received for the corresponding period during the
preceding calendar year.
4.03 The Employee shall be entitled to reimbursement from the
Company for all reasonable travel and other out-of-pocket expenses
necessarily incurred by him on behalf of the Company in the course of
the performance of his duties hereunder, provided the Employee shall
submit proper supporting documentation for such expenses.
4.04 The Employee shall be eligible, to the extent he
qualifies, to participate in such fringe benefits plans (including group
life, health and disability insurance, retirement, profit sharing and
pension plans), if any, which the Company may from time to time make
available to all of its executive employees, provided that the Company
shall have the right from time to time to modify, terminate or replace
any and all of such plans.
4.05 The Employee shall be entitled to four (4) weeks of
vacation each year during the Employment Period (prorated in the case of
a partial year for the actual number of days that the Employee was
employed by the Company during that year), which shall be taken at such
times as are consistent with the needs of the Company and the
convenience of the Employee. If the Employee fails to take the full
period of vacation to which he is entitled during any calendar year, the
Employee will be paid an additional amount of salary for the accrued
vacation time that he did not utilize calculated based on his Base
Salary rate.
4.06 The Employee shall be entitled, during the Employment
Period, to comprehensive liability insurance coverage, the premiums for
which shall not exceed $20,000 per annum.
4.07 The Employee shall be entitled to the following amounts
as a sign-on bonus: (i) $250,000 to be paid by the Company within ten
(2) days after the execution of this Agreement by the Company and the
Employee and (ii) an additional $250,000 to be paid by the Company
ratably over a 25 month period ; provided, however, that if either (A)
there is a Change of Control (as defined in Section 4.08 hereof) prior
to receipt of all monies due and the Employee remains in the employment
of the Company through the date of the Change of Control or (B) the
employment of the Employee terminates by reason of an involuntary
termination of the Employee's employment by the Company without Cause
pursuant to Section 5.04 hereof or a voluntary termination of employment
by the Employee for Good Reason pursuant to Section 5.05 hereof, the
amount described in this subsection (ii) shall be paid by the Company to
the Employee within ten (2) days following such Change of Control or
termination of employment, as the case may be (or, if payment cannot be
made at that time without giving rise to the penalty described in
Section 409A(a)(1)(B) of the Internal Revenue Code of 1986, as amended
(the "Code"), such payment shall be delayed until the earliest date that
payment may be made consistent with the requirements of Section 409A of
the Code). However, if the employee is terminated for cause or
voluntarily terminates without Good Reason, he will not be entitled to
any remaining payments under Section 4.07 that have not been paid.
4.08 In the event a Change of Control (as defined below)
occurs during the Employment Period, then the Employee shall be entitled
to (i) a payment equal to the product of (A) 2.99 and (B) the Employee's
"annualized includible compensation" as that term is defined in Section
280G of the Code and the regulations thereunder for the period
consisting of the most recent five (5) taxable years ending before the
date of the Change of Control and (ii) continued medical and dental
benefits for the Employee and his spouse and dependents at the Company's
expense for a period of sixty (60) months following the Change of
Control on terms that are no less favorable to the Employee and his
spouse and dependents than those in effect immediately before the Change
of Control. The amount payable pursuant to clause (i) of the preceding
sentence shall be paid by the Company in a single lump sum in cash
within ten (10) days after the occurrence of the Change of Control. If
the Employee obtains medical or dental benefits under a subsequent
employer's medical or dental plans, the Company may reduce or eliminate
the coverages and benefits it is required to provide pursuant to clause
(ii) of the first sentence of this Section 4.08 so long as the aggregate
coverages and benefits of the combined plans are no less favorable to
the Employee and his spouse and dependents than the coverages and
benefits required to be provided pursuant to clause (ii) of the first
sentence of this Section 4.08. Notwithstanding the foregoing, the
Employee shall be entitled to the payment and benefits described in the
first sentence of this Section 4.08 only if he (i) executes a release
agreement acceptable to the Board of Directors of the Company releasing
all legally waivable claims against the Company and its subsidiaries and
affiliates and all present and former directors, officers, agents,
representatives, employees, successors and assigns of the Company and
its subsidiaries and affiliates and the Company's direct and indirect
owners and (ii) has complied with his obligations under Sections 6 and 7
hereof. For purposes of this Section 4.08, a Change of Control shall
mean (a) the acquisition by any person (including a person defined in
Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of
1934 ("Exchange Act")), entity or group) of more than 50% of either the
then outstanding shares of common stock of the Company or the combined
voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors, (b) the sale of
all or substantially all of the assets of the Company in a transaction
or series of transactions, (c) the merger or consolidation of the
Company with another entity other than a merger or consolidation in
which the shareholders of the Company immediately prior to the merger or
consolidation hold, directly or indirectly, at least a majority of the
outstanding voting power of the outstanding voting securities or common
stock of the continuing or surviving company immediately after such
merger or consolidation, or (d) individuals who, as of the date hereof,
constitute the Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors,
provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such person were a
member of the Incumbent Board.
4.09 The Employee shall be entitled to a deferred
compensation benefit determined as hereinafter provided in this Section
4.09. There shall be credited as of November 1, 2006 to a bookkeeping
account in the Employee's name (the "Deferred Compensation Account") an
amount equal to $1,375,000. The employee shall elect to defer before
January 1 the compensation earned for the subsequent calendar year.
There shall be credited to the Deferred Compensation Account $46,875
as of the end of each of the first three quarters of 2007 and $31,250 as
of the end of the fourth quarter of 2007 and each of the first three
quarters of 2008. This is based upon the employee receiving $125,000
for each year of service the employee continues to be employed at the
Company. However, if the employee is terminated for cause or
voluntarily terminates without Good Reason, he will not be entitled to
any remaining payments under Section 4.09 that have not been credited to
his account. The amounts credited to the Deferred Compensation Account
shall from time to time be credited or debited with the equivalent of
earnings and losses as if they were invested in such investment options
designated by the Company as the Employee may from time to time select,
provided, however, that if the Employee shall fail to designate an
investment option or options, he shall be deemed to have designated as
the investment option for the entire Deferred Compensation Account an
AAA taxable vehicle. The amounts credited to the Employee's Deferred
Compensation Account shall be paid to the Employee (or, in the event of
his death, his estate) on the first business day following the
expiration of the later of January 2 or six (6) months following the
termination of the Employee's employment for any reason. The amounts to
be paid to the Employee pursuant to this Section 4.09 are unfunded
obligations of the Company and represent merely a promise by the Company
to make payments in the future. The Employee shall be a general
unsecured creditor of the Company with respect to any payments due under
this Section 4.09. The Employee's rights under this Section 4.09 are
not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment by creditors
of the Employee or his beneficiaries.
4.10 (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution made, or benefit provided (including, without limitation,
the acceleration of any payment, distribution or benefit and the
accelerated exercisability of any stock option), to or for the benefit
of the Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section
4.11) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code (or any similar excise tax) or any interest or
penalties are incurred by the Employee with respect to such excise tax
(such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the
Employee shall be entitled to receive from the Company an additional
payment (a "Gross-Up Payment") in an amount such that after payment by
the Employee of all taxes (including any Excise Tax, income tax or
employment tax and taking into account any lost or reduced tax
deductions on account of such Gross-Up Payment) imposed upon the Gross-
Up Payment and any interest or penalties imposed with respect to such
taxes, the Employee retains an amount from the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 4.11(c), all
determinations required to be made under this Section 4.11, including
determination of whether a Gross-Up Payment is required and of the
amount of any such Gross-up Payment, shall be made by the accounting
firm selected by the Company to audit the Company's financial statements
(the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Employee within 15 business
days of a Change of Control, within 15 days after receipt of written
notice from the Employee that there has been a Payment, or at such
earlier time as is requested by the Company, provided that any
determination that an Excise Tax is payable by the Employee shall be
made on the basis of substantial authority. The initial Gross-Up
Payment, if any, as determined pursuant to this Section 4.11, shall be
paid to the Employee within five business days of the receipt of the
Accounting Firm's determination. If the Accounting Firm determines that
no Excise Tax is payable by the Employee, it shall furnish the Employee
with a written opinion that he has substantial authority not to report
any Excise Tax on his Federal income tax return. Any determination by
the Accounting Firm meeting the requirements of this Section 4.11(b)
shall be binding upon the Company and the Employee; subject only to
payments pursuant to the following sentence based on a determination
that additional Gross-Up Payments should have been made, consistent with
the calculations required to be made hereunder (the amount of such
additional payments is referred to herein as the "Gross-Up
Underpayment"). In the event that the Company exhausts its remedies
pursuant to Section 4.11(c) and the Employee thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Gross-Up Underpayment that has occurred and any such
Gross-Up Underpayment shall be promptly paid by the Company to or for
the benefit of the Employee. The fees and disbursements of the
Accounting Firm shall be paid by the Company.
(c) The Employee shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but not later than
ten (10) business days after the Employee receives written notice of
such claim and shall apprise the Company of the nature of such claim and
the date on which such Claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with respect
to such claim is due). If the Company notifies the Employee in writing
prior to the expiration of such period that it desires to contest such
claim and that it will bear the costs and provide the indemnification as
required by this sentence, the Employee shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company and reasonably acceptable to the Employee,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Employee harmless, on an after-tax basis, for any Excise Tax, income
tax or employment tax (taking into account any lost or reduced tax
deductions on account of such payments), including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 4.11(c), the Company shall
control all proceedings taken in connection with such contest and, at
its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute
such contest to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Employee to pay such claim and sue for a refund, the Company
shall advance the amount of such payment to the Employee on an interest-
free basis and shall indemnify and hold the Employee harmless, on an
after-tax basis, from any Excise Tax, income tax or employment tax
(taking into account any lost or reduced tax deductions on account of
such advance), including interest or penalties with respect thereto,
imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any
extension of the statute of limitations relating to the payment of taxes
for the taxable year of the Employee with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Employee shall be entitled, in his
sole discretion, to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 4.11(c), the Employee
becomes entitled to receive any refund with respect to such claim, the
Employee shall (subject to the Company's complying with the requirements
of Section 4.11(c)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 4.11(c), a determination is
made that the Employee shall not be entitled to any refund with respect
to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of
30 days after such determination, then any obligation of the Employee to
repay such advance shall be forgiven and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
5. TERMINATION
...........
5.01 The Employee's employment hereunder shall terminate
automatically and without notice upon the death of the Employee.
The Company may terminate the Employee's employment hereunder, upon
written notice to the Employee, in the event of the Employee's
Incapacity. For the purpose of this Agreement, Incapacity shall be
deemed to refer to and include (i) the suffering of any mental or
physical illness, disability or incapacity to the extent that the
Employee shall be unable to perform his duties pursuant to this
Agreement and such illness, disability or incapacity shall be deemed by
a licensed physician chosen by the Company to be of a permanent nature,
or (ii) the Employee shall not have substantially performed his duties
hereunder for a continuous period of 60 days or for a period of 90 days
in any six (6) consecutive month period.
