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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
__________________________________
For the fiscal year ended Commission File Number 0-19306
December 31, 1996
EXCEL TECHNOLOGY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 11-2780242
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
45 Adams Ave. (516) 273-6900
Hauppauge, NY 11788 (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
Class B Common Stock Purchase Warrants
(Titles of Classes)
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.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $80,269,577 based on the average bid and ask price as
reported by NASDAQ on March 21,1997.
The number of shares of the Registrant's common stock outstanding as of
March 4, 1997 was: 10,441,571.
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy Statement to be filed in connection with the Registrant's 1997
Annual Meeting of Stockholders (incorporated by reference under Part III)
PART I
______
ITEM 1. BUSINESS
GENERAL
Excel Technology, Inc. (the "Company") designs, develops,
manufactures and markets laser systems and electro-optical components for
industry, science, and medicine. 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, capable of cutting, welding and marking
industrial products, yet can be precisely controlled and directed,
capable of performing delicate surgery on humans.
Since 1992, the Company has focused its business activities on two
basic business strategies, (a) diversification and (b) industry
consolidation. Through its diversification strategy, the Company expects
to manufacture and market core solid state laser and optical products and
systems tailored to a variety of industrial, scientific and medical
applications. The Company believes that its acquisition strategy should
provide added opportunity for growth.
In October 1992, the Company acquired Quantronix Corporation, a
Delaware corporation ("Quantronix"), for Common Stock and warrants of the
Company valued at approximately $9 million, in a transaction pursuant to
which Quantronix became a wholly-owned subsidiary of the Company. The
acquisition of Quantronix and its wholly-owned subsidiaries, Control
Laser Corporation, located in Orlando, Florida ("Control Laser"),
Quantronix GmbH, located in Germany ("Quantronix GmbH"), and The Optical
Corporation, located in Oxnard, California ("Optical"), provided the
Company with its industrial, scientific and semiconductor product lines,
supplemented the Company's dental products and provided the Company with
a significant revenue base as well as established manufacturing,
engineering, marketing and customer service capabilities.
On February 14, 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.
These products 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.
This acquisition allowed the Company to expand into new markets as well
as enhance its present market position in the industrial business. The
Company acquired all of the outstanding shares of capital stock of
Cambridge in exchange for $4.75 million, consisting of $4.5 million in
cash (of which $3.5 million was paid on February 14, 1995) and $250
thousand in shares of Common Stock (which was paid on February 14,
1995). Of the balance due, $600 thousand was paid on March 5, 1996 and
$400 thousand was paid on February 17, 1997. Pursuant to the acquisition
agreement, additional payments were to be made if Cambridge met certain
performance goals during the first two fiscal years after the
acquisition. In connection therewith, the Company paid $731 thousand for
1995 and $323 thousand for 1996 based on the attainment of these
performance goals as defined in the acquisition agreement.
On October 2, 1995, the Company acquired the Photo Research Division
("The Photo Research Division") of Kollmorgen Instruments Corporation
("Kollmorgen"). The Photo Research Division is engaged primarily in the
business of developing, manufacturing and marketing photometric and
spectroradiometer instruments and systems (the "Business"). In
accordance with an Asset Purchase Agreement, dated as of September 29,
1995, by and between Kollmorgen and Photo Research Inc. ("Photo
Research"), a wholly owned subsidiary of the Company formed for the
purpose of effectuating the acquisition, Photo Research purchased from
Kollmorgen substantially all of the net assets and properties utilized in
connection with the Business, in consideration of $3.5 million in cash.
The Company utilized its own cash to finance the acquisition.
Subsequently, the Company obtained a $3.5 million five-year
term loan from U.S. Trust, (the "Bank"), the proceeds of which were
utilized by the Company to replenish its own cash used in financing the
acquisition.
Excel was organized under the laws of Delaware in 1985.
CURRENT PRODUCTS AND APPLICATIONS
Industrial
__________
Control Laser, the Company's subsidiary located in Orlando, Florida,
designs, manufactures and markets industrial laser systems for material
marking and engraving. Control Laser contributed approximately 35% of
the Company's total sales in 1996. With more than 1,400 systems
installed worldwide, including 1,130 in North America, Control Laser had
approximately 47% of the domestic market share in 1996. Control Laser's
InstaMark laser systems allow for permanent, high speed,
computer-controlled product marking for the aerospace, automotive,
medical device, electronic, tooling and consumer industries. Customers
include Honeywell, ITT Bosch, Nissan, Ford, Kodak, General Electric and
General Motors. Control Laser's marking products can be used manually or
can be utilized as part of an automated assembly line system.
Scanners
________
Cambridge, the Company's subsidiary based in Cambridge,
Massachusetts, manufactures high speed mirror positioning components and
sub-systems used to direct laser energy. Cambridge contributed
approximately 14% of the Company's sales in 1996. These optical scanning
products are key to a variety of applications where visible or invisible
laser energy is positioned quickly and precisely. An increasingly broad
base of laser system applications are served, including laser marking,
machining, heat treating, welding and cutting, semiconductor wafer
inspection and processing, laser entertainment, corporate advertising and
a growing number of laser based medical applications, which include
digital radiography, skin resurfacing, eye treatment and others. With
patented designs, Cambridge, is the technology leader in
galvanometer-based optical scanning and supports research and development
of new applications through a wide range of academic institutions,
private firms and government agencies.
Semiconductor
_____________
Quantronix, the Company's subsidiary located in Hauppauge, New
York, manufactures and markets Defect Repair Systems (DRS) which are
laser based systems for use in semiconductor production. The DRS provide
a means to repair defects on the complex photomasks used to produce
integrated circuits.
A pioneer in this field, Quantronix has provided laser mask repair
systems to the industry since 1975. Currently, the DRSII Model 840e
system is the industry standard, with over 100 installed Quantronix
repair systems in operation.
In recognition of the demand for smaller, denser features on next
generation integrated circuits, the Company has embarked on a development
program to produce two advanced repair tools, the DRS II Model 850 and
the DRS III. These tools have been designed to utilize a completely new
platform that will support circuit production through the 0.35 microns,
0.25 microns and 0.18 microns design generations, promoting product
viability in the future.
The initial shipment of a DRSII 850 system took place in November
of 1996. The Company plans to begin serial production of the DRS II
Model 850 during 1997.
The DRSII 850 and DRSIII are being developed in close contact with
leaders within the semiconductor industry. The Company is involved in an
agreement with SEMATECH to assist in the development of the DRSIII.
SEMATECH is a consortium of top US electronics firms (IBM, Intel, AT&T,
Hewlett Packard, Rockwell, NCR, Texas Instruments) dedicated to assuring
the technological and manufacturing superiority of the American
semiconductor industry. This Quantronix product line accounted for
approximately 6% of the Company's total sales in 1996.
Scientific and OEM Products
___________________________
The Company's, Quantronix, manufactures and markets solid- state
lasers for science, industry and OEM uses. On a worldwide basis,
scientific lasers represent one of the most stable and long-established
laser markets. Scientific lasers are used by chemists, biologists,
physicists and other scientists and engineers. 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.
Quantronix's current scientific line includes the Series 4800
Ultrafast Amplifiers and the Series 527 High Power Green pulsed lasers.
Quantronix's Ultrafast Amplifiers incorporate a material called Titanium
Sapphire ("Ti:Sapphire") which has reliably opened the door for a greater
volume of research than previous materials. Ultrafast Amplifiers
deliver high energy short pulses on the picosecond time scale. ( A
picosecond is one trillionth of a second.) These short pulses enable the
investigation of a wide range of physical, chemical and biological
phenomena.
The system utilizes the Nd:YLF laser to produce high energy pulses
at a rate of 1kHz (1000 pulses per second). These pulses drive the
Ti:Sapphire Amplifier that can then pump other optical systems (also
marketed by Quantronix) which deliver tunable light from Ultraviolet to
Infrared regions of the spectrum. The material properties to be studied
vary over this range.
Industrial and OEM markets play host to a number of diversified
Nd:YAG lasers. Some of the markets are for diamond drilling, micro-
machining and material processing. Recent developments based on the
scientific product line have increased Quantronix's high end market share
and promise to enable further applications.
Quantronix 's scientific, industrial and OEM products accounted
for approximately 12% of the Company's total 1996 sales.
Optical Products
________________
Optical, a subsidiary of the Company based in Oxnard, California,
specializes in the manufacture of custom precision optical flats used for
measurement in optical scanners, laser systems, professional motion
picture cameras and other industrial and scientific applications. Optical
contributed approximately 3% of the Company's sales in 1996.
Light and Color Measurement
___________________________
Photo Research, the Company's Chatsworth, California subsidiary, is
a leader in high precision, state of the art electro-optical
instrumentation and systems for light and color measurement. Photo
Research contributed approximately 12% of the Company's total 1996 sales.
The Spectra product line offers systems to a wide variety of industries
for research, quality control and on-line testing. Video Instrumentation
provides high resolution CRT and flat panel inspection. The Photo
Research Optical Metrology Laboratory is a supplier of and service
provider to optical radiation standards, calibration and measurement for
major manufacturers of instruments, displays, devices and materials.
Spare Parts
___________
The Company derives a portion of its revenues from the sale of
spare parts and related consumable materials used primarily in its
semiconductor, industrial and scientific systems. This operation is based
in Hauppauge, New York. Spare parts and consumables include replacement
optical elements, lamps and electronic components. This Quantronix
product line contributed approximately 11% of the Company's total sales
in 1996.