5.02 The Company may terminate the Employee's employment
hereunder, upon written notice to the Employee, for Cause. For purposes
of this Agreement, "Cause" shall mean any of the following:
(a) the Employee's conviction in a court of law of any crime
or offense involving money or other property or of a felony;
(b) the Employee's failure or refusal to substantially
perform his duties hereunder (other than any such failure or
refusal resulting from his Incapacity or the failure to meet
specific growth and profit targets), or the Employee's failure or
refusal to carry out the reasonable business directives of the
Board of Directors, or the willful taking of any action by the
Employee which results in damage to the Company, or the material
default or breach by the Employee of any obligation,
representation, warranty, covenant or agreement made by Employee
herein; provided, however, that the Company shall have given the
Employee written notice of any such Cause for termination and the
Employee shall have failed to cure such Cause within fifteen (15)
days after the date of such notice. If the Cause for termination
is cured within the fifteen (15) day period, it shall be deemed for
all purposes that Cause for termination has not occurred (except
that if the same or a similar event to the one resulting in notice
pursuant to this subsection (b) recurs after a cure, the right to
cure the second cause of termination, after notice with respect to
the second event shall have been given, shall expire 24 hours after
the time the notice is given); or
(c) the Employee's breach of any of the provisions of
Sections 6 or 7 hereof.
5.04 The Company may terminate the Employee's employment
hereunder, upon written notice to the Employee, without Cause.
5.05 The Employee may voluntarily leave the employ of the
Company for Good Reason (as defined below); provided the Employee has
given the Company forty-five (45) days advance written notice thereof
and the Company shall have failed to cure such Good Reason event within
such forty-five (45) day period. If the Good Reason event is cured
within the forty-five (45) day period, it shall be deemed for all
purposes that the Good Reason event has not occurred (except that if the
same or a similar event to the one resulting in notice pursuant to this
Section 5.05 recurs after a cure, the right to cure the second Good
Reason event, after notice with respect to the second event shall have
been given, shall expire 24 hours after the time notice is given). For
purposes of this Agreement, "Good Reason" shall mean (i) a significant
reduction in the scope of the Employee's authority, functions, duties or
responsibilities from that which is contemplated by this Agreement, (ii)
any reduction in the Employee's base salary, (iii) a significant
reduction in the employee benefits provided to the Employee other than
in connection with an across-the-board reduction similarly affecting
substantially all senior executives of the Company or (iv) a requirement
that the Employee relocate to an office that is more than fifty (50)
miles from the location of his office on November 1, 2006. If an event
constituting a ground for termination of employment for Good Reason
occurs, and the Employee fails to give notice of termination within 3
months after the occurrence of such event, the Employee shall be deemed
to have waived his right to terminate employment for Good Reason in
connection with such event (but not for any other event for which the 3-
month period has not expired).
5.06 The Employee may voluntarily leave the employ of the
Company other than for Good Reason; provided the Employee has given the
Company forty-five (45) days advance written notice thereof.
5.07 If the Employee's employment is terminated by reason of
the death or Incapacity of the Employee or for Cause not directly
related to his actions towards the Company during the Employment Period,
the Employee shall be entitled to the Base Salary-provided to be paid
pursuant to Section 4.01 hereof up to the date of termination, the bonus
compensation which the Employee had earned under the Key Executive Bonus
Plan for all performance periods that ended before the date of the
Employee's termination of employment and the bonus compensation which
the Employee had earned under the Key Executive Bonus Plan for the
performance period in which his employment terminates (determined as if
such performance period had ended as of the date of his termination of
employment). If the Employee's employment is terminated for Cause
directly related to his actions concerning the Company, the Employee
shall be entitled to only the Base Salary provided to be paid pursuant
to Section 4.01 hereof up to the date of termination and the bonus
compensation which the Employee had earned under the Key Executive Bonus
Plan for all performance periods that ended before the date of the
Employee's termination of employment, but the Employee shall receive no
bonus compensation for the performance period in which his employment
terminates. If the Company terminates the Employee's employment without
Cause pursuant to Section 5.04 hereof or the Employee voluntarily leaves
the employ of the Company for Good Reason pursuant to Section 5.05
hereof, the Employee shall be entitled to (a) a cash lump payment in an
amount equal to (i) two (2) times the Employee's Base Salary pursuant to
Section 4.01 hereof plus (ii) an amount equal to the sum of the bonuses
paid or payable by the Company to the Employee for each of the
performance periods ending within the two calendar years immediately
preceding the calendar year of termination of the Employee's employment,
such lump sum payment to be made within ten (2) days following such
termination of employment (or, if payment cannot be made at that time
without giving rise to the penalty described in Section 409A(a)(1)(B) of
the Code, such payment shall be delayed until the earliest date that
payment may be made consistent with the requirements of Section 409A of
the Code), (b) the bonus compensation which the Employee had earned
under the Key Executive Bonus Plan for all performance periods that
ended before the date of the Employee's termination of employment, (c)
the bonus compensation which the Employee had earned under the Key
Executive Bonus Plan for the performance period in which his employment
terminates (determined as if such performance period had ended as of the
date of his termination of employment), (d) continued medical and dental
benefits for the Employee and his spouse and dependents at the Company's
expense for a period of sixty (60) months following the termination of
the Employee's employment on terms that are no less favorable to the
Employee and his spouse and dependents than those in effect immediately
before such termination of employment, and (e) full and immediate
vesting of any outstanding stock options and shares of restricted stock.
If the Employee obtains medical or dental benefits under a subsequent
employer's medical or dental plans, the Company may reduce or eliminate
the coverages and benefits it is required to provide pursuant to clause
(d) of the preceding sentence so long as the aggregate coverages and
benefits of the combined plans are no less favorable to the Employee and
his spouse and dependents than the coverages and benefits required to be
provided by clause (d) of the preceding sentence. Notwithstanding the
foregoing, the Employee shall be entitled to the payment and benefits
described in clauses (a), (d) and (e) of the second preceding sentence
only if (i) he executes a release agreement acceptable to the Board of
Directors of the Company releasing all legally waivable claims against
the Company and its subsidiaries and affiliates and all present and
former directors, officers, agents, representatives, employees,
successors and assigns of the Company and its subsidiaries and
affiliates and the Company's direct and indirect owners, and (ii) he has
complied with his obligations under Sections 6 and 7 hereof. If the
Employee voluntarily leaves the employ of the Company at any time during
the Employment Period pursuant to Section 5.06 hereof for any reason
other than a Good Reason termination, the Employee shall be entitled to
(a) the Base Salary pursuant to Section 4.01 hereof for the period (up
to 45 days) that the Employee remains in the employ of the Company and
(b) the bonus compensation which the Employee had earned under the Key
Executive Bonus Plan for all performance periods that ended before the
date of the Employee's termination of employment and (c)the Employee
shall receive bonus compensation for the performance period in which
his employment terminates equal to the bonus he received in the
preceding quarter.
6. NON-COMPETITION
...............
6.01 In view of the unique and valuable services it is
expected the Employee will render to the Company, the Employee's
knowledge of the business of the Company and proprietary information
relating to the business of the Company and similar knowledge regarding
the Company it is expected the Employee will obtain during the course of
his employment with the Company and in consideration of this Agreement
and the compensation to be received by the Employee hereunder, the
Employee agrees that for so long as he is employed by the Company and
for a period of one year thereafter, he will not compete with the
Company (or any of its subsidiaries now owned or hereafter acquired),
or, directly or indirectly, own, manage, operate, control, loan money
to, or participate in the ownership, management, operation or control
of, or be connected with as a director, officer, employee, partner,
consultant, agent, independent contractor or otherwise, or acquiesce in
the use of his name in, any other business or organization which
competes with the Company (or any of its subsidiaries now owned or
hereafter acquired) in any geographical area in which the Company or its
subsidiaries is then conducting business or any geographical area in
which, to the knowledge of the Employee, the Company or its subsidiaries
plans to conduct business within a six (6) month period; provided,
however, that the Employee shall be permitted to own less than a 5%
interest as a shareholder in any company which is listed on any national
securities exchange even though it may be in competition with the
Company or its subsidiaries.
6.02 Since a breach of the provisions of this Section 6 could
not adequately be compensated by money damages and will cause
irreparable injury to the Company, the Company shall be entitled, in
addition to any other right or remedy available to it, to an injunction
or restraining order enjoining such breach or a threatened breach, and
no bond or other security shall be required in connection therewith.
The Employee agrees that the provisions of this Section 6 are reasonable
and necessary to protect the Company and its business. It is the desire
and intent of the parties that the provisions of this Section 6 shall be
enforced to the fullest extent permitted under the public policies and
laws applied in each jurisdiction in which enforcement is sought. If
any restriction contained in this Section 6 shall be deemed to be
invalid, illegal or unenforceable by reason of the extent, duration or
geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration,
geographical scope or other provision hereof and in its reduced form
such restriction shall then be enforceable in the manner contemplated
hereby.
7. CONFIDENTIAL INFORMATION
........................
All know-how, information, technology, processes, plans, data,
specifications, instructions, customer lists, personnel lists, suppliers
and other verbal and written communications intended by the Company to
be kept confidential ("Confidential Information") which the Employee may
now possess or may obtain or create prior to the end of the Employment
Period, relating to the business of the Company or its subsidiaries (now
owned or hereafter acquired), shall not be published, disclosed or made
accessible by the Employee to any other person, firm, partnership,
corporation or organization either during or after the termination of
his employment or used by him except during his employment by the
Company or as may otherwise be required by law. The Employee shall
return all tangible evidence of such Confidential Information to the
Company prior to or at the termination of his employment.
Notwithstanding the foregoing, Confidential Information shall not
include any information which (i) at the time it is first learned by the
Employee is in the public domain, or (ii) after disclosure to the
Employee, enters the public domain without fault of the Employee.
8. CODE SECTION 409A
.................
It is intended that any payments under this Agreement comply with
Section 409A of the Code (and any regulations and guidance issued
thereunder) to the extent such payments would constitute nonqualified
deferred compensation subject to said Section 409A, and this Agreement
shall be interpreted consistently with such intent. If an amendment to
this Agreement is necessary in order for any such payments to comply
with said Section 409A, the parties hereto agree to negotiate in good
faith to amend this Agreement so as to comply with said Section 409A in
a manner that preserves the original intent of the parties to the extent
reasonably possible.
9. WITHHOLDING
...........
The Company may withhold from any amounts payable under this
Agreement such federal, state and local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
10. SURVIVAL
........
The covenants and agreements contained in or made pursuant to this
Agreement shall survive the Employee's termination of employment,
irrespective of any investigation made by or on behalf of any party.
11. ENTIRE AGREEMENT; MODIFICATION
..............................
This Agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof, supersedes all existing
agreements between them concerning such subject matter, and may be
modified, supplemented or discharged only by a written instrument duly
executed by each party.
12. NOTICES
.......
Any notices or other communications required or permitted to be
given hereunder shall be in writing and shall be mailed by certified or
registered mail, return receipt requested, or personally delivered
against receipt to the party to whom it is to be given at the address of
such party set forth in the preamble to this Agreement (or to such other
address as the party shall have furnished in writing in accordance with
the provisions of this Section 12). Any notice or other communication
given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address
which shall be deemed given at the time of receipt thereof.
13. WAIVER
......
Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision
of this Agreement. The failure of a party to insist upon strict
adherence to any term of this Agreement on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement. Any waiver must be in writing.
14. BINDING EFFECT
..............
The Employee's rights and obligations under this Agreement shall
not be transferable by assignment or otherwise, such rights shall not be
subject to commutation, encumbrance, or the claims of the Employee's
creditors, and any attempt to do any of the foregoing shall be void.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the Employee, his heirs, executors, and administrators, and
shall be binding upon and inure to the benefit of the Company and its
successors and assigns.
15. HEADINGS
........
The headings in this Agreement are solely for the convenience of
reference and shall be given no effect in the construction or
interpretation of this Agreement.
16. COUNTERPARTS; GOVERNING LAW
...........................
This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New York, without giving effect to any doctrine pertaining to the
conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year above written.
/s/ Antoine Dominic
......................
ANTOINE DOMINIC
EXCEL TECHNOLOGY, INC.
By: /s/ J.Donald Hill
........................
J. Donald Hill, Chairman
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of the 15th day
of February, 2007, by and between EXCEL TECHNOLOGY, INC., a Delaware
corporation with its principal corporate offices located at 41 Research
Way, East Setauket, New York 11733 (the "Company"), and ALICE VARISANO,
an individual currently residing at 85 Melanie Lane, Syosset, New York
11791 (the "Employee").
W I T N E S S E T H:
...................
WHEREAS, the Company is engaged in the business of designing,
developing, manufacturing and marketing lasers and laser systems; and
WHEREAS, the Employee is the Chief Financial Officer and Director
of Human Resources of the Company; and
WHEREAS, The Company and the Employee entered into an Employment
Agreement dated as of December 27, 2004, and entered into agreements
dated as of May 5, 2005; and
WHEREAS, the Company and the Employee desire to enter into a new
agreement setting forth the terms and conditions of the Employee's
employment, which shall replace the Prior Employment Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth
..........
herein, the Company hereby employs and engages the Employee to serve as
its Chief Financial Officer and its Director of Human Resources, and the
Employee hereby agrees to serve the Company in such capacities, for the
period commencing on the date hereof and ending on fourth anniversary of
the date hereof (the "Employment Period"), unless sooner terminated
pursuant to the express provisions hereof.
2. DUTIES. The Employee shall serve as the Company's Chief
.......
Financial Officer and the Company's Director of Human Resources, subject
to the direction and control of the Senior Executive Officers (as
defined below) and the Company's Board of Directors (the "Board"). The
Employee shall perform such duties and functions, consistent with the
office of Chief Financial Officer and the office of Director of Human
Resources, as the Senior Executive Officers or the Board, from time to
time, shall determine, including, without limitation, serving as a
consultant to Affiliates (as defined below) of the Company. In doing
so, the Employee shall promote the interests of the Company pursuant to
and in accordance with, and shall faithfully adhere to, the business
policies and procedures established from time to time by the Senior
Executive Officers or the Board. The Employee shall report to a Senior
Executive Officer. As used herein, "Senior Executive Officers" shall
mean the Company's [Chairman of the Board], Chief Executive Officer,
President, and such other officers as the Chief Executive Officer or the
Board may determine; and "Affiliate" shall mean, with respect to the
Company, any entity that, directly or indirectly, controls, is
controlled by, or is under common control with, the Company.
3. TIME TO BE DEVOTED TO EMPLOYMENT. Except during vacation
.................................
periods or absences due to temporary illness, the Employee shall devote
all of her professional and business time, attention, and energies to
her duties and responsibilities hereunder. Except for business trips
which shall be necessary or desirable in the Company's business, the
Employee shall perform her duties and responsibilities hereunder at the
principal offices of the Company.
4. COMPENSATION; FRINGES
.....................
4.01 As total compensation for all services to be rendered
by the Employee hereunder, including all services as an officer,
director, or consultant of any of Affiliate of the Company, the Employee
shall receive the following:
(a) During the Employment Period, the Employee shall
receive a salary at the rate of Three Hundred and Twenty Five thousand
($325,000) per annum (the "Base Salary"), which Base Salary shall be
subject to federal, state, and other tax withholdings, shall payable in
accordance with the Company's normal payroll procedures for executive
employees, and shall subject to annual review and adjustment by the
Company.
(b) During the Employment Period, the Employee shall
receive a yearly bonus as determined by the Board, which bonus shall not
be less than $100,000 (the "Minimum Bonus").
4.02 The Employee shall be entitled to reimbursement from
the Company for all reasonable travel and other out-of-pocket expenses
necessarily incurred by her on behalf of the Company in the course of
the performance of her duties hereunder, provided the Employee shall
submit proper supporting documentation for such expenses all in form
reasonably satisfactory to the Company.
4.03 The Employee shall be eligible, to the extent she
qualifies, to participate in such fringe benefits plans (including group
life, health and disability insurance, retirement, profit sharing and
pension plans), if any, which the Company may from time to time make
available to all of its executive employees, provided that the Company
shall have the right from time to time to modify, terminate or replace
any and all of such plans.
4.04 The Employee shall be entitled to four (4) weeks of
paid vacation each year during the Employment Period, which shall be
taken at such times as are consistent with the needs of the Company and
the convenience of the Employee.
4.05 During the Employment period, the Employee shall be
entitled to a yearly, expense allowance of $25,000 (the "Expense
Allowance").
5. TERMINATION
...........
5.01 This Agreement and the Employee's employment hereunder
shall terminate automatically and without notice upon the death of the
Employee.
5.02 This Agreement and Employee's employment hereunder
shall terminate upon the Employee's resignation without Good Reason or
for Good Reason. As used herein, "Good Reason" shall mean (a) the
material breach of this Agreement by the Company, which breach has not
been corrected by the Company within fifteen days after written notice
thereof from the Employee, (b) the material diminution in the title or
job responsibilities of the Employee, which diminution has not been
corrected by the Company within fifteen days after written notice
thereof from the Employee; or (c) if the Employee's place of employment
is relocated more than twenty five (25) miles from the Company's current
location in East Setauket, New York.
5.03 The Company may terminate this Agreement and the
Employee's employment hereunder, upon written notice to the Employee, in
the event of the Employee's Incapacity. As used herein, "Incapacity"
shall mean (a) the Employee's inability to perform her duties pursuant
to this Agreement due to her mental or physical illness, disability or
incapacity, and such illness, disability or incapacity is deemed by a
licensed physician chosen by the Company to be of a permanent nature, or
(b) the Employee's failure to perform her duties pursuant to this
Agreement, due to her mental or physical illness, disability or
incapacity, on a full-time basis for a continuous period of 60 days or
for a period of 90 days (whether or not consecutive) in any six (6)
consecutive month period.
5.04 The Company may terminate this Agreement and the
Employee's employment hereunder, upon written notice to the Employee,
for Cause. For purposes of this Agreement, "Cause" shall mean:
(a) the Employee's conviction in a court of law of any
crime or offense involving money or other property or of a felony;
(b) the Employee's failure or refusal to substantially
perform her duties hereunder (other than any such failure or refusal
resulting from her Incapacity or the failure to meet specific growth and
profit targets), or the Employee's failure or refusal to carry out the
reasonable business directives of the Board or a Senior Executive
Officer, or the willful taking of any action by the Employee which
results in damage to the Company, or the material default or breach by
the Employee of any obligation, representation, warranty, covenant or
agreement made by the Employee herein; provided, however, the Company
shall have given the Employee written notice of any such Cause for
termination and the Employee shall have failed to cure such Cause within
fifteen (15) days after the date of such notice. If the Cause for
termination is cured within the fifteen (15) day period, it shall be
deemed for all purposes that Cause for termination has not occurred
(except that if the same or a similar event to the one resulting in
notice pursuant to this subsection (b) recurs after a cure, the right to
cure the second cause of termination, after notice with respect to the
second event shall have been given, shall expire 24 hours after the time
the notice is given); or
(c) the Employee's breach of any of the provisions of
Sections 6 or 8 hereof.
5.05 Upon termination of this Agreement and the Employee's
employment hereunder, the Employee shall not be entitled to any
payments, benefits, damages, awards, or compensation, except as follows:
(a) If the Employee's employment hereunder is
terminated for Cause or due to her death or Incapacity, or if the
Employee resigns without Good Reason, then the Company shall be
obligated to pay to the Employee (or, in the event of the Employee's
death, the Employee's estate) all earned but unpaid Base Salary due to
the Employee hereunder through the date of such termination or
resignation, and to reimburse the Employee (or, in the event of the
Employee's death, the Employee's estate) for all reimbursable business
expenses (as set forth in Section 4.02 hereof) incurred by the Employee
through the date of such termination or resignation.
(b) If the Company terminates the Employee's
employment without Cause, or if the Employee resigns for Good Reason,
then the Company shall be obligated to pay to the Employee (i) all
earned but unpaid Base Salary, Minimum Bonus, Expense Allowance, and
benefits due to the Employee hereunder through the date of such
termination, and to reimburse the Employee for all reimbursable business
expenses (as set forth in Section 4.02 hereof) incurred by the Employee
through the date of such termination. In addition, the Company shall
pay to the Employee a [lump sum] severance payment equal to the Base
Salary, Prior Year Bonus, and Expense Allowance in effect on the date of
such termination.