Dental Products
_______________
Quantronix manufactures and markets in its Hauppauge, New York
facility, a series of solid-state lasers for the treatment of dental soft
tissue. The Quantronix dental product line contributed approximately 7%
to the total sales of the Company in 1996. Soft-tissue procedures
include treatments of diseased gums, biopsies, control of bleeding and
preparation of gums for crown and bridge impressions. Quantronix's
existing line of dental laser systems contain Nd:YAG and Ho:YAG lasers in
a single unit. The systems utilize a fiber optic cable and a handpiece,
are internally air cooled, and can be operated from standard 110 volt
electrical outlets.
In November 1993, Quantronix received clearance from the German
government, under applicable "MedGV" regulations, to market its dental
laser system in Germany. In connection therewith, Quantronix has
engaged experienced product marketing teams with an established
nationwide network in Germany. Quantronix began export of the dental
laser to Germany in December 1993.
In June 1994, Quantronix introduced a laser based welding system
to be used in the fabrication and repair of crowns, bridges, partials,
implants and other devices for dental laboratories. Quantronix's laser
welding system contains a pulsed Nd:YAG laser with input power of 220
volts AC, 50/60 Hz and 4 kilowatts peak power and 20 watts average power.
The dental laser welder was developed in conjunction with several leading
dental laboratories in the United States and is capable of directly
welding different metals and alloys used in connecting bridges, crowns,
loops, clasps, etc. without the need for external soldering materials.
The biggest advantages of laser welding, as compared to soldering, are
the stronger bonds and reduced labor costs.
MARKETING AND SALES
Marketing activities for the Company's product lines include the
presentation of its product lines at domestic and international trade
shows. The marketing and sales staff conduct professional meetings,
conferences and in-person and telephone sales calls. The Company also
engages independent manufacturers' representatives for the sale of its
products. Foreign sales of its products are made primarily through
foreign equipment distribution organizations and representatives, and by
Quantronix GmbH, its German subsidiary. Quantronix GmbH is engaged in
the business of marketing, distributing, integrating and servicing laser
systems (for industrial, semiconductor, scientific and dental products)
manufactured at the Company's Hauppauge, New York and Orlando, Florida
facilities. The sales territory covered by Quantronix GmbH is primarily
in Europe. The staff of twenty-three includes seven engineers who
install and service all products including complex semiconductor,
scientific, and other industrial systems. In addition, Quantronix GmbH
provides spare parts for its installed base.
The following table represents a breakdown between the Company's
domestic and foreign revenues for the years ended December 31, 1996, 1995
and 1994 (in thousands of dollars).
1996 1995 1994
Dollars Percent Dollars Percent Dollars Percent
DOMESTIC $37,781 66% $27,513 63% $24,301 72%
FOREIGN 19,681 34% 16,401 37% 9,250 28%
_______ _______ _______ ______ _______ _______
TOTAL $57,462 100% $43,914 100% $33,551 100%
MANUFACTURING
The Company assembles its products at its facilities in Hauppauge,
New York; Orlando, Florida; Oxnard, California; Cambridge, Massachusetts;
and Chatsworth, California. 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 resulting in production delays.
WARRANTY AND CUSTOMER SERVICES
The Company's warranty for all of its new products varies between
three months and twelve months. The Company also provides field support
services on an individual call basis, services 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 laser and optical industries, 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, 1996, 1995, and 1994 were
$4,406,364, $3,096,934 and $2,393,654, 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.
In the scientific market, a number of competitors, including
Spectra-Physics, Inc. and Coherent, Inc., which are believed to be the
industry's two largest companies, produce Ti:Sapphire lasers.
The Company's industrial laser products for material marking
applications compete primarily with those manufactured by A.B. Laser and
Lumonics. These products have generally been subject to intense price
competition in recent years.
In the semiconductor photomask repair market, the Company primarily
competes with NEC. Semiconductor products have recently been subject to
market saturation conditions and the rapid advances in miniaturization of
integrated circuits and computers. These factors are behind the
Company's commitment to develop its next generation mask repair products.
In the dental laser market, the Company competes with several
manufacturers including American Dental Technologies and Sunrise
Technologies.
In light and color measurement, the major competitor to the
Company's Spectra product is Minolta. Minolta has approximately a 30% to
35% worldwide market share compared with Photo Research's 20% to 25%
share. In the on-line video inspection market, the Company is the
technical leader with Dynacolor and EeRise as its key competitors.
In the laser scanner market, the Company has only one significant
competitor, General Scanning, which has an estimated current market share
of 65%. This competitor was also one of the Company's largest U.S.
customers in 1996 and 1995. The Company has a significant market
presence in Europe and Japan with 45% of laser scanner sales being
outside the United States.
BACKLOG
As of December 31, 1996, the Company had a backlog of firm orders
of approximately $13.5 million as compared to a backlog of $14.0 million
as of December 31, 1995. 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 any of these advantages will be realized by
the Company.
GOVERNMENT REGULATION
The Company 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. Among
other things, these regulations require a laser manufacturer to file new
product and annual reports, to maintain quality control, product testing
and sales records, 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.
There are two principal methods by which FDA regulated products may
be marketed in the United States. One method is an FDA pre-market
notification filing under Section 510(k) of the Food, Drug and Cosmetics
Act (a "510(k) Application"). Applicants under the 510(k) procedure must
demonstrate that the device for which approval is sought is substantially
equivalent to devices on the market prior to the Medical Device
Amendments of 1976 or devices approved thereafter pursuant to the 510(k)
procedure. The review period for a 510(k) Application is 90 days from
the date of filing the application. While applications not rejected
within the 90-day period are deemed approved, applicants typically defer
marketing until a favorable response to the 510(k) Application is
received from the FDA. In 1992, the Company's three dental products
received 510(k) approval for use in soft tissue applications.
The alternate method, where section 510(k) is not available, is to
obtain pre-market approval ("PMA") from the FDA. Under the PMA
procedure, the applicant must obtain an investigational device exemption
before beginning the substantial clinical testing required to determine
the safety, efficacy and potential hazards of the product. The
preparation of a PMA application is significantly more complex and time
consuming than the 510(k) Application. The review period under a PMA
application is 180 days from the date of filing but the application is
not automatically deemed approved if not rejected during the period and
the FDA often responds with requests for additional information or
clinical reports. The PMA approval process can take up to several years.
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.
FOREIGN REGULATORY REQUIREMENTS
Foreign sales of the Company's dental and medical laser systems are
or will be subject in each case to approval by the recipient country.
Regulatory requirements vary widely among the countries, from electrical
approvals to clinical applications similar to the PMA applications filed
with the FDA for sales in the United States. The Company has obtained
appropriate approvals, for its dental products, in Japan, Korea and
certain European countries including Germany.
EMPLOYEES
As of December 31, 1996, the Company had 277 full-time employees,
consisting of 9 executive officers, 83 engineering and technical
personnel, 37 marketing and sales personnel and 148 manufacturing,
administrative and sales support personnel. The Company believes that
its relations with its employees are good. None of the Company's
employees is represented by a union.
FINANCIAL INFORMATION ABOUT FOREIGN AND
DOMESTIC OPERATIONS AND EXPORT SALES
For the years ended December 31, 1996, 1995 and 1994, the Company
had net sales to customers in foreign countries amounting to
approximately $19.7 million, $16.4 million and $9.3 million, respectively
(approximately 34%, 37% and 28% of total net sales and services,
respectively). These sales included sales by Quantronix GmbH, the
Company's German subsidiary. Quantronix GmbH buys laser systems, spare
parts and related consumable materials from Quantronix and Control Laser,
the Company's New York and Florida subsidiaries, for resale to European
and other foreign customers, and also furnishes field repair services.
See Note 12 of the "Notes to Consolidated Financial Statements."
Foreign currency translation for Quantronix GmbH, the Company's
subsidiary in Germany, is performed utilizing the current rate method
under which assets and liabilities are translated at the exchange rate on
the balance sheet date, except for property, plant and equipment which is
translated at historical rates, while revenues, costs and other expenses
are translated at the average exchange rate for the reporting period.
The resulting translation adjustment of $(78) thousand and $58 thousand
at December 31, 1996 and 1995, respectively, is included as a component
of stockholders' equity. Currency and exchange rate fluctuations from
transaction gains and losses resulted in a net loss of $178 thousand for
the year ended December 31, 1996, and net gains of approximately $115
thousand and $177 thousand for the years ended December 31, 1995 and
1994, respectively. Such amounts are based upon the accounting treatment
of foreign intercompany balances and transaction gains and losses.
ITEM 2. PROPERTIES
Excel leases approximately 2,900 square feet in New York City, from
an unaffiliated landlord for its corporate offices. The lease is for a
five-year period at an average annual rent of $108,000, and expires in
November 2001.
Quantronix leases approximately 28,000 square feet in Hauppauge,
New York from an unaffiliated landlord for its executive offices and for
sales, service and manufacturing. The lease is for a five-year period
ending in November 1997, at an average annual rent of approximately
$230,000. Excel's principal executive office is maintained in the
Hauppauge facility, where financial and accounting functions of the
Company are performed.
Control Laser leases a building containing approximately 50,000
square feet in Orlando, Florida from an unaffiliated landlord, which it
utilizes for administrative offices and laser manufacturing operations.
Annual rent is approximately $240,000. The lease expires in December
2001.
Optical leases a 14,000 square foot building in Oxnard, California
from an unaffiliated landlord for manufacturing purposes, at an annual
rent of approximately $90,000. The lease term expires in December 1998.
Cambridge leases a 17,000 square foot building in Cambridge,
Massachusetts from an unaffiliated landlord for manufacturing operations
and administrative offices. The lease is for a ten-year period ending in
October 2006, at an annual rent of approximately $150,000 through 2003
and $175,000 from November 2003 through October 2006.
Quantronix GmbH leases approximately 7,500 square feet of office
space, used for sales and service, in Darmstadt, Germany from an
unaffiliated landlord at an average annual rent of approximately
$106,000. The lease expires in June 1998.
Photo Research occupies a 36,000 square foot facility located in
Chatsworth, California leased from an unaffiliated landlord for
manufacturing operations and administrative offices, at an annual rent of
approximately $480,000. The lease expires in June 1998.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has disputes that arise in the
ordinary course of its business, none of which the Company believes
should have a material impact on its business. There are no material
pending legal proceedings to which the Company or its subsidiaries is a
party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
_______
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
under the symbol "XLTC" since May 1991, the date of the Company's initial
public offering, and on the NASDAQ National Market System since October
2, 1992. The following table sets forth the high and low bid quotations
reported on NASDAQ for the Common Stock for the periods indicated.
Year ended: High Low
December 31, 1996
First Quarter 9-3/8 6-1/2
Second Quarter 11-3/4 7-7/8
Third Quarter 9-5/8 6-3/4
Fourth Quarter 9-1/8 7
December 31, 1995
First Quarter 4-7/8 3-5/8
Second Quarter 5 3-7/16
Third Quarter 6-3/8 4-1/8
Fourth Quarter 7-1/8 4-1/4
The above quotations represent prices between dealers, do not
include retail mark-ups, markdowns or commissions and do not necessarily
reflect actual transactions.
As of March 21, 1997, there were approximately 972 holders of
record of Common Stock. Since many shares are registered in street name,
the number of beneficial owners is considerably higher.
The Company has never paid cash dividends on its Common Stock. In
April 1996 the Company paid a $0.40 per share dividend on its Preferred
Stock. In May 1996, the Company exercised its option to redeem all
Preferred Shares that were not converted. Therefore no cash dividends
will be paid to holders of Preferred 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
earnings, if any, in order to finance the development of its business.
ITEM 6. SELECTED FINANCIAL DATA
The following tables summarize certain consolidated financial data
which should be read in conjunction with the reports of the Company's
independent auditor and the more detailed consolidated financial
statements and notes thereto which appear elsewhere herein.
STATEMENT OF OPERATIONS DATA
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
Net sales and services $57,462,263 $43,914,222 $33,550,842 $29,027,825 $ 5,163,514
Net earnings (loss) 4,892,826 (1,595,835) 1,890,279 2,878,419 (8,566,668)
Net earnings (loss) per share
Primary $0.50 $(0.21) $0.22 $0.41 $(2.03)
Fully diluted $0.50 $(0.21) $0.22 $0.37 $(2.03)
Weighted average common and common
equivalent shares outstanding
Primary 9,618,461 8,281,194 7,901,749 6,423,987 4,211,371
Fully diluted 9,862,102 8,281,194 8,720,815 7,814,039 4,211,371
Common Stock cash dividends 0 0 0 0 0
Preferred stock cash dividends 0 162,137 187,981 268,258 0
BALANCE SHEET DATA
DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
Total assets $39,940,934 $43,007,614 $33,082,983 $23,909,913 $16,464,721
Total liabilities 10,924,594 20,948,036 9,727,602 8,959,774 10,637,416
Working capital 17,492,287 17,609,490 20,963,663 12,196,774 3,074,953
Stockholders' equity 29,016,340 22,059,578 23,355,381 14,950,139 5,827,305
Long-term liabilities 0 7,573,320 3,348,141 2,958,880 3,083,880
Includes operations for Quantronix from the date of acquisition (October 1, 1992) through December 31, 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and notes thereto set
forth elsewhere herein.
OVERVIEW
The Company achieved revenues of approximately $57.5 million for
the year ended December 31, 1996 as compared to approximately $43.9 and
$33.6 million for the years ended December 31, 1995 and 1994,
respectively. Earnings (loss) before provision for income taxes were
approximately $7.1million, ($1.1) million and $2.7 million for the years
ended December 31, 1996, 1995 and 1994, respectively. The net earnings
(loss) and earnings (loss) per share on a fully diluted basis were
approximately $4.9 million and $0.50 per share in 1996, ($1.6) million
and ($0.21) per share in 1995 and $1.9 million and $0.22 per share in
1994. Due to the loss in 1995, common stock equivalents and the
conversion of preferred shares were antidilutive and were not included in
the fully diluted earnings per share in 1995.
The following table presents consolidated financial data for the
years ended December 31, 1996, 1995 and 1994 (in thousands of dollars and
as a percentage of total net sales and services.)
RESULTS OF OPERATIONS
1996 1995 1994
Dollars Percent Dollars Percent Dollars Percent
------------------ ----------------- ------------------
Net Sales and Services 57,462 100.0 43,914 100.0 33,551 100.0
Cost of Sales 31,004 54.0 24,863 56.6 18,744 55.9
______ _____ _______ ______ ______ ______
Gross Margin 26,458 46.0 19,051 43.4 14,807 44.1
Operating Expense:
Selling and Marketing 9,743 17.0 7,204 16.4 5,560 16.6
General and Administrative 4,212 7.3 4,450 10.1 3,752 11.2
Research and Development 4,406 7.7 3,097 7.1 2,394 7.1
Amortization of Goodwill 508 0.9 469 1.1 229 0.6
Litigation Settlement 0 0.0 3,400 7.7 300 0.9
______ _____ _______ ______ ______ ______
Earnings from Operations 7,589 13.1 431 1.0 2,572 7.7
Non-Operating expense (income) 511 0.8 1,552 3.5 (143) (0.4)
______ _____ _______ ______ ______ ______
Earnings (loss) before provision
for income taxes 7,078 12.3 (1,121) (2.5) 2,715 8.1
Provision for Income taxes 2,185 3.8 475 1.1 825 2.5
______ _____ ______ ______ ______ ______
Net Earnings (loss) 4,893 8.5 (1,596) (3.6) 1,890 5.6
______ _____ _______ ______ ______ ______
______ _____ _______ ______ ______ ______
NET SALES AND SERVICES
Net sales and services for the year ended December 31, 1996
increased to $57.5 million from $43.9 million in 1995 and from $33.6
million in 1994. The increase from 1995 to 1996 of $13.6 million or 31.0
percent was primarily attributable to the inclusion of Photo Research's
operations for an entire year (increase of approximately $5 million) and
increased sales of industrial and scientific/OEM products, offset in part
by reduced medical product revenues. The increase in from 1994 to 1995
of $10.3 million or 31 percent was primarily attributable to the
acquisition of Cambridge and Photo Research which accounted for $8.4
million. In addition, in 1995, Quantronix GmbH (comprised of
scientific, OEM and medical revenue), the industrial product line and
medical, scientific/OEM product lines all realized moderate increases in
sales which were partially offset by a reduction in semiconductor DRS
sales.
GROSS MARGINS AND COST OF SALES
Gross margins as a percentage of sales increased to 46.0 percent in
1996 from 43.4 percent in 1995 and 44.1 percent in 1994. Cost of sales
and services increased to $31.0 million in 1996 from $24.9 million in
1995 and $18.7 million in 1994. The increase in gross margins as a
percentage of sales was primarily due to the inclusion of an entire year
of operations of Photo Research which experiences higher gross margins.
The decrease from 1994 to 1995 was primarily due to lower gross margins
experienced by Quantronix GmbH, the Company's German operation (which
accounted for a greater percentage of total sales), and the lack of DRS
sales in 1995.
OPERATING EXPENSES
Selling and Marketing
Selling and marketing expenses increased to $9.7 million in 1996
from $7.2 million in 1995 and $5.6 million in 1994. The increase of
$2.5 million or 34.7 percent was primarily attributable to the
acquisition of Photo Research and the increased sales volume. Selling
and marketing expenses as a percentage of sales increased from 16.6
percent in 1994 and 16.4 percent in 1995 to 17.0 percent in 1996. The
increase of $1.6 million or 29 percent from 1994 to 1995 was primarily
attributable to the acquisition of Cambridge and Photo Research and
increased sales.
General and Administrative
General and administrative expenses decreased to $4.2 million in
1996 from $4.5 million in 1995 and $3.8 million in 1994. The decrease
of $240 thousand or 5 percent from 1995 to 1996 was due to the one time
$300 thousand compensation charge in 1995 related to the resignation of
the former Chairman and CEO, offset by the addition of Photo Research.
The increase of $700 thousand or 18 percent from 1994 to 1995 was due to
the acquisitions of Photo Research and Cambridge and $300 thousand in
compensation related to the resignation of the former Chairman and CEO.
General and administrative expenses as a percentage of sales decreased
from 10.1 percent in 1995 to 7.6 percent in 1996 due to increased
efficiencies.
Research and Development
Research and development costs for the year ended December 31, 1996
were $4.4 million as compared to $3.1 million and $2.4 million for the
years ended December 31, 1995 and 1994, respectively. The increase of
$1.3 million or 42 percent from 1995 to 1996 was due to the inclusion of
a full year's R&D for Photo Research and increased R&D efforts in all
subsidiaries. The primary reason for the increase of $700 thousand or 29
percent from 1994 to 1995 was due to the acquisition of Photo Research
and Cambridge Technology and the development efforts toward the DRSII
850 and the DRSIII.