(c) In the event a Change of Control (as defined
below) occurs during the Employment Period, then the Employee shall be
entitled to (i) a payment equal to the product of (A) 2.99 and (B) the
Employee's "annualized includible compensation" as that term is defined
in Section 280G of the Code and the regulations thereunder for the
period consisting of the most recent five (5) taxable years ending
before the date of the Change of Control The amount payable pursuant
to clause (i) of the preceding sentence shall be paid by the Company in
a single lump sum in cash within ten (10) days after the occurrence of
the Change of Control. Notwithstanding the foregoing, the Employee
shall be entitled to the payment described in the first sentence of this
Section 4.08 only if he (i) executes a release agreement acceptable to
the Board of Directors of the Company releasing all legally waivable
claims against the Company and its subsidiaries and affiliates and all
present and former directors, officers, agents, representatives,
employees, successors and assigns of the Company and its subsidiaries
and affiliates and the Company's direct and indirect owners and (ii) has
complied with his obligations under Sections 6 and 7 hereof. For
purposes of this Section 4.08, a Change of Control shall mean (a) the
acquisition by any person (including a person defined in Section
13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934
("Exchange Act")), entity or group) of more than 50% of either the then
outstanding shares of common stock of the Company or the combined voting
power of the Company's then outstanding voting securities entitled to
vote generally in the election of directors, (b) the sale of all or
substantially all of the assets of the Company in a transaction or
series of transactions, (c) the merger or consolidation of the Company
with another entity other than a merger or consolidation in which the
shareholders of the Company immediately prior to the merger or
consolidation hold, directly or indirectly, at least a majority of the
outstanding voting power of the outstanding voting securities or common
stock of the continuing or surviving company immediately after such
merger or consolidation, or (d) individuals who, as of the date hereof,
constitute the Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board of Directors,
provided that any person becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such person were a
member of the Incumbent Board.
6. NON-COMPETITION; NON-SOLICITATION
.................................
6.01 In view of the unique and valuable services it is
expected the Employee will render to the Company and the knowledge
regarding the Company it is expected the Employee will obtain during the
course of her employment with the Company, and in consideration of this
Agreement and the compensation to be received by the Employee hereunder,
the Employee agrees that for so long as she is employed by the Company
and for a period of [one] year thereafter (the "Covenant Period"), she
will not compete with the Company (or any of its Affiliates) or,
directly or indirectly, own, manage, operate, control, loan money to, or
participate in the ownership, management, operation or control of, or be
connected with as a director, officer, employee, partner, consultant,
agent, independent contractor or otherwise, or acquiesce in the use of
her name in, any other business or organization which competes with the
Company (or any of its Affiliates) in any geographical area in which the
Company or its Affiliates is then conducting business or any
geographical area in which, to the knowledge of the Employee, the
Company or its Affiliates plans to conduct business within a six (6)
month period; provided, however, the Employee shall be permitted to own
less than a 5% interest as a shareholder in any company which is listed
on any national securities exchange even though it may be in competition
with the Company or its Affiliates.
6.02 The Employee will not, during the Covenant Period,
directly or indirectly, either individually or on behalf of any other
person or entity, solicit or interfere with, or endeavor to entice away
any employees (full-time or part-time) or customers of the Company (or
any of its Affiliates).
6.03 The Employee agrees that the provisions of this Section
6 are reasonable and necessary to protect the Company and its business.
It is the desire and intent of the parties that the provisions of this
Section 6 shall be enforced to the fullest extent permitted under the
public policies and laws applied in each jurisdiction in which
enforcement is sought. If any restriction contained in this Section 6
shall be deemed to be invalid, illegal or unenforceable by reason of the
extent, duration or geographical scope thereof, or otherwise, then the
court making such determination shall have the right to reduce such
extent, duration, geographical scope or other provision hereof and in
its reduced form such restriction shall then be enforceable in the
manner contemplated hereby.
7. RETURN OF COMPANY PROPERTY. The Employee acknowledges and
...........................
agrees that all computers, equipment, software, records, plans, manuals,
guides, memoranda, lists, correspondence with customers or
representatives, reports, records, charts, advertising materials, and
any data and other property delivered to or acquired by the Employee by
or on behalf of the Company or any of its Affiliates or by an agent,
representative or customer of any of them (including, but not limited
to, any such customers obtained by the Employee), and all records
compiled by the Employee which pertain to the business of the Company or
its Affiliates, shall be and remain the property of the Company or its
Affiliate, as the case may be, and be subject at all times to the
discretion and control of the Company or its Affiliates, as the case
may, and shall be delivered promptly to the Company or such Affiliate,
without request, by the Employee upon the termination of the Employee's
employment.
8. CONFIDENTIAL INFORMATION. In the course of performing her
.........................
duties hereunder or otherwise, the Employee may become aware of
confidential or proprietary information of Company or any Affiliate of
the Company (for purposes of this Section 8, the "Company"), including,
but not limited to, trade secrets, product information, technical
information, software programs, software code, designs, prototypes,
methods, techniques, plans, processes, strategies, product pricing,
research and development activities, sales goals, marketing information,
customer and potential customer lists, vendor lists, and other
information which the Company is obligated to keep confidential pursuant
to the Company's obligations to third parties (collectively,
"Confidential Information"). The Employee shall maintain in strict
confidence and shall not use for her own benefit, directly or
indirectly, any Confidential Information, and shall not publish,
disseminate, or disclose any Confidential Information without the
express written permission of the Company, except to the extent
necessary to carry out her duties hereunder. The term "Confidential
Information" shall not include information which becomes public
knowledge without the breach of any obligation of confidentiality of the
Employee. The covenants contained in this Section 8 shall survive the
termination or expiration of this Agreement.
9. SPECIFIC PERFORMANCE. In the event of a breach or a
.....................
threatened breach by the Employee of the provisions of Sections 6, 7, or
8 (collectively, the "Restrictive Covenants"), the Company shall be
entitled, without being required to post any bond or other security or
prove special damages, to an injunction, to have the Restrictive
Covenants specifically enforced by a court of competent jurisdiction, or
to such other equitable relief as may be necessary or desirable to
enforce the Restrictive Covenants (including, in the case of a breach of
Section 8 hereof, restraining the Employee from disclosing, in whole or
in part, the Confidential Information, or from rendering any services to
any person, firm, corporation, association, or other entity to whom such
Confidential Information, in whole or in part, has been disclosed or is
threatened to be disclosed). Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other rights or
remedies available to the Company, under law and in equity, for such
breach or threatened breach, including the recovery of damages from the
Employee.
10. SURVIVAL. The covenants and agreements contained in or made
.........
pursuant to this Agreement shall survive the Employee's termination of
employment, irrespective of any investigation made by or on behalf of
any party.
11. ENTIRE AGREEMENT; MODIFICATION. This Agreement sets forth the
...............................
entire understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements between them concerning such
subject matter, and may be modified, supplemented or discharged only by
a written instrument duly executed by each party.
12. NOTICES. Any notices or other communication required or
........
permitted to be given hereunder shall be in writing and shall be deemed
to have been given (a) when faxed or personally delivered, (b) one (1)
business day after being sent by reputable "overnight" courier, or (c)
five days after being mailed by certified or registered mail, return
receipt requested, postage prepaid, to the parties at their addresses
set forth in the preamble to this Agreement (or to such other address as
a party shall have furnished in writing to the other party in accordance
with the provisions of this Section 12, provided that notice of change
of address shall be effective only upon receipt).
13. WAIVER. Any waiver by either party of a breach of any
.......
provision of this Agreement shall not operate as or be construed to be a
waiver of any other breach of such provision or of any breach of any
other provision of this Agreement. The failure of a party to insist
upon strict adherence to any term of this Agreement on one or more
occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.
14. BINDING EFFECT. The Employee's rights and obligations under
...............
this Agreement shall not be transferable by assignment or otherwise,
such rights shall not be subject to commutation, encumbrance, or the
claims of the Employee's creditors, and any attempt to do any of the
foregoing shall be void. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Employee, her heirs,
executors, and administrators, and shall be binding upon and inure to
the benefit of the Company and its successors and assigns.
15. HEADINGS. The headings in this Agreement are solely for the
.........
convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
16. COUNTERPARTS; GOVERNING LAW. This Agreement may be executed
............................
in several counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to any doctrine
pertaining to the conflict of laws.
17. REPRESENTATIONS, WARRANTIES, AND AGREEMENTS. The Employee
............................................
represents and warrants to the Company that (a) the execution, delivery
and performance of this Agreement by the Employee does not and will not
conflict with, breach, violate or cause a default under any contract,
agreement, instrument, order, judgment or decree to which the Employee
is a party or by which she is bound, (b) the Employee is not a party to
or bound by any employment agreement, non-compete agreement,
confidentiality agreement, restrictive covenant or other restrictions,
whether written or oral, with any other person or entity, and (c) upon
the execution and delivery of this Agreement by the Employee, this
Agreement shall be the valid and binding obligation of the Employee,
enforceable against her in accordance with its terms. The Employee
agrees to submit to a medical examination (at the Company's expense) and
to cooperate and supply such other information and documents as may be
required by any insurance company in connection with the Company's
obtaining any type of insurance or fringe benefit as the Company shall
determine from time to time to obtain.
18. PUBLICITY. During the Employment Period (and, solely with
..........
respect publicity materials or presentation materials in existence at
the end of the Employment Period, for the six-month period after the
Employment Period), the Company shall have the right to use the
Employee's name and likeness in any publicity materials prepared by it
and in presentations to current or prospective clients, investors, and
others. The Employee shall not have the right to use the Company's name
in any publications or publicity or materials prepared by her without
obtaining the prior written consent of the Company, which consent shall
not be unreasonably withheld.
[SIGNATURES FOLLOW ON NEXT PAGE]
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the day and year above written.
/s/ Alice Varisano
.............................
ALICE VARISANO
EXCEL TECHNOLOGY, INC.
By: /s/ Antoine Dominic
.........................
Antoine Dominic, CEO
EXHIBIT 10.8
EXCEL TECHNOLOGY, INC
STOCK ISSUANCE AGREEMENT
........................
AGREEMENT made as of this ...day of ............ 20.., by and
between Excel Technology, a Delaware corporation, and
.........................., Participant in the Corporation's 2006 Stock
Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
..................
1. Purchase. Participant hereby purchases ...........
.........
shares of Common Stock (the "Purchased Shares") pursuant to the
provisions of the Stock Issuance Program at the purchase price of
$................... per share (the "Purchase Price").
2. Payment. Concurrently with the delivery of this
........
Agreement to the Corporation, Participant shall pay the Purchase Price
for the Purchased Shares in cash or cash equivalent and shall deliver a
duly-executed blank Assignment Separate from Certificate (in the form
attached hereto as Exhibit I) with respect to the Purchased Shares.
3. Stockholder Rights. Until such time as the Corporation
...................
exercises the Repurchase Right, Participant (or any successor in
interest) shall have all stockholder rights (including voting, dividend
and liquidation rights) with respect to the Purchased Shares, subject,
however, to the transfer restrictions of Articles B and C.
A. SECURITIES LAW COMPLIANCE.
.........................
1. Restricted Securities. Participant hereby confirms that
......................