Amortization of Goodwill
The amortization of the excess of cost over fair value of the net
assets of businesses acquired of $508 thousand, $469 thousand and $229
thousand for the years ended December 31, 1996, 1995 and 1994,
respectively, was a result of the acquisition of Quantronix in October
1992, Cambridge in February 1995 and Photo Research in October 1995.
The increase from 1995 to 1996 was due to the full year of amortization
for Photo Research.
Litigation Settlement
Litigation settlement costs for the year ended December 31, 1995
were $3.4 million of which $2.7 million was for the SBIR settlement with
the U.S. Department of Justice and $700 thousand for legal expenses
related to the SBIR investigation. In 1994, the Company incurred $300
thousand relating to the investigation of the Company's SBIR grants.
Other Income/Expense
Interest expense was $608 thousand, $691 thousand and $347 thousand
for the years ended December 31, 1996, 1995 and 1994, respectively.
Interest expense decreased $84 thousand or 12.2 percent from 1995 to
1996 due to the reduced debt level in 1996. The increase of $344
thousand or 99 percent from 1994 to 1995 was due to interest on
increased term loans of $7.5 million related to the acquisitions of
Cambridge Technology and Photo Research, which was offset by a reduction
in interest from the revolving line of credit which was reduced by $1.8
million.
The decrease in interest income of $102 thousand from $395 thousand
in 1995 to $294 thousand in 1996 was due to the reduced average
investment levels in 1996 that resulted from prepayments in long-term
debt. The increase in interest income from $309 thousand for the year
ended December 31, 1994 to $395 thousand for the year ended December 31,
1995 was due to interest on higher average investments during 1995.
Other income/expense for the year ended December 31, 1996 was $200
thousand of expense compared to $1.26 million in 1995. The decrease in
expense was due primarily to the elimination of investment losses in
1996. Other income/expense for the year ended December 31, 1995
decreased to $1.26 million in expense from an income of $181 thousand in
1994. The increased expense was primarily related to the loss on sale
of investments. In 1995, the former Chairman and CEO invested $3.8
million in an equity security of which $1.0 million was authorized by the
board of directors. The Company incurred substantial losses on this
investment for which the former Chairman entered into an agreement
indemnifying the Company against any losses incurred on the unauthorized
portion of the investment. As part of the former Chairman's termination
agreement, in complete satisfaction of the indemnified investment loss,
the former Chairman delivered to the Company for cancellation his stock
options valued by the Company at approximately $1.3 million.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1996 and 1995 was approximately the
same at $17.5 million and $17.6 million, respectively. Cash and cash
equivalents increased by approximately $600 thousand from December 31,
1995 to December 31, 1996. Such increase is primarily attributable to
$5.8 million of cash flows from operations in 1996 and $2.2 million of
proceeds from the exercise of stock options and warrants, substantially
offset by the reduction in long-term debt and notes payable. The
decrease in working capital of $3.4 million from $21.0 million in 1994
to $17.6 million in 1995 is primarily attributable to the loss incurred
in 1995 and an increase in the current portion of long term debt and
notes payable of $3.2 million offset in part by the positive working
capital from acquisitions.
The Company had capital expenditures of approximately $1.56 million
for the year ended December 31, 1996 and has plans to expend
approximately the same amount in 1997. The Company had capital
expenditures of approximately $782 thousand for the year ended December
31, 1995.
On June 30, 1994, the Company entered into a $5 million revolving
line of credit agreement with U S Trust, (the "Bank") which matures in
March 1998. At December 31, 1996 the Company had no borrowings and had
all $5.0 million available for borrowing under the line of credit.
On February 14, 1995, the Company acquired all of the outstanding
shares of capital stock of Cambridge in exchange for $4.75 million,
consisting of $4.5 million in cash (of which $3.5 million was paid on
February 14, 1995) and $250 thousand in shares of Excel Common Stock
(which was paid on February 14, 1995). On March 31, 1995, the Company
borrowed $4.0 million from the Bank, requiring monthly payments of $67
thousand plus interest through April 2000. Of the balance due on the
acquisition price, $600 thousand was paid on March 5, 1996 and $400
thousand was paid on February 17, 1997. Pursuant to the acquisition
agreement, additional payments were to be made if Cambridge met certain
performance goals during the first two fiscal years after the
acquisition. In connection therewith, the Company paid $731 thousand for
1995 and $323 thousand for 1996 based on the attainment of these
performance goals as defined in the acquisition agreement.
On October 2, 1995, the Company acquired substantially all of the
net assets and property utilized in connection with the business of
Photo Research from Kollmorgen Instruments Corporation for $3.53 million
in cash. The Company utilized its own cash to finance the Photo
Research acquisition. On October 23, 1995, the Company obtained a $3.5
million five-year term loan from the Bank requiring monthly payments of
$58 thousand plus interest through November 2000.
On December 31, 1996, the Company had an outstanding balance of
$1.85 million on its term loans with the Bank. The Company classified the
outstanding term debt in the current portion of long-term debt, as it
was repaid on January 20, 1997.
The Company estimates that its current resources and anticipated
cash to be generated from operations will be sufficient to meet its cash
requirements for at least the next 12 months.
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Follow on next page.
EXCEL TECHNOLOGY, INC.
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, 1996.
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . 16
Consolidated Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 . . . . . . 17
Statements of Operations for each of the three years in the
period ended December 31, 1996. . . . . . . . . . . . . . . 18
Statements of Stockholders' Equity for each of the three years
in the period ended December 31, 1996.. . . . . . . . . . . 19
Statements of Cash Flows for each of the three years in the
period ended December 31, 1996.. . . . . . . . . . . . . . . . 20
Notes to Consolidated Financial Statements. . . . . . . . . 21 - 34
Additional Financial Information Pursuant to the
Requirements of Form 10-K:
Schedule II - Valuation and Qualifying Accounts and Reserves. . 35
____________
Schedules not listed above have been omitted because they are either not
applicable or the required information has been given elsewhere in the
consolidated financial statements or notes thereto.
Independent Auditors' Report
____________________________
Board of Directors and Stockholders
Excel Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Excel
Technology, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholder's equity
and cash flows for each of the years in the three-year period ended
December 31, 1996. In connection with our audit of the consolidated
financial statements, we have also audited the financial statement
schedule as listed in the accompanying index. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity
with 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.
KPMG PEAT MARWICK LLP
Jericho, New York
January 28, 1997
<\AUDIT-REPORT>
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
1996 1995
Assets
Current assets:
Cash and cash equivalents $ 2,910,982 2,326,932
Investments 4,076,045 5,887,693
Prepaid and refundable income taxes 124,492 503,741
Accounts receivable, less allowance for doubtful accounts
of $276,000 in 1996 and $377,000 in 1995 9,145,460 7,353,479
Inventories 10,977,407 13,290,729
Deferred income taxes 650,200 1,325,200
Other current assets 532,295 301,532
___________ __________
Total current asset 28,416,881 30,989,306
___________ __________
Property, plant and equipment, net 2,475,586 1,777,917
Other assets 701,896 794,518
Deferred income taxes 1,854,000 --
Excess of cost over fair value of net assets of businesses
acquired, net of accumulated amortization of $1,479,628 in
1996 and $971,504 in 1995 6,492,571 9,445,873
___________ __________
$39,940,934 43,007,614
___________ __________
___________ __________
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt 1,923,024 1,550,704
Notes payable, current 1,288,282 2,019,257
Accounts payable 2,161,740 3,052,543
Accrued expenses and other current liabilities 5,551,548 6,757,312
___________ __________
Total current liabilities 10,924,594 13,379,816
___________ __________
Long-term debt, less current installments -- 6,699,457
___________ __________
Long-term notes payable -- 868,763
___________ __________
Stockholders' equity:
Series 1 redeemable convertible preferred stock, par value
$.001 per share (liquidation preference $5 per share):
2,000,000 shares authorized; no shares issued in
1996 and 405,342 shares issued in 1995. -- 405
Common stock, par value $.001 per share: 20,000,000 shares
authorized, 9,189,265 issued and outstanding shares in 1996
and 8,347,453 shares in 1995 9,189 8,347
Additional paid-in capital 31,559,063 29,360,278
Accumulated deficit (2,474,327) (7,367,153)
Foreign currency translation adjustment (77,585) 57,701
___________ __________
29,016,340 22,059,578
___________ __________
$39,940,934 43,007,614
___________ __________
___________ __________
See accompanying notes to consolidated financial statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1996 and 1995
1996 1995 1994
Net sales and services $57,462,263 43,914,222 33,550,842
Cost of sales and services 31,004,440 24,862,687 18,744,001
___________ __________ __________
Gross profit 26,457,823 19,051,535 14,806,841
Operating expenses:
Selling and marketing 9,742,409 7,204,268 5,560,119
General and administrative 4,212,261 4,449,637 3,752,074
Research and development 4,406,364 3,096,934 2,393,654
Amortization of excess cost over fair value
of net assets of businesses acquired 508,124 468,681 229,128
Litigation settlement and related expenses -- 3,400,018 300,000
___________ __________ __________
18,869,158 18,619,538 12,234,975
___________ __________ __________
Earnings from operations 7,588,665 431,997 2,571,866
Non operating expenses (income):
Interest expense 608,349 691,415 346,722
Interest income (294,114) (395,429) (308,937)
Other expense (income), net 196,902 1,256,506 (181,198)
___________ __________ __________
Earnings (loss) before provision for income taxes 7,077,528 (1,120,495) 2,715,279
Provision for income taxes 2,184,702 475,340 825,000
___________ __________ __________
Net earnings (loss) 4,892,826 (1,595,835) 1,890,279
Preferred stock dividends 54,273 162,137 187,981
___________ __________ __________
Net earnings (loss) available to common shareholders $ 4,838,553 (1,757,972) 1,702,298
___________ __________ __________
___________ __________ __________
Earnings (loss) per share $ 0.50 (0.21) 0.22
___________ __________ __________
___________ __________ __________
Weighted average common and common equivalent
shares outstanding 9,618,461 8,281,194 7,901,749
Fully diluted earnings per share for each year were the same as earnings
per share.
See accompanying notes to consolidated financial statements
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
Years Ended December 31, 1996, 1995 and 1994
Foreign Unrealized
Additional currency gain on
Preferred Stock Common Stock paid-in Accumulated translation marketable
Shares Amounts Shares Amounts capital deficit adjustment securities Total
_______ _______ ________ _______ __________ ___________ ___________ __________ ___________
Balance at December 31, 1993 748,578 749 6,650,641 6,651 22,367,358 (7,375,377) (49,242) 0 14,950,139
Shares issued in connection
with the exercise of Class
A warrants (net of related
costs of $860,000) 0 0 1,242,360 1,242 6,594,609 0 0 0 6,595,851
Exercise of common stock
options 0 0 18,198 18 79,726 0 0 0 79,744
Conversion of preferred stock (278,626) (279) 278,626 279 0 0 0 0 0
Preferred stock dividend 0 0 0 0 0 (124,083) 0 0 (124,083)
Unrealized loss on marketable
securities 0 0 0 0 0 0 0 (60,571 ) (60,571)
Foreign currency translation
adjustment 0 0 0 0 0 0 24,022 0 24,022
Net income for the year 0 0 0 0 0 1,890,279 0 0 1,890,279
________ _____ _________ _____ __________ ___________ _________ ________ __________
Balance at December 31, 1994 469,952 470 8,189,825 8,190 29,041,693 (5,609,181) (25,220) (60,571) 23,355,381
Common stock issued to
acquire Cambridge 0 0 62,500 62 249,938 0 0 0 250,000
Exercise of common stock
options and warrants 0 0 30,518 30 68,647 0 0 0 68,677
Conversion of preferred stock (64,610) (65) 64,610 65 0 0 0 0 0
Preferred stock dividend 0 0 0 0 0 (162,137) 0 0 (162,137)
Unrealized gain on marketable
securities 0 0 0 0 0 0 0 60,571 60,571
Foreign currency translation
adjustment 0 0 0 0 0 0 82,921 0 82,921
Net loss for the year 0 0 0 0 0 (1,595,835) 0 0 (1,595,835)
________ _____ _________ _____ __________ ___________ _________ ________ __________
Balance at December 31, 1995 405,342 405 8,347,453 8,347 29,360,278 (7,367,153) 57,701 0 22,059,578
Exercise of common stock
options and warrants 0 0 436,470 437 2,198,785 0 0 0 2,199,222
Conversion of preferred stock (405,342) (405) 405,342 405 0 0 0 0 0
Foreign currency translation
adjustment 0 0 0 0 0 0 (135,286) 0 (135,286)
Net income for the year 0 0 0 0 0 4,892,826 0 0 4,892,826
________ _____ _________ _____ __________ ___________ _________ ________ __________
Balance at December 31, 1996 0 0 9,189,265 9,189 31,559,063 (2,474,327) (77,585) 0 29,016,340
________ _____ _________ _____ __________ ___________ _________ ________ __________
________ _____ _________ _____ __________ ___________ _________ ________ __________
See accompanying notes to consolidated financial statements
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net income (loss) $ 4,892,826 (1,595,835) 1,890,279
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,371,942 1,247,610 713,021
Loss on disposal/sale of property, plant and equipment 0 0 38,179
Provision for bad debts 82,743 102,784 (82,000)
Deferred income taxes 735,000 (618,000) 394,000
Changes in operating assets and liabilities, net of
effects from acquisitions:
(Increase) decrease in accounts receivable (1,874,724) 689,991 (1,763,347)
Decrease (increase) in inventories 2,313,322 (3,593,640) (965,247)
(Increase) decrease in prepaid and refundable
income taxes and other current assets 157,486 282,437 (140,828)
Decrease (increase) in other assets 92,622 (2,224) (717,193)
(Decrease) increase in accounts payable (890,803) 258,434 458,791
(Decrease) increase in accrued expenses and
other liabilities (1,043,627) 1,991,247 17,876
Proceeds from sale of trading securities 0 4,473,779 0
____________ ___________ ___________
Net cash provided by (used in)
operating activities 5,836,787 3,236,583 (156,469)
____________ ___________ ___________
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired (1,331,237) (6,775,179) 0
Purchases of equipment (1,561,487) (781,984) (729,116)
(Purchase) redemption of investments, net 1,811,648 0 (5,983,559)
Proceeds from sale of assets 522,178 0 0
____________ ___________ ___________
Net cash used in investing activities (558,898) (7,557,163) (6,712,675)
____________ ___________ ___________
Cash flows from financing activities:
Proceeds from exercise of common stock options and warrants,
net of expenses 2,199,222 68,677 6,675,595
Payment of preferred stock dividend (162,137) (186,941) (204,360)
Payments on notes payable (268,501) 370,165 113,545
(Payments of) proceeds from borrowings on long term debt
and revolving credit line, net (6,327,137) 4,767,542 257,892
____________ ___________ ___________
Net cash provided by (used in)
financing activities (4,558,553) 5,019,443 6,842,672
____________ ___________ ___________
Effect of exchange rate changes on cash and cash equivalents (6,721) 930 1,925
Effect of exchange rate changes on assets and liabilities (128,565) 81,991 22,098
____________ ___________ ___________
Net increase (decrease) in cash and cash equivalents 584,050 781,784 (2,449)
____________ ___________ ___________
Cash and cash equivalents - beginning of year 2,326,932 1,545,148 1,547,597
Cash and cash equivalents - end of year $ 2,910,982 2,326,932 1,545,148
____________ ___________ ___________
____________ ___________ ___________
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 606,801 691,415 317,297
____________ ___________ ___________
____________ ___________ ___________
Income taxes $ 1,577,756 617,338 409,348
____________ ___________ ___________
____________ ___________ ___________
See accompanying notes to consolidated financial statements.
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Excel
Technology, Inc. (Excel), its wholly- owned subsidiaries, Photo Research,
Inc. (Photo Research), Cambridge Technology, Inc.(Cambridge), Control
Laser Corporation and Quantronix Corporation (Quantronix), and
Quantronix's wholly-owned subsidiaries, The Optical Corp., Quantronix
International Corporation (a FSC) and Quantronix GmbH (collectively
referred to as the Company). All material intercompany transactions and
balances have been eliminated in consolidation.
(b) Nature of Business
Excel designs, develops, manufactures and markets laser systems and
electro-optical components, primarily for the electronic, semiconductor,
dental, scientific and other industrial markets.
(c) Revenue Recognition
Net sales and services are recognized when the earnings process is
complete, either upon shipment of products or performance of services.
(d) Investments and Cash Equivalents
Investments, which consist primarily of commercial paper in 1996 and
equity securities and commercial paper in 1995, are recorded at fair
value. The Company records debt and equity securities that have readily
determinable fair values at fair value unless they are classified as held
to maturity. Investments are classified as held to maturity and carried
at amortized cost only if the Company has a positive intent and ability
to hold those securities to maturity. If not classified as held to
maturity, investments are classified as trading securities or securities
available for sale. Unrealized gains or losses for securities available
for sale are excluded from earnings and reported as a net amount as a
separate component of stockholders' equity. Unrealized holding gains and
losses for trading securities are included in earnings. The Company has
classified its investments as trading securities as of December 31, 1996
and 1995. Investments with original maturities of three months or less
at the time of purchase are considered cash equivalents.
(e) Inventories
Inventories consist of material, labor and overhead and are stated at
the lower of average cost or market. Average cost approximates actual
cost on a first-in, first-out basis.
(f) 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. Capitalized values of property under leases are
amortized over the life of the lease or the estimated life of the asset,
whichever is less.
Patents are amortized over their estimated useful lives, not exceeding
17 years, using the straight-line method.
The excess of cost over fair value of net assets of businesses
acquired ("goodwill") is amortized on a straight-line basis over twenty
years. The Company assesses the recoverability of unamortized goodwill
based on the undiscounted projected future cash flows of the related
businesses.
In 1995, the Company adopted Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to be Disposed of." The effect of the adoption was insignificant.
(g) Capitalized Software Development Costs
The Company has capitalized certain computer software development
costs relating to the development of the Company's third generation
Defect Mask Repair System (DRS III) in accordance with Statement of
Financial Accounting Standards No.86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed."
Capitalization of computer software development costs begins upon the
establishment of technological feasibility. Technological feasibility
for the Company's computer software products is generally based upon
achievement of a detail program design free of high risk development
issues. The establishment of technological feasibility and the ongoing
assessment of recoverability of capitalized computer software development
costs requires considerable judgment by management with respect to
certain external factors, including, but not limited to, technological
feasibility, anticipated future gross revenues, estimated economic life
and changes in software and hardware technology.