Participant has been informed that, unless a Form S-8 registration
statement covering the Purchased Shares has been filed under the 1933
Act at the time of the sale/issuance of the Purchased Shares to
Participant, the Purchased Shares are restricted securities under the
1933 Act and may not be resold or transferred unless the Purchased
Shares are first registered under the Federal securities laws or unless
an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and is aware that SEC Rule 144
promulgated under the 1933 Act, which exempts certain resales of
unrestricted securities, may not presently be available to exempt the
resale of the Purchased Shares from the registration requirements of the
1933 Act.
2. Disposition of Purchased Shares. Participant shall make
................................
no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following
requirements:
(i) Participant shall have provided the Corporation
with a written summary of the terms and conditions of the proposed
disposition.
(ii) Participant shall have complied with all
requirements of this Agreement applicable to the disposition of the
Purchased Shares.
(iii) Participant shall have provided the Corporation
with written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in
violation of the provisions of this Agreement or (ii) to treat as the
owner of the Purchased Shares, or otherwise to accord voting, dividend
or liquidation rights to, any transferee to whom the Purchased Shares
have been transferred in contravention of this Agreement.
3. Restrictive Legends. The stock certificates for the
....................
Purchased Shares shall be endorsed with one or more of the following
restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a "no action" letter of the
Securities and Exchange Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
"The shares represented by this certificate are subject
to certain repurchase rights granted to the Corporation and accordingly
may not be sold, assigned, transferred, encumbered, or in any manner
disposed of except in conformity with the terms of a written agreement
dated .............., 20.. between the Corporation and the registered
holder of the shares (or the predecessor in interest to the shares). A
copy of such agreement is maintained at the Corporation's principal
corporate offices.
C. TRANSFER RESTRICTIONS
.....................
1. Restriction on Transfer. Except for any Permitted
........................
Transfer, Participant shall not transfer, assign, encumber or otherwise
dispose of any of the Purchased Shares which are subject to the
Repurchase Right. In addition, Purchased Shares which are released from
the Repurchase Right shall not be transferred, assigned, encumbered or
otherwise disposed of in contravention of the Market Stand-Off.
2. Transferee Obligations. Each person (other than the
.......................
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Corporation that such
person is bound by the provisions of this Agreement and that the
transferred shares are subject to (i) the Repurchase Right, and (ii) the
Market Stand-Off, to the same extent such shares would be so subject if
retained by Participant.
3. Market Stand-Off.
.................
(a) In connection with any underwritten public offering
by the Corporation of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, Owner shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for
the purchase of, or otherwise dispose or transfer for value or otherwise
agree to engage in any of the foregoing transactions with respect to,
any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-
Off") shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be
requested by the Corporation or such underwriters. In no event,
however, shall such period exceed one hundred eighty (180) days and the
Market Stand-Off shall in all events terminate two (2) years after the
effective date of the Corporation's public offering.
(b) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are
also subject to similar restrictions.
(c) Any new, substituted or additional securities which
are by reason of any Recapitalization or Reorganization distributed with
respect to the Purchased Shares shall be immediately subject to the
Market Stand-Off, to the same extent the Purchased Shares are at such
time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the
Purchased Shares until the end of the applicable stand-off period.
D. REPURCHASE RIGHT
................
1. Grant. The Corporation is hereby granted the right (the
......
"Repurchase Right"), exercisable at any time during the sixty (60)-day
period following the date Participant ceases for any reason to remain in
Service, to repurchase at the Purchase Price any or all of the Purchased
Shares in which Participant is not, at the time of his or her cessation
of Service, vested in accordance with the provisions of this Article D
Vesting Schedule (such shares to be hereinafter referred to as the
"Unvested Shares").
2. Exercise of the Repurchase Right. The Repurchase Right
.................................
shall be exercisable by written notice delivered to each Owner of the
Unvested Shares prior to the expiration of the sixty (60)-day exercise
period. The notice shall indicate the number of Unvested Shares to be
repurchased and the date on which the repurchase is to be effected, such
date to be not more than thirty (30) days after the date of such notice.
The certificates representing the Unvested Shares to be repurchased
shall be delivered to the Corporation on or before the close of business
on the date specified for the repurchase. Concurrently with the receipt
of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Purchase Price previously paid for
the Unvested Shares which are to be repurchased from Owner.
3. Termination of the Repurchase Right. The Repurchase
....................................
Right shall terminate with respect to any Unvested Shares for which it
is not timely exercised under Paragraph D.2. In addition, the
Repurchase Right shall terminate and cease to be exercisable with
respect to any and all Purchased Shares in which Participant vests in
accordance with the following Vesting Schedule:
Participant shall vest in [twenty-five percent
(25%)] of the Purchased Shares, and the Repurchase Right
shall concurrently lapse with respect to those Purchased
Shares, upon Participant's completion of one (1) year of
Service measured from ................., 20...
Participant shall vest in the remaining
[seventy-five percent (75%)] of the Purchased Shares,
and the Repurchase Right shall concurrently lapse with
respect to those Purchased Shares, [in a series of
thirty-six (36) successive equal monthly installments
upon Participant's completion of each additional month
of Service over the thirty-six (36)-month period measured
from the date on which the first twenty-five percent
(25%) of the Purchased Shares vests hereunder.]
All Purchased Shares as to which the Repurchase Right lapses
shall, however, remain subject to the Market Stand-Off.
4. Recapitalization. Any new, substituted or additional
.................
securities or other property (including cash paid other than as a
regular cash dividend) which is by reason of any Recapitalization
distributed with respect to the Purchased Shares shall be immediately
subject to the Repurchase Right and any escrow requirements hereunder,
but only to the extent the Purchased Shares are at the time covered by
such right or escrow requirements. Appropriate adjustments to reflect
such distribution shall be made to the number and/or class of Purchased
Shares subject to this Agreement and to the price per share to be paid
upon the exercise of the Repurchase Right in order to reflect the effect
of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the
same.
5. Corporate Transaction.
......................
(a) The Repurchase Right shall automatically terminate
in its entirety, and all the Purchased Shares shall vest in full,
immediately prior to the consummation of any Corporate Transaction.
(b) The Repurchase Right may also terminate on an
accelerated basis, and the Purchased Shares shall immediately vest in
full, in accordance with the terms and conditions of any special
addendum attached to this Agreement.
E. SPECIAL TAX ELECTION
....................
1. Section 83(b) Election. Under Code Section 83, the
excess of the Fair Market Value of the Purchased Shares on the date any
forfeiture restrictions applicable to such shares lapse over the
Purchase Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture
restrictions" includes the right of the Corporation to repurchase the
Purchased Shares pursuant to the Repurchase Right. Participant may
elect under Code Section 83(b) to be taxed at the time the Purchased
Shares are acquired, rather than when and as such Purchased Shares cease
to be subject to such forfeiture restrictions. Such election must be
filed with the Internal Revenue Service within thirty (30) days after
the date of this Agreement. Even if the Fair Market Value of the
Purchased Shares on the date of this Agreement equals the Purchase Price
paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. THE FORM FOR MAKING THIS
ELECTION IS ATTACHED AS EXHIBIT II HERETO. PARTICIPANT UNDERSTANDS
THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY (30)-DAY
PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT
IS PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE
A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS
THE CORPORATION OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER
BEHALF.
F. GENERAL PROVISIONS
..................
1. Assignment. The Corporation may assign the Repurchase
...........
Right to any person or entity selected by the Board, including (without
limitation) one or more stockholders of the Corporation. If the
assignee of the Repurchase Right is other than (i) a wholly owned
subsidiary of the Corporation or (ii) the parent corporation owning one
hundred percent (100%) of the Corporation's outstanding capital stock,
then such assignee must make a cash payment to the Corporation, upon the
assignment of the Repurchase Right, in an amount equal to the excess (if
any) of (i) the Fair Market Value of the Purchased Shares at the time
subject to the assigned Repurchase Right over (ii) the aggregate
repurchase price payable for the Purchased Shares.
2. No Employment or Service Contract. Nothing in this
..................................
Agreement or in the Plan shall confer upon Participant any right to
continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or
any Parent or Subsidiary employing or retaining Participant) or of
Participant, which rights are hereby expressly reserved by each, to
terminate Participant's Service at any time for any reason, with or
without cause.
3. Notices. Any notice required to be given under this
........
Agreement shall be in writing and shall be deemed effective upon
personal delivery or upon deposit in the U.S. mail, registered or
certified, postage prepaid and properly addressed to the party entitled
to such notice at the address indicated below such party's signature
line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. No Waiver. The failure of the Corporation in any
...........
instance to exercise the Repurchase Right shall not constitute a waiver
of any other repurchase rights that may subsequently arise under the
provisions of this Agreement or any other agreement between the
Corporation and Participant. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent
breach or condition, whether of like or different nature.
5. Cancellation of Shares. If the Corporation shall make
.......................
available, at the time and place and in the amount and form provided in
this Agreement, the consideration for the Purchased Shares to be
repurchased in accordance with the provisions of this Agreement, then
from and after such time, the person from whom such shares are to be
repurchased shall no longer have any rights as a holder of such shares
(other than the right to receive payment of such consideration in
accordance with this Agreement). Such shares shall be deemed purchased
in accordance with the applicable provisions hereof, and the Corporation
shall be deemed the owner and holder of such shares, whether or not the
certificates therefore have been delivered as required by this
Agreement.
G. MISCELLANEOUS PROVISIONS
........................
1. Governing Law. This Agreement shall be governed by, and
..............
construed in accordance with, the laws of the State of Delaware without
resort to that State's conflict-of-laws rules.
2. Participant Undertaking. Participant hereby agrees to
........................
take whatever additional action and execute whatever additional
documents the Corporation may deem necessary or advisable in order to
carry out or effect one or more of the obligations or restrictions
imposed on either Participant or the Purchased Shares pursuant to the
provisions of this Agreement.
3. Agreement is Entire Contract. This Agreement constitutes
.............................
the entire contract between the parties hereto with regard to the
subject matter hereof. This Agreement is made pursuant to the
provisions of the Plan and shall in all respects be construed in
conformity with the terms of the Plan.
4. Counterparts. This Agreement may be executed in
.............
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
5. Successors and Assigns. The provisions of this Agreement
.......................
shall inure to the benefit of, and be binding upon, the Corporation and
its successors and assigns and upon Participant, Participant's assigns
and the legal representatives, heirs and legatees of Participant's
estate, whether or not any such person shall have become a party to this
Agreement and have agreed in writing to join herein and be bound by the
terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
EXCEL TECHNOLOGY, INC.
By: ..................
Title: ...............
Address: .............
.......................
.......................
PARTICIPANT
Address: .............
.......................
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Participant has read and hereby approves
the foregoing Stock Issuance Agreement. In consideration of the
Corporation's granting Participant the right to acquire the Purchased
Shares in accordance with the terms of such Agreement, the undersigned
hereby agrees to be irrevocably bound by all the terms of such
Agreement, including (without limitation) the right of the Corporation
(or its assigns) to purchase any Purchased Shares in which Participant
is not vested at the time of his or her cessation of Service.
.......................
PARTICIPANT'S SPOUSE
Address: .............
.......................
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I hereby sell(s), assign(s) and
transfer(s) unto Excel Technology, Inc. (the "Corporation"),
.............. (....) shares of the Common Stock of the Corporation
standing in his or her name on the books of the Corporation represented
by Certificate No. ............ herewith and do(es) hereby irrevocably
constitute and appoint ................... Attorney to transfer the said
stock on the books of the Corporation with full power of substitution in
the premises.
Dated: .............
Signature .............
Instruction: Please do not fill in any blanks other than the signature
line. Please sign exactly as you would like your name to appear on the
issued stock certificate. The purpose of this assignment is to enable
the Corporation to exercise the Repurchase Right without requiring
additional signatures on the part of Participant.
EXHIBIT II
SECTION 83(b) TAX ELECTION
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made
is.............shares of the common stock of Excel Technology, Inc.
(3) The property was issued on ............., 20...
(4) The taxable year in which the election is being made is the
calendar year 20...
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original
purchase price if for any reason taxpayer's employment with the
issuer is terminated. The issuer's repurchase right lapses in a
series of [annual and monthly installments] over a [four (4)-year
period] ending on ................, 200..
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its
terms will never lapse) is $.... per share.
(7) The amount paid for such property is $ ...... per share.
(8) A copy of this statement was furnished to Excel Technology, Inc for
whom taxpayer rendered the services underlying the transfer of
property.
This statement is executed on .............., 20...
................................. ................................
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center
with which taxpayer files his or her Federal income tax returns and must
be made within thirty (30) days after the execution date of the Stock
Issuance Agreement. This filing should be made by registered or
certified mail, return receipt requested. Participant must retain two
(2) copies of the completed form for filing with his or her Federal and
state tax returns for the current tax year and an additional copy for
his or her records.
EXHIBIT III
2006 STOCK OPTION/STOCK ISSUANCE PLAN
APPENDIX
........
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Issuance Agreement.
.........
B. Board shall mean the Corporation's Board of Directors.
.....
C. Code shall mean the Internal Revenue Code of 1986, as amended.
....
D. Common Stock shall mean the Corporation's common stock.
............
E. Corporate Transaction shall mean either of the following
.....................
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
F. Corporation shall mean Excel Technology, Inc., a Delaware
...........
corporation.
G. Fair Market Value per share of Common Stock on any relevant
.................
date shall be determined in accordance with the following provisions:
(a) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported by the National Association of Securities
Dealers on the Nasdaq National Market. If there is no closing
selling price for the Common Stock on the date in question, then
the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(b) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the
Stock
Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in
the composite tape of transactions on such exchange. If there is
no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on
the
last preceding date for which such quotation exists.
(c) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the
Fair Market Value shall be determined by the Plan Administrator
after
taking into account such factors as the Plan Administrator shall
deem
appropriate.
H. Market Stand-Off shall mean the market stand-off restriction
................
specified in Paragraph C.3.
I. 1933 Act shall mean the Securities Act of 1933, as amended.
........
J. Owner shall mean Participant and all subsequent holders of the
.....
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
K. Parent shall mean any corporation (other than the Corporation)
......
in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
L. Participant shall mean the person to whom shares are issued
...........
under the Stock Issuance Program.
M. Permitted Transfer shall mean (i) a gratuitous transfer of the
..................
Purchased Shares, provided and only if Participant obtains the
Corporation's prior written consent to such transfer, (ii) a transfer of
title to the Purchased Shares effected pursuant to Participant's will or
the laws of intestate succession following Participant's death or (iii)
a transfer to the Corporation in pledge as security for any purchase-
money indebtedness incurred by Participant in connection with the
acquisition of the Purchased Shares.
N. Plan shall mean the Corporation's 2006 Stock Option/Stock
....
Issuance Plan attached hereto as Exhibit III.
O. Plan Administrator shall mean either the Board or a committee
..................
of the Board acting in its capacity as administrator of the Plan.
P. Purchase Price shall have the meaning assigned to such term in
..............
Paragraph A.l.
Q. Purchased Shares shall have the meaning assigned to such term
................
in Paragraph A.l.
R. Recapitalization shall mean any stock split, stock dividend,
................
recapitalization, combination of shares, exchange of shares or other
change affecting the Corporation's outstanding Common Stock as a class
without the Corporation's receipt of consideration.
S. Reorganization shall mean any of the following transactions:
..............
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or
persons different from the persons holding those securities
immediately prior to the merger, or
(iv) any transaction effected primarily to change the state
in which the Corporation is incorporated or to create a holding
company structure.
T. Repurchase Right shall mean the right granted to the
................
Corporation in accordance with Article D.
U. SEC shall mean the Securities and Exchange Commission.
...
V. Service shall mean the Participant's performance of services
.......
for the Corporation (or any Parent or Subsidiary) in the capacity of an
employee, subject to the control and direction of the employer entity as
to both the work to be performed and the manner and method of
performance, a nonemployee member of the board of directors or an
independent consultant.
W. Stock Issuance Program shall mean the Stock Issuance Program
......................
under the Plan.
AA. Subsidiary shall mean any corporation (other than the
..........
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation)
in the unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
AB. Vesting Schedule shall mean the vesting schedule specified
................
in Paragraph D.3 pursuant to which Participant is to vest in the
Purchased Shares in a series of installments over the Participant's
period of Service.
AC. Unvested Shares shall have the meaning assigned to such
...............
term in Paragraph D.1.
EXHIBIT 10.9
EXCEL TECHNOLOGY, INC.
STOCK PURCHASE AGREEMENT
........................
FOR FULLY VESTED SHARES
........................
AGREEMENT made this .... day of ................ 20.. by and
between Excel Technology, Inc. a Delaware corporation, and ............,
Optionee under the Corporation's 2006 Stock Option/Stock Issuance Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
..................
1. Exercise. Optionee hereby purchases ....... shares of
.........
Common Stock (the "Purchased Shares") pursuant to that certain option
(the "Option") granted Optionee on ....................., 20.. (the
"Grant Date") to purchase up to ............... shares of Common Stock
(the "Option Shares") under the Plan at the exercise price of
$............. per share (the "Exercise Price"). The Option Shares are
fully vested as of the date of this Agreement under the terms of the
Option.
2. Payment. Concurrently with the delivery of this
........
Agreement to the Corporation, Optionee shall pay the Exercise Price for
the Purchased Shares in accordance with the provisions of the Option
Agreement and shall deliver whatever additional documents may be
required by the Option Agreement as a condition for exercise.
B. SECURITIES LAW COMPLIANCE
.........................
1. Restricted Securities. Optionee hereby confirms that
......................
Optionee has been informed that, unless a Form S-8 registration
statement covering the Purchased Shares has been filed under the 1933
Act at the time of the sale of the Purchased Shares to Participant, the
Purchased Shares are restricted securities under the 1933 Act and may
not be resold or transferred unless the Purchased Shares are first
registered under the Federal securities laws or unless an exemption from
such registration is available. Accordingly, Optionee hereby
acknowledges that Optionee is prepared to hold the Purchased Shares for
an indefinite period and is aware that SEC Rule 144 promulgated under
the 1933 Act which exempts certain resales of unrestricted securities
may not presently be available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. Restrictions on Disposition of Purchased Shares.
................................................
Optionee shall make no disposition of the Purchased Shares (other than a
Permitted Transfer) unless and until there is compliance with all of the
following requirements:
(i) Optionee shall have provided the Corporation with a
written summary of the terms and conditions of the proposed
disposition.
(ii) Optionee shall have complied with all requirements
of this Agreement applicable to the disposition of the Purchased
Shares.
(iii) Optionee shall have provided the Corporation with
written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in
violation of the provisions of this Agreement or (ii) to treat as the
owner of the Purchased Shares, or otherwise to accord voting, dividend
or liquidation rights to, any transferee to whom the Purchased Shares
have been transferred in contravention of this Agreement.
3. Restrictive Legends. The stock certificates for the
....................
Purchased Shares shall be endorsed with the following restrictive
legend:
"The shares represented by this certificate
have not been registered under the Securities Act
of 1933. The shares may not be sold or offered for
sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a "no
action" letter of the Securities and Exchange
Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that
registration under such Act is not required with
respect to such sale or offer."
C. TRANSFER RESTRICTIONS
.....................
1. Restriction on Transfer. Except for any Permitted
........................
Transfer, Optionee shall not transfer, assign, encumber or otherwise
dispose of any of the Purchased Shares in contravention of the Market
Stand-Off.
2. Transferee Obligations. Each person (other than the
.......................
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of
such transfer, acknowledge in writing to the Corporation that such
person is bound by the provisions of this Agreement and that the
transferred shares are subject to the Market Stand-Off, to the same
extent such shares would be so subject if retained by Optionee.
3. Market Stand-Off.
.................
(a) In connection with any underwritten public offering
by the Corporation of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, Owner shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for
the purchase of, or otherwise dispose or transfer for value or otherwise
agree to engage in any of the foregoing transactions with respect to,
any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market Stand-
Off') shall be in effect for such period of time from and after the
effective date of the final prospectus for the offering as may be
requested by the Corporation or such underwriters. In no event,
however, shall such period exceed one hundred eighty (180) days and the
Market Stand-Off shall in all events terminate two (2) years after the
effective date of the Corporation's public offering.
(b) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are
also subject to similar restrictions.
(c) Any new, substituted or additional securities which
are by reason of any Recapitalization or Reorganization distributed with
respect to the Purchased Shares shall be immediately subject to the
Market Stand-Off, to the same extent the Purchased Shares are at such
time covered by such provisions.
(d) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the
Purchased Shares until the end of the applicable stand-off period.
D. GENERAL PROVISIONS
..................
1. No Employment or Service Contract. Nothing in this
..................................
Agreement or in the Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or
any Parent or Subsidiary employing or retaining Optionee) or of
Optionee, which rights are hereby expressly reserved by each, to
terminate Optionee's Service at any time for any reason, with or without
cause.
2. Notices. Any notice required to be given under this
.......
Agreement shall be in writing and shall be deemed effective upon
personal delivery or upon deposit in the U.S. mail, registered or
certified, postage prepaid and properly addressed to the party entitled
to such notice at the address indicated below such party's signature
line on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
3. No Waiver. No waiver of any breach or condition of this
..........
Agreement shall be deemed to be a waiver of any other or subsequent
breach or condition, whether of like or different nature.
4. Optionee Undertaking. Optionee hereby agrees to take
.....................
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or
effect one or more of the obligations or restrictions imposed on either
Optionee or the Purchased Shares pursuant to the provisions of this
Agreement.
5. Agreement is Entire Contract. This Agreement constitutes
.............................
the entire contract between the parties here to with regard to the
subject matter hereof. This Agreement is made pursuant to the
provisions of the Plan and shall in all respects be construed in
conformity with the terms of the Plan.