Amortization of capitalized computer software costs is provided on a
product-by-product basis at the greater of the amount computed using the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or the straight-line method over the
remaining estimated economic life of the product. An original estimated
economic life of no more than four years is assigned to capitalized
computer software development costs. Approximately $459,000 of software
development costs, included in other long-term assets, were capitalized
as of December 31, 1996 and 1995. No amortization was recorded in 1996
and 1995, as the related product has not yet been released into the
marketplace, which is anticipated to occur in the first half of 1997.
(h) 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 expected to be in effect when such amounts
are 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.
(i) Foreign Currency Translation
Foreign currency translation for the Company's German subsidiary,
Quantronix GmbH, is performed utilizing the current rate method under
which assets and liabilities are translated at the exchange rate on the
balance sheet date, except for property, plant and equipment which is
translated at historical rates, while revenues, costs, and expenses are
translated at the average exchange rate for the reporting period. The
resulting translation adjustment of $(77,585) and $57,701 at December 31,
1996 and 1995 is included as a component of stockholders' equity. In
addition, there were transaction gains and losses and intercompany
balances not deemed long-term in nature at the balance sheet date that
resulted in a net loss of $177,506 for the year ended December 31, 1996
and net gains of approximately $115,000 and $177,000 during the years
ended December 31, 1995 and 1994, respectively, which is reflected in
other (income) expense in the consolidated statements of operations.
(j) Earnings Per Share
Primary earnings per share is calculated by dividing net earnings less
preferred stock dividends by the weighted average number of common and
common equivalent shares (if dilutive) outstanding during each year.
Common equivalent shares consist of additional shares that would be
outstanding assuming the exercise of outstanding dilutive stock options
and stock warrants. Fully diluted earnings per share additionally
includes the dilutive effects of assuming the conversion of convertible
preferred stock and excludes the deduction of preferred stock dividends
from net earnings.
(k) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of the
fair value of certain financial instruments. Cash and cash equivalents,
investments, accounts receivable, notes payable, accounts payable and
accrued expenses are reflected in the financial statements at fair value
because of the short-term maturity of these instruments. The fair value
of the Company's long-term debt approximates its book value since the
interest rate is prime-based and accordingly is adjusted for market rate
fluctuations.
(l) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Among the more significant estimates included in these
financial statements are the estimated allowance for doubtful accounts
receivable and the estimated valuation allowance reducing the Company's
deferred tax asset. Actual results could differ from those and other
estimates.
(m) Accounting for Stock-Based Compensation
The Company records compensation expense for employee stock options
and warrants only if the current market price of the underlying stock
exceeds the exercise price on the date of the grant. On January 1, 1996,
the Company adopted Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation". The Company has elected not to implement
the fair value based accounting method for employee stock options and
warrants, but has elected to disclose the pro forma net income and
proforma earnings per share for employee stock option and warrant grants
made in 1995 and future years as if such method had been used to account
for such stock-based compensation cost as described in Standard No. 123.
(2) Acquisitions
On February 14, 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. These products
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 Company acquired
all of the outstanding shares of capital stock of Cambridge in exchange
for $4.75 million, consisting of $4.5 million in cash (of which $3.5
million was paid on February 14, 1995) and $250,000 in shares of Excel
Common Stock (which was paid on February 14, 1995). Of the balance due,
$600,000 was paid on March 5, 1996 and $400,000 is scheduled to be paid
on February 17, 1997. Pursuant to the acquisition agreement, additional
payments were to be made if Cambridge met certain performance goals
during the first two fiscal years after the acquisition. In connection
therewith, the Company paid $731,000 for 1995 and, as of December 31,
1996, has recorded a liability of $323,000 for 1996 based on the
attainment of these performance goals as defined in the acquisition
agreement. The amount owed at December 31, 1996 and 1995 of $723,000 and
$2.2 million, respectively, is included in notes payable in the
accompanying balance sheets. The acquisition was accounted for as a
purchase and the operating results of Cambridge were included in the
consolidated financial statements commencing February 1, 1995.
On October 2, 1995, the Company acquired substantially all of the net
assets and property utilized in connection with the business of Photo
Research, which develops and manufactures light measuring instruments,
for $3.53 million in cash. The Company utilized its own cash to finance
the Photo Research acquisition. Subsequently, on October 23, 1995 the
Company obtained a $3.5 million five-year term loan from U. S. Trust (the
"Bank"). The acquisition was accounted for as a purchase and the
operating results of Photo Research were included in the consolidated
financial statements from the date of the acquisition.
The excess of the cost of the acquisitions over the fair value of the
net assets acquired, amounting to $4,830,000 for Cambridge and $1,727,000
for Photo Research, is being amortized over twenty years. During 1996
goodwill was reduced by $522,000 as a result of the sale of Cambridge's
medical product line. The sales price, net of expenses, approximated the
net book value of the assets sold.
The following unaudited pro forma results of operations present, on
the purchase basis of accounting, the consolidated results of operations
of the Company for the years ended December 31, 1995 and 1994 as if the
acquisitions had taken place on January 1, 1994 and reflect the
historical results of operations of the purchased businesses adjusted for
increased interest expense, goodwill amortization and increased common
shares outstanding from the Cambridge acquisition.
Year ended December 31,
1995 1994
___________ __________
(unaudited)
Total Revenues $49,702,000 45,670,000
___________ __________
___________ __________
Net income (loss) $(2,294,000) 1,210,000
___________ __________
___________ __________
Net income (loss) per share $ (0.28) 0.15
___________ __________
___________ __________
Weighted average common
shares outstanding 8,281,194 7,964,249
___________ __________
___________ __________
The pro forma results of operations are not necessarily indicative of
the actual results of operations that would have occurred had the
purchase been made at the beginning of the period, or of the results
which may occur in the future.
(3) Investments
Investments at December 31, 1996 and 1995 consist entirely of trading
securities.
The fair value of trading securities by major security type at
December 31, 1996 and 1995 was as follows:
Fair Value
December 31,
______________________
1996 1995
___________ __________
Commercial paper and
money market $ 4,076,045 3,896,343
Equity securities -- 1,991,350
___________ __________
$ 4,076,045 5,887,693
___________ __________
___________ __________
The Company recorded realized net gains of approximately $600,000
and unrealized holding losses on equity trading securities of
approximately $2,200,000 included in other expense in the 1995
Consolidated Statement of Operations. In January 1996, the Company sold
all of its equity securities and no further losses were realized.
(4) Inventories
Inventories consist of the following:
December 31,
______________________
1996 1995
___________ __________
Raw materials $ 4,473,246 4,893,171
Work-in-process 5,098,370 6,269,983
Finished goods 1,124,538 1,759,118
Consigned inventory 281,253 368,457
___________ __________
$10,977,407 13,290,729
___________ __________
___________ __________
(5) Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
______________________
Useful life 1996 1995
___________ ___________ __________
Leasehold improvements Lease term $ 523,304 382,021
Fixtures and computer
equipment 5-8 years 1,169,811 887,740
Machinery and equipment 4-8 years 3,172,736 2,273,478
Laboratory equipment 4-8 years 675,536 522,936
___________ __________
5,541,387 4,066,175
Less accumulated depreciation
and amortization 3,065,801 2,288,258
___________ __________
$2,475,586 1,777,917
___________ __________
___________ __________
Depreciation and amortization expense aggregated approximately
$863,000, $779,000 and $484,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
(6) Income Taxes
The income (loss) before provision for income taxes for the years
ended December 31, 1996, 1995 and 1994 was comprised of domestic income
(loss) of $7,416,546, $(1,507,202) and $2,499,809, respectively, and
foreign income (loss) of $(339,018), $386,707 and $215,470, respectively.
The provision for income taxes consists of:
Year ended December 31,
1996 1995 1994
_________ __________ __________
Current:
Federal $ 1,202,702 794,340 372,000
State and local 280,000 200,000 59,000
Foreign (33,000) 99,000 -
_________ __________ __________
1,449,702 1,093,340 431,000
_________ __________ __________
Deferred:
Federal 735,000 (763,000) 294,000
State and local - - -
Foreign - 145,000 100,000
_________ __________ __________
735,000 (618,000) 394,000
$ 2,184,702 475,340 825,000
The current provision for income taxes includes a tax benefit of
$281,000 for 1996, 1995 and 1994 from utilizing Federal net operating
loss carryforwards and a tax benefit of $100,000 from utilizing foreign
net operating loss carryforwards in 1994. The deferred tax provision for
1996, 1995 and 1994 was increased by $190,000, $335,000 and $338,000,
respectively, of tax expense from allocating acquired tax benefits to
goodwill.