6. Governing Law. This Agreement shall be governed by, and
..............
construed in accordance with, the laws of the State of Delaware without
resort to that State's conflict-of-laws rules.
7. Counterparts. This Agreement may be executed in
.............
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
8. Successors and Assigns. The provisions of this Agreement
.......................
shall inure to the benefit of, and be binding upon, the Corporation and
its successors and assigns and upon Optionee, Optionee's permitted
assigns and the legal representatives, heirs and legatees of Optionee's
estate, whether or not any such person shall have become a party to this
Agreement and have agreed in writing to join herein and be bound by the
terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the day and year first indicated above.
EXCEL TECHNOLOGY, INC.
By: ..................
Title: ...............
Address: .............
.......................
.......................
OPTIONEE
Address: .............
.......................
APPENDIX
........
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Issuance Agreement.
.........
B. Board shall mean the Corporation's Board of Directors.
.....
C. Common Stock shall mean the Corporation's common stock.
............
D. Corporation shall mean Excel Technology, Inc., a Delaware
...........
corporation.
E. Exercise Price shall have the meaning assigned to such term in
..............
Paragraph A.1.
F. Grant Date shall have the meaning assigned to such term in
..........
Paragraph A.l.
G. Market Stand-Off shall mean the market stand-off restriction
................
specified in Paragraph C.3.
H. 1933 Act shall mean the Securities Act of 1933, as amended.
........
I. Option shall have the meaning assigned to such term in
......
Paragraph A.1.
J. Option Agreement shall mean all agreements and other documents
................
evidencing the Option.
K. Optionee shall mean the person to whom the Option is granted
........
under the Plan.
L. Option Shares shall have the meaning assigned to such term in
.............
Paragraph A.1.
M. Owner shall mean Optionee and all subsequent holders of the
.....
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Optionee.
N. Parent shall mean any corporation (other than the Corporation)
......
in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
O. Permitted Transfer shall mean (i) a gratuitous transfer of the
..................
Purchased Shares, provided and only if Optionee obtains the
Corporation's prior written consent to such transfer, (ii) a transfer of
title to the Purchased Shares effected pursuant to Optionee's will or
the laws of intestate succession following Optionee's death or (iii) a
transfer to the Corporation in pledge as security for any purchase-money
indebtedness incurred by Optionee in connection with the acquisition of
the Purchased Shares.
P. Plan shall mean the Corporation's 2006 Stock Option/Stock
....
Issuance Plan
Q. Plan Administrator shall mean either the Board or a committee
..................
of the Board acting in its capacity as administrator of the Plan.
R. Purchased Shares shall have the meaning assigned to such term
................
in Paragraph A.1.
S. Recapitalization shall mean any stock split, stock dividend,
................
recapitalization, combination of shares, exchange of shares or other
change affecting the Corporation's outstanding Common Stock as a class
without the Corporation's receipt of consideration.
T. Reorganization shall mean any of the following transactions:
..............
(i) a merger or consolidation in which the Corporation is
not the surviving entity,
(ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
(iii) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or
persons different from the persons holding those securities
immediately prior to the merger, or
(iv) any transaction effected primarily to change the state
in which the Corporation is incorporated or to create a holding
company structure.
U. SEC shall mean the Securities and Exchange Commission.
...
V. Subsidiary shall mean any corporation (other than the
..........
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation)
in the unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
EXHIBIT 10.10
EXCEL TECHNOLOGY, INC.
STOCK OPTION AGREEMENT
......................
RECITALS
.........
A. The Board has adopted the Plan for the purpose of retaining
the services of selected Employees, non-employee members of the Board or
the board of directors of any Parent or Subsidiary and consultants and
other independent advisors in the service of the Corporation (or any
Parent or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or
a Parent or Subsidiary), and this Agreement is executed pursuant to, and
is intended to carry out the purposes of, the Plan in connection with
the Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. Grant of Option. The Corporation hereby grants to
................
Optionee, as of the Grant Date, an option to purchase up to the number
of Option Shares specified in the Grant Notice. The Option Shares shall
be purchasable from time to time during the option term specified in
Paragraph 2 at the Exercise Price.
2. Option Term. This option shall have a term of ten (10)
............
years measured from the Grant Date and shall accordingly expire at the
close of business on the Expiration Date, unless sooner terminated in
accordance with Paragraph 5 or 6.
3. Limited Transferability. During Optionee's lifetime,
........................
this option shall be exercisable only by Optionee and shall not be
assignable or transferable other than by will or by the laws of descent
and distribution following Optionee's death.
4. Dates of Exercise. This option shall become exercisable
..................
for the Option Shares in one or more installments as specified in the
Grant Notice. As the option becomes exercisable for such installments,
those installments shall accumulate and the option shall remain
exercisable for the accumulated installments until the Expiration Date
or sooner termination of the option term under Paragraph 5 or 6.
5. Cessation of Service. The option term specified in
.....................
Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date should any of the following
provisions become applicable:
(a) Should Optionee cease to remain in Service for any
reason (other than death, Disability or Misconduct) while this option is
outstanding, then Optionee shall have a period of three (3) months
(commencing with the date of such cessation of Service) during which to
exercise this option, but in no event shall this option be exercisable
at any time after the Expiration Date.
(b) Should Optionee die while this option is
outstanding, then the personal representative of Optionee's estate or
the person or persons to whom the option is transferred pursuant to
Optionee's will or in accordance with the laws of inheritance shall have
the right to exercise this option. Such right shall lapse, and this
option shall cease to be outstanding, upon the earlier of (i) the
expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of
Disability while this option is outstanding, then Optionee shall have a
period of twelve (12) months (commencing with the date of such cessation
of Service) during which to exercise this option. In no event shall
this option be exercisable at any time after the Expiration Date.
Note: Exercise of this option on a date later than
three (3) months following cessation of Service due
to Disability will result in loss of favorable Incentive
Option treatment, unless such Disability constitutes
Permanent Disability. In the event that Incentive Option
treatment is not available, this option will be taxed
as a Non-Statutory Option upon exercise.
(d) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for
more than the number of Option Shares in which Optionee is, at the time
of Optionee's cessation of Service, vested pursuant to the Vesting
Schedule specified in the Grant Notice or the special vesting
acceleration provisions of Paragraph 6. Upon the expiration of such
limited exercise period or (if earlier) upon the Expiration Date, this
option shall terminate and cease to be outstanding for any vested Option
Shares for which the option has not been exercised. To the extent
Optionee is not vested in the Option Shares at the time of Optionee's
cessation of Service, this option shall immediately terminate and cease
to be outstanding with respect to those shares.
(e) Should Optionee's Service be terminated for
Misconduct, then this option shall terminate immediately and cease to
remain outstanding.
6. Accelerated Vesting.
....................
(a) In the event of any Corporate Transaction, the
Option Shares at the time subject to this option but not otherwise
vested shall automatically vest in full so that this option shall,
immediately prior to the effective date of the Corporate Transaction,
become fully exercisable for all of those Option Shares and may be
exercised for any or all of those Option Shares as fully-vested shares
of Common Stock.
(b) Immediately following the Corporate Transaction,
this option shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) in
connection with the Corporate Transaction.
(c) If this option is assumed in connection with a
Corporate Transaction, then this option shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the number and
class of securities which would have been issuable to Optionee in
consummation of such Corporate Transaction had the option been exercised
immediately prior to such Corporate Transaction, and appropriate
adjustments shall also be made to the Exercise Price, provided the
aggregate Exercise Price shall remain the same.
(d) The Option Shares may also vest upon an accelerated
basis in accordance with the terms and conditions of any special
addendum attached to this Agreement.
(e) This Agreement shall not in any way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise
change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business
or assets.
7. Adjustment in Option Shares. Should any change be made
............................
to the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the total number and/or class of securities subject to this
option and (ii) the Exercise Price in order to reflect such change and
thereby preclude a dilution or enlargement of benefits hereunder.
8. Stockholder Rights. The holder of this option shall not
...................
have any stockholder rights with respect to the Option Shares until such
person shall have exercised the option, paid the Exercise Price and
become a holder of record of the purchased shares.
9. Manner of Exercising Option.
............................
(a) In order to exercise this option with respect to
all or any part of the Option Shares for which this option is at the
time exercisable, Optionee (or any other person or persons exercising
the option) must take the following actions:
(i) Execute and deliver to the Corporation a
Purchase Agreement for the Option Shares for which the option is
exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation; or
(B) a promissory note payable to the
Corporation, but only to the extent authorized by the Plan
Administrator in accordance with Paragraph 14.
Should the Common Stock be registered under Section 12(g)
of the 1934 Act at the time the option is exercised, then the
Exercise Price may also be paid as follows:
(C) in shares of Common Stock held by
Optionee (or any other person or persons exercising the
option) for the requisite period necessary to avoid a charge
to the Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date; or
(D) to the extent the option is exercised
for vested Option Shares, through a special sale and
remittance procedure pursuant to which Optionee (or any other
person or persons exercising the option) shall concurrently
provide irrevocable instructions (a) to a Corporation-
designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to
cover the aggregate Exercise Price payable for the purchased
shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by
reason of such exercise and (b) to the Corporation to deliver
the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of
the Exercise Price must accompany the Purchase Agreement
delivered to the Corporation in connection with the option
exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if
other than Optionee) have the right to exercise this option.
(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in
order for it to comply with the applicable requirements of Federal
and state securities laws.
(v) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining
Optionee) for the satisfaction of all Federal, state and local
income and employment tax withholding requirements applicable to
the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person
or persons exercising this option) a certificate for the purchased
Option Shares, with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
10. REPURCHASE RIGHTS. ANY UNVESTED OPTION SHARES ACQUIRED
..................
UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF
THE CORPORATION AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE
WITH THE TERMS SPECIFIED IN THE PURCHASE AGREEMENT.
11. Compliance with Laws and Regulations.
.....................................
(a) The exercise of this option and the issuance of the
Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law
relating thereto and with all applicable regulations of any stock
exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock may be listed for trading at the time of such exercise and
issuance.
(b) The inability of the Corporation to obtain approval
from any regulatory body having authority deemed by the Corporation to
be necessary to the lawful issuance and sale of any Common Stock
pursuant to this option shall relieve the Corporation of any liability
with respect to the non-issuance or sale of the Common Stock as to which
such approval shall not have been obtained. The Corporation, however,
shall use its best efforts to obtain all such approvals.
12. Successors and Assigns. Except to the extent otherwise
.......................
provided in Paragraphs 3 and 6, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and Optionee, Optionee's assigns and the legal
representatives, heirs and legatees of Optionee's estate.
13. Notices. Any notice required to be given or delivered to
........
the Corporation under the terms of this Agreement shall be in writing
and addressed to the Corporation at its principal corporate offices.
Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below
Optionee's signature line on the Grant Notice. All notices shall be
deemed effective upon personal delivery or upon deposit in the U.S.
mail, postage prepaid and properly addressed to the party to be
notified.
14. Financing. The Plan Administrator may, in its absolute
..........
discretion and without any obligation to do so, permit Optionee to pay
the Exercise Price for the purchased Option Shares by delivering a full-
recourse, interest-bearing promissory note secured by those Option
Shares. The payment schedule in effect for any such promissory note
shall be established by the Plan Administrator in its sole discretion.
15. Construction. This Agreement and the option evidenced
.............
hereby are made and granted pursuant to the Plan and are in all respects
limited by and subject to the terms of the Plan. All decisions of the
Plan Administrator with respect to any question or issue arising under
the Plan or this Agreement shall be conclusive and binding on all
persons having an interest in this option.
16. Governing Law. The interpretation, performance and
..............
enforcement of this Agreement shall be governed by the laws of the State
of Delaware without resort to that State's conflict-of-laws rules.
17. Stockholder Approval. If the Option Shares covered by
.....................
this Agreement exceed, as of the Grant Date, the number of shares of
Common Stock which may be issued under the Plan as last approved by the
stockholders, then this option shall be void with respect to such excess
shares, unless stockholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan
is obtained in accordance with the provisions of the Plan.
18. Additional Terms Applicable to an Incentive Option. In
...................................................
the event this option is designated an Incentive Option in the Grant
Notice, the following terms and conditions shall also apply to the
grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is
exercised for one or more Option Shares: (i) more than three (3) months
after the date Optionee ceases to be an Employee for any reason other
than death or Permanent Disability or (ii) more than twelve (12) months
after the date Optionee ceases to be an Employee by reason of Permanent
Disability.
(b) This option shall not become exercisable in the
calendar year in which granted if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for
which this option would otherwise first become exercisable in such
calendar year would, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock and any other
securities for which one or more other Incentive Options granted to
Optionee prior to the Grant Date (whether under the Plan or any other
option plan of the Corporation or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand
Dollars ($100,000) in the aggregate. To the extent the exercisability
of this option is deferred by reason of the foregoing limitation, the
deferred portion shall become exercisable in the first calendar year or
years thereafter in which the One Hundred Thousand Dollar ($100,000)
limitation of this Paragraph 18(b) would not be contravened, but such
deferral shall in all events end immediately prior to the effective date
of a Corporate Transaction in which this option is not to be assumed,
whereupon the option shall become immediately exercisable as a Non-
Statutory Option for the deferred portion of the Option Shares.
(c) Should Optionee hold, in addition to this option,
one or more other options to purchase Common Stock which become
exercisable for the first time in the same calendar year as this option,
then the foregoing limitations on the exercisability of such options as
Incentive Options shall be applied on the basis of the order in which
such options are granted.
APPENDIX
........
The following definitions shall be in effect under the Agreement:
A. Agreement shall mean this Stock Option Agreement.
.........
B. Board shall mean the Corporation's Board of Directors.
.....
C. Code shall mean the Internal Revenue Code of 1986, as amended.
....
D. Common Stock shall mean the Corporation's common stock.
............
E. Corporate Transaction shall mean either of the following
.....................
stockholder-approved transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
F. Corporation shall mean Excel Technology, Inc., a Delaware
...........
corporation.
G. Disability shall mean the inability of Optionee to engage in
..........
any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan
Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances. Disability shall
be deemed to constitute Permanent Disability in the event that such
Disability is expected to result in death or has lasted or can be
expected to last for a continuous period of twelve (12) months or more.
H. Employee shall mean an individual who is in the employ of the
........
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and
the manner and method of performance.
I. Exercise Date shall mean the date on which the option shall
.............
have been exercised in accordance with Paragraph 9 of the Agreement.
J. Exercise Price shall mean the exercise price payable per
..............
Option Share as specified in the Grant Notice.
K. Expiration Date shall mean the date on which the option
...............
expires as specified in the Grant Notice.
L. Fair Market Value per share of Common Stock on any relevant
.................
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
the price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the
Fair Market Value shall be determined by the Plan Administrator
after taking into account such factors as the Plan Administrator
shall deem appropriate.
M. Grant Date shall mean the date of grant of the option as
..........
specified in the Grant Notice.
N. Grant Notice shall mean the Notice of Grant of Stock Option
............
accompanying the Agreement, pursuant to which Optionee has been informed
of the basic terms of the option evidenced hereby.
O. Incentive Option shall mean an option which satisfies the
................
requirements of Code Section 422.
P. Misconduct shall mean the commission of any act of fraud,
..........
embezzlement or dishonesty by Optionee, any unauthorized use or
disclosure by Optionee of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by Optionee adversely affecting the business or affairs of
the Corporation (or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all the acts
or omissions which the Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge of Optionee or any
other individual in the Service of the Corporation (or any Parent or
Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as
........
amended.
R. Non-Statutory Option shall mean an option not intended to
....................
satisfy the requirements of Code Section 422.
S. Option Shares shall mean the number of shares of Common Stock
.............
subject to the option.
T. Optionee shall mean the person to whom the option is granted
........
as specified in the Grant Notice.
U. Parent shall mean any corporation (other than the Corporation)
......
in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the
Corporation) owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
V. Plan shall mean the Corporation's 2006 Stock Option/Stock
....
Issuance Plan.
W. Plan Administrator shall mean either the Board or a committee
..................
of the Board acting in its capacity as administrator of the Plan.
X. Purchase Agreement shall mean the stock purchase agreement in
..................
substantially the form of Exhibit B to the Grant Notice.
Y. Service shall mean the Optionee's performance of services for
.......
the Corporation (or any Parent or Subsidiary) in the capacity of an
Employee, a non-employee member of the board of directors or an
independent consultant.
Z. Stock Exchange shall mean the American Stock Exchange or the
..............
New York Stock Exchange or the Nasdaq Stock Market LLC.
AA. Subsidiary shall mean any corporation (other than the
..........
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation)
in the unbroken chain owns, at the time of the determination, stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
AB. Vesting Schedule shall mean the vesting schedule specified in
................
the Grant Notice pursuant to which the Optionee is to vest in the Option
Shares in a series of installments over his or her period of Service.
EXHIBIT 21
LIST OF SUBSIDIARIES
Name of Subsidiary: Incorporated in:
.................... ................
Cambridge Technology, Inc. Massachusetts
Continuum Electro-Optics, Inc. (d/b/a "Continuum") Delaware
Control Laser Corporation (d/b/a "Baublys-Control Laser") Florida
Control Systemation, Inc. Delaware
D Green (Electronics) Limited United Kingdom
Excel Technology Services Company Delaware
Quantronix Corporation Delaware
Photo Research, Inc. Delaware
Synrad, Inc. Washington
The Optical Corporation California
Excel Technology Asia Sdn. Bhd. Malaysia
Excel Technology Europe GmbH Germany
Baublys GmbH (1) Germany
Excel Technology France S.A.S. (1) France
Excel Technology Japan Holding Co., Ltd. Japan
Excel Technology Japan K.K. (2) Japan
Excel Laser Technology Private Limited (3) India
Excel Technology Lanka (Private) Limited Sri Lanka
Excel Technology Italy Srl. (1) Italy
(1) A wholly-owned subsidiary of Excel Technology Europe GmbH
(2) A wholly-owned subsidiary of Excel Technology Japan
Holding Co., Ltd.
(3) A joint venture in which Excel Technology, Inc. has a 50% equity
ownership interest
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Excel Technology, Inc.:
We consent to the incorporation by reference in the registration
statements (No. 33-71122, 333-59340, 333-117513 and 333-140063) on Form
S-8 of Excel Technology, Inc. of our reports dated February 15, 2007
with respect to the consolidated balance sheets as of December 31, 2006
and 2005, and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 2006, and the
related financial statement schedule, management's assessment of the
effectiveness of internal control over financial reporting as of
December 31, 2006 and the effectiveness of internal control over
financial reporting as of December 31, 2006, which reports appear in the
December 31, 2006 Annual Report on Form 10-K of Excel Technology, Inc.
Our report refers to the adoption of Statement of Financial Accounting
Standards No. 123(R), "Share-Based Payment," effective January 1, 2006.
/s/ KPMG LLP
Melville, New York
February 20, 2007
EXHIBIT 31.1
CERTIFICATION
I, Antoine Dominic, certify that:
1. I have reviewed this annual report on Form 10-K of Excel Technology,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
By: /s/ Antoine Dominic
....................................
Antoine Dominic, Director, President,
Chief Executive Officer, and
Chief Operating Officer
Date: February 20, 2007
EXHIBIT 31.2
CERTIFICATION
I, Alice Varisano, certify that:
1. I have reviewed this annual report on Form 10-K of Excel Technology,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation;
and
d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
By: /s/ Alice Varisano
.......................
Alice Varisano,
Chief Financial Officer
Date: February 20, 2007
EXHIBIT 32.1
CERTIFICATION OF PERIODIC REPORT
I, Antoine Dominic, Chief Executive Officer of Excel Technology,
Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge,:
(1) the Annual Report on Form 10-K of the Company for the year ended
December 31, 2006 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15.
U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: February 20, 2007
/s/ Antoine Dominic
.....................................
Antoine Dominic, Director, President,
Chief Executive Officer, and
Chief Operating Officer
A signed original of this written statement required by Section 906
of the Sarbanes-Oxley Act of 2002 has been provided to the Company and
will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
This certification accompanies the Form 10-K to which it relates,
is not deemed filed with the Securities and Exchange Commission and is
not to be incorporated by reference into any filing of the Registrant
under the Securities Act of 1933 or the Securities Exchange Act of 1934
(whether made before or after the date of the Form 10-K), irrespective
of any general incorporation language contained in such filing.
EXHIBIT 32.2
CERTIFICATION OF PERIODIC REPORT
I, Alice Varisano, Chief Financial Officer of Excel Technology,
Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, 18 U.S.C. Section 1350, that, to my knowledge,:
(1) the Annual Report on Form 10-K of the Company for the year ended
December 31, 2006 (the "Report") fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15.
U.S.C. 78m or 78o(d)); and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: February 20, 2007
/s/ Alice Varisano
.......................
Alice Varisano,
Chief Financial Officer
A signed original of this written statement required by Section 906
of the Sarbanes-Oxley Act of 2002 has been provided to the Company and
will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
This certification accompanies the Form 10-K to which it relates,
is not deemed filed with the Securities and Exchange Commission and is
not to be incorporated by reference into any filing of the Registrant
under the Securities Act of 1933 or the Securities Exchange Act of 1934
(whether made before or after the date of the Form 10-K), irrespective
of any general incorporation language contained in such filing.
137