The difference between the Federal statutory tax rate and the
Company's effective tax rate is as follows:
Year ended December 31,
1996 1995 1994
_________ __________ __________
Taxes at statutory Federal income
tax rate $2,406,400 (381,000) 923,000
Amortization of excess of cost
over fair value of net assets
of businesses acquired 142,800 153,000 79,000
Non-deductible litigation
settlement expenses - 544,000 -
Foreign Sales Corporation
(FSC) benefit (110,500) (118,000) (130,000)
Net reduction of valuation
allowance for realization of
operating loss carryforwards and
deductible temporary differences (360,000) (90,000) (348,000)
State income taxes net of Federal
benefit 184,500 132,000 38,000
Other (78,500) 235,340 263,000
_________ __________ __________
$2,184,700 475,340 825,000
_________ __________ __________
_________ __________ __________
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996
and 1995 are presented below:
December 31,
1996 1995
___________ __________
Deferred tax assets:
Excess of tax over financial statement
basis of inventory $ 351,000 343,000
Allowance for doubtful accounts
and notes receivable 53,000 109,000
Accrued warranty reserve 118,000 87,000
Accrued royalties 5,000 223,000
Other accrued expenses 423,000 126,000
Benefits of U.S. tax net operating loss
carryforwards 2,709,000 3,136,000
Benefits of foreign net operating loss
carryforwards 120,000 --
Capital loss carryforward 63,000 --
Plant and equipment depreciation 98,000 88,000
Other 8,000 226,000
Loss on investments -- 714,000
___________ __________
Total deferred tax assets 3,948,000 5,052,000
Less valuation allowance (1,288,000) (3,571,000)
___________ __________
Net deferred tax assets 2,660,000 1,481,000
___________ __________
Deferred tax liabilities:
Capitalized software development costs (156,000) (156,000)
___________ __________
Total deferred tax liabilities (156,000) (156,000)
___________ __________
Net deferred tax asset $ 2,504,000 1,325,000
___________ __________
___________ __________
At December 31, 1996, Excel has available net operating loss
carryforwards (NOL's), expiring in 2005 through 2007, of approximately
$2.4 million for income tax purposes. The utilization of NOL's by Excel
for income tax purposes is subject to annual limitations imposed by
Internal Revenue Code Section 382 due to the consummation of the initial
public offering of securities in May 1991, the exercise of warrants in
March 1992, the issuance of securities in connection with the 1992
acquisition of Quantronix, the sale of preferred stock in 1993, and
alternative minimum tax limitations. If the full amount of that
limitation is not used in any year, the amount not used increases the
allowable limit in the following year.
At December 31, 1996, Quantronix and its subsidiaries have available
for tax purposes utilizable preacquisition NOL's of approximately $5.6
million expiring in 2005 through 2007. Such NOL's can only be utilized
to offset Quantronix's future taxable income and are limited, in a
similar fashion to Excel's NOL's, in each year to approximately $560,000
as a result of the change in ownership from the merger with Excel.
During 1996, the Company reduced goodwill (excess of cost over fair value
of net assets of businesses acquired) by $1,923,000 for establishment of
deferred tax assets and the utilization of Quantronix's preacquisition
deductible temporary differences and net operating loss carryforwards.
Management believes that it is more likely than not that the Company's
deferred tax asset will be realized based on its generation of taxable
income in 1996, 1995 and 1994 and its future projected taxable income.
The substantial restrictions on and time periods required to realize
certain of the Company's NOL's makes it appropriate, in management's
opinion, to record a valuation allowance against a portion of those
NOL's. In addition, a valuation allowance has been provided against the
Company's capital loss and foreign net operating loss carryforwards.
Accordingly, Excel has provided a total valuation allowance of $1.3
million as of December 31, 1996.
There can be no assurance that the Company will generate sufficient
taxable earnings in future years to fully realize recorded tax benefits.
However, if the Company achieves sufficient profitability to utilize all
of its deferred income tax assets at December 31, 1996, the reduction of
the valuation allowance will be allocated to reduce goodwill by
approximately $300,000 and reduce income tax expense by approximately
$1.0 million.
(7) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consists of the
following:
December 31,
1996 1995
___________ __________
Salaries, wages, commissions
and bonuses $ 1,769,134 1,700,784
Accrued accounts payable 110,657 269,872
Customer deposits 891,043 1,172,221
Accrued royalties payable 15,736 657,917
Preferred stock dividend payable -- 162,137
Warranty reserve 413,513 489,358
Unearned service contract revenue 240,763 138,473
Professional fees 146,176 400,591
Income taxes payable 714,305 1,211,746
Other 1,250,221 554,213
___________ __________
$ 5,551,548 6,757,312
(8) Long-Term Debt and Notes Payable
Long-term debt and notes payable consist of the following:
December 31,
1996 1995
___________ __________
Revolving line of credit (a) $ -- 1,426,603
Term loan payable (b) (c) 1,850,986 6,650,998
Notes payable - Cambridge
acquisition (note 2) 723,150 2,200,000
Other 637,170 860,580
___________ __________
3,211,306 11,138,181
Less current installments 3,211,306 3,569,961
___________ __________
$ -- 7,568,220
___________ __________
___________ __________
(a) On June 30, 1994, the Company entered into a $5 million
revolving line of credit agreement with the Bank which matures in March
1998. Borrowings under the line bear interest at the Bank's base lending
rate plus 0.75% (approximately 9.0% at December 31, 1996), payable
monthly. At December 31, 1996 the Company had no borrowings and had $5.0
million available for borrowing under the line of credit. The agreement
contains certain financial covenants, including minimum tangible net
worth, and limits the payment of dividends.
(b) On March 31, 1995, the Company borrowed $4.0 million from the
Bank requiring monthly payments of $67,000 plus interest through April
2000. The loan bears interest at the Bank's base lending rate plus 0.75%
(approximately 9.0% at December 31, 1996). The Company accelerated
principal payments in 1996 and reduced the principal balance to $767,000
at December 31, 1996. Such balance was prepaid on January 20, 1997.
(c) On October 23, 1995 the Company obtained a $3.5 million five
year term loan from the Bank requiring monthly payments of $58,000 plus
interest through November 2000. The loan bears interest at the Bank's
base lending rate plus 0.50% (approximately 8.75 % at December 31, 1996).
The Company accelerated principal payments in 1996 and reduced the
principal balance to approximately $1.08 million at December 31, 1996.
Such balance was prepaid on January 20, 1997.
The revolving line of credit agreement and all term loans are secured
by all the U.S. assets of the Company.
On December 31, 1996 the Company had no long-term debt as it currently
intends to repay all existing debt during 1997.
Other at December 31, 1996 and 1995 includes short-term borrowings of
the Company's subsidiary in Germany at an interest rate of 9.5% and
9.63%, respectively, of approximately $412,000 and $688,000,
respectively.
(9) Stockholders' Equity
(a) Preferred Stock
Each share of preferred stock is convertible into one share of common
stock and one Class B warrant. During the years ended December 31, 1996,
1995 and 1994, 405,342, 64,610 and 278,626 shares, respectively, of
preferred stock were converted to common stock. While outstanding, the
Company paid a dividend of $0.40 per share for each year the preferred
stock was not converted or redeemed. As of December 31, 1996, the
Company has reserved a total of 1,586,225 shares of common stock for
issuance in connection with the outstanding Class B warrants. The Class B
warrants are exercisable through February 8, 1998 at $8.00 per warrant.
In accordance with the terms of the Class B warrants, the Company on
January 22, 1997 called the Class B warrants for redemption. If not
exercised by February 21, 1995, the Company will redeem the warrants at
$.05 per warrant.
In addition, in connection with the sale of the preferred stock, the
Company issued warrants to the underwriter for 140,250 preferred shares.
Such warrants are outstanding at December 31, 1996 and are exercisable
through February 8, 1998 at $7.90 per warrant.
(b) Stock Option Plan
In 1990, Excel adopted a stock option plan (the Plan) which provides
for the granting of incentive stock options and nonincentive stock
options to certain key employees, including officers and directors of
Excel, to purchase an aggregate of 2,000,000 shares of common stock, as
amended, 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 fair market value of the stock on the date of 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 fair market
value on the date of grant, and for nonincentive stock options such price
may be less than 100% of the fair market value of the stock on the date
of grant. Options granted under the Plan, which terminates on July 30,
2000, may be exercisable for a period of up to ten years. All options
granted under the Plan have exercise prices equal to the market value of
the stock on the date of grant, primarily vest ratably over three years
and primarily expire five years from date of grant.
The Plan was amended in August 1993 to provide for the automatic grant
to each member of the Board of Directors, on the date of each annual
meeting of stockholders, non-incentive options to purchase 10,000 shares
of common stock at the fair market value of the common stock on such
date.
A summary of activity related to Excel's stock option plan is as
follows.
Number Option price
of shares per share
___________ __________
Outstanding at December 31, 1993 1,531,976 3.26-11.30
Granted 340,000 5.125-5.875
Exercised (18,198) 3.26-5.00
Canceled (67,146) 3.26-11.30
Outstanding at December 31, 1994 1,786,632 3.26-11.30
___________
Granted 432,600 3.875-5.50
Exercised (25,200) 3.26-5.75
Canceled (1,096,709) 3.26-11.30
___________
Outstanding at December 31, 1995 1,097,323 3.26-11.30
Granted 695,600 7.00-10.125
Exercised (218,215) 3.26-7.61
Canceled (146,881) 3.26-11.30
Outstanding at December 31, 1996 1,427,827 3.26-11.30
___________
___________
At December 31, 1996, a total of 662,085 options were exercisable and
options for the purchase of 301,023 common shares were available for
future grant under the Plan.
(c) Other
In addition, at December 31, 1996, 524,100 were warrants outstanding
that expire between 1997 and 2000 with exercise prices ranging from $4.00
to $6.375.
(d) Shares Reserved for Issuance
At December 31, 1996 Excel had reserved, authorized and unissued
common shares for the following purposes:
Shares
_________
Stock option plan 1,728,850
Class B Warrants 1,586,225
Underwriter's warrant for
preferred stock 280,500
Other warrants 524,100
_________
4,119,675
_________
_________
(e) Stock-based compensation
The per share weighted-average fair value of stock options and
warrants granted during 1996 and 1995 was $3.76 and $2.41, respectively,
on the date of grant using the Black Scholes option-pricing model with
the following weighted-average assumptions: 1996 - expected dividend
yield of 0%, risk free interest rate of 6%, expected stock volatility of
50%, and an expected option and warrant life of 5 years; 1995 - expected
dividend yield of 0%, risk free interest rate of 5%, expected stock
volatility of 50%, and an expected option and warrant life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the financial
statements for its stock options and warrants which have an exercise
price equal to or greater than the fair value of the stock on the date of
the grant. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
1996 1995
__________ ____________
Net earnings (loss):
As reported $4,892,826 $(1,595,835)
Pro forma $4,305,826 $(1,952,835)
Net earnings (loss)
per share:
As reported $ .50 $ (0.21)
Pro forma $ .44 $ (0.26)
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options and warrants under SFAS No. 123 is not reflected in the pro forma
net income amounts presented above because compensation cost is reflected
over the options' vesting period of 5 years and compensation cost for
options granted prior to January 1, 1995 was not considered.
(10) Employee Benefit Plans
(a) 401(k) Plan
The Company has a voluntary contribution pension 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 to a
pension trust, 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
$235,000, $179,000 and $186,000, in 1996, 1995 and 1994, respectively.
(b) Health Plans
Through July 1994, the Company paid substantially all costs associated
with providing employees health benefits through programs administered by
health maintenance organizations and insurance companies. During the
years ended December 31, 1996, 1995 and 1994, health benefit costs,
including premiums, amounted to approximately $778,000, $955,000 and
$921,000, respectively.
(11) Commitments and Contingencies
(a) Operating Leases
Excel and its subsidiaries lease certain buildings, vehicles and
equipment under noncancellable operating leases. At December 31, 1996,
the future minimum lease payments under operating leases are as follows:
1997 $ 1,655,323
1998 1,068,090
1999 575,824
2000 544,883
2001 554,126
Thereafter 973,294
___________
$ 5,371,540
___________
___________
Rent expense approximated $1.29 million, $811,000 and $698,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
(b) Employment and Consulting Agreements
Excel has entered into employment agreements with certain key
executives that provide for severance upon termination, aggregating
$540,000. In addition, in connection with the resignation of Excel's
former CEO at December 31, 1995, the Company has committed to pay him
$150,000 in 1997.
(c) Litigation Settlement
The Company reached a settlement with the U.S. Government relating to
the U.S. Government's civil investigation of Small Business Innovation
Research ("SBIR") grants obtained by the Company during 1985 to 1990,
when it was a privately held development stage company. The National
Science Foundation ("NSF"), in conjunction with the United States
Department of Justice, had been investigating statements made by the
Company in proposals submitted to the NSF and other government agencies
under the SBIR grant program, and whether the work was actually performed
in connection with the grants. Pursuant to a Release and Settlement
Agreement (the "Agreement"), dated as of November 24, 1995, by and
between the U.S. Government, Excel, Dr. Rama Rao, the former Chairman and
Chief Executive Officer of Excel ("Dr. Rao"), and Triveni Srinivasan Rao,
the wife of Dr. Rao and a former director and former officer of Excel
("Mrs. Rao"), and without the Company, Dr. Rao or Mrs. Rao admitting to
any wrongdoing, the Company has paid the U.S. Government $2.7 million
(reflecting the return of $1,093,000 paid by the U.S. Government to the
Company during 1985 to 1990 and approximately $1,627,000 in statutory
damages). In consideration of such payments and agreements, the U.S.
Government agreed to refrain from instituting any civil or monetary
claim, action or suit against the Company, Dr. Rao or Mrs. Rao arising in
connection with proposals submitted under the SBIR grant program during
the period July 1985 through November 24, 1995.
In connection with the foregoing, the Company recorded a charge of
$3.4 million for the year ended December 31, 1995, including the $2.7
million paid to the government and $700,000 of related legal fees
expended in 1995. Of the $2.7 million paid to the government, only $1.1
million was deductible for income taxes. In 1994, the Company expended
$300,000 for related legal fees.
(12) Foreign and Domestic Operations and Export Sales
Information concerning foreign and domestic operations and export
sales is as follows:
As of Year ended December 31,
1996 1995 1994
___________ __________ __________
Net sales and services to
unaffiliated customers:
United States $50,023,979 34,793,096 28,101,790
Germany 7,438,284 9,121,126 5,449,052
___________ __________ __________
$57,462,263 43,914,222 33,550,842
___________ __________ __________
___________ __________ __________
Operating earnings (loss):
United States $ 7,535,061 (36,047) 2,340,399
Germany (107,267) 468,044 231,467
___________ __________ __________
$ 7,427,794 431,997 2,571,866
___________ __________ __________
___________ __________ __________
Identifiable assets:
United States 35,590,918 38,302,849 30,137,182
Germany 4,350,016 4,704,765 2,945,801
___________ __________ __________
39,940,934 43,007,614 33,082,983
___________ __________ __________
___________ __________ __________
In determining operating earnings (loss) for each geographic area,
sales and purchases between areas have been accounted for on the basis of
internal transfer prices set by the Company.
Identifiable assets are those tangible and intangible assets used in
operations in each geographic area.
During the years ended December 31, 1996, 1995 and 1994, the Company
had foreign and export sales of approximately $19.7 million, $16.4
million and $9.25 million, representing 34%, 37% and 28%, respectively,
of total net sales and services.
No single customer accounted for more than five percent of the
Company's net sales and services in fiscal 1996, 1995 and 1994, and no
account receivable from any customer exceeded five percent of the
Company's total stockholders' equity at December 31, 1996.
Schedule II
EXCEL TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1996, 1995 and 1994
Column A Column B Column C Column D Column E
________ ___________ __________ ___________ __________
Additions
Charged
Balance at to cost Balance at
beginning and Deductions- end of
Description of period expenses describe period
______________________ ___________ __________ ___________ __________
Allowance for doubtful
accounts:
Year ended December 31:
1996 $ 377,000 83,000 (184,000)(1) 276,000
1995 200,000 103,000 74,000(2) 377,000
1994 441,000 (135,000) (106,000)(1) 200,000
(1) Uncollectible accounts written off, net of recoveries.
(2) Allowance for doubtful accounts of acquired subsidiaries at date of
acquisition.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT'S
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 with respect to the directors
of registrant is hereby incorporated by reference to registrant'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 registrant's fiscal year ended
December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is hereby incorporated by
reference to registrant'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 registrant's
fiscal year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is hereby incorporated by
reference to registrant'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 registrant's
fiscal year ended December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Howard S. Breslow, a director of the Company, is a partner in
Breslow & Walker, LLP the Company's legal counsel. In 1996, the Company
paid Breslow & Walker, LLP $212,000 for legal services.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements (included in Part II,
Item 8):
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and
December 31, 1995
Consolidated Statements of Operations for each of the years in
the three-year period ended December 31, 1996
Consolidated Statements of Stockholders' Equity for each of the
years in the three-year period ended December 31, 1996
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1996
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedule and Report of
Independent Auditor (included in Part II Item 8)*:
Schedule
II Valuation and Qualifying Accounts and Reserves
_____________________________
* 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.
3. Exhibits included herein:
See Exhibit Index below for exhibits filed as part of this Form
10-K annual report.
(b) Reports on Form 8-K. No reports on Form 8-K were filed in the
last quarter of the period covered by this Report.
INDEX TO EXHIBITS
Exhibit
Number Document
2 (a) Agreement and Plan of Merger, dated March 20, 1992, by and
among the Company, Excel Merging Corporation and Quantronix
Corporation, as amended July 16, 1992.(1)
(b) Agreement and Plan of Merger, dated as of February 14,
1995, by and among, the Company, Excel Merging Corporation
and Cambridge Technology, Inc. (4)
3 (a) Restated Certificate of Incorporation dated November 13,
1990, as amended (3)
(b) By-Laws, as amended.(2)
4 (a) Specimen Certificate for Company's Common Stock.(2)
(b) Form of Unit Purchase Option.(1)
(c) Form of Representative's Warrant, as amended.(3)
10 (a) 1990 Stock Option Plan, as amended.(3)
(b) Loan Agreement, dated as of June 30, 1994, by and among the
Company and U S Trust.(5)
(c) Lease Agreement, dated September 11, 1992, between RREEF
USA FUND - I and Quantronix.(3)
(d) Asset Purchase Agreement, dated as of October 29, 1995 by
and among Kollmorgen Instruments Corporation and Photo
Research, Inc. (6)
(e) Release and Settlement Agreement, dated November 29, 1995,
by and between the U. S. Government and the Company (7)
(f) Employment Agreement, dated as of January 22, 1996, between
the Company and J. Donald Hill
(g) Employment Agreement, dated as of January 22, 1996, between
the Company and Antoine Dominic.
11 Computation of Net Earnings (loss) per share.
23 Consent of KPMG Peat Marwick LLP
________________
(1) Incorporated by reference to the Company's Registration
Statement on Form S-4, File No. 33-47440.
(2) Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-39375.
(3) Incorporated by reference to the Company's Registration
Statement on Form S-1, File No. 33-52612.
(4) Incorporated by reference to the Company's Report on Form
8-K dated February 28, 1995.
(5) Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
(6) Incorporated by reference to the Company's Report on Form
8-K dated October 13, 1995.
(7) Incorporated by reference to the Company's Report on Form
8-K dated December 12, 1995.
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/ J. Donald Hill
__________________________
J. Donald Hill, President
Principal Executive Officer
By: /s/ Antoine Dominic
___________________________
Antoine Dominic, Chief
Financial and Accounting Officer
Date: March 24, 1997
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 Director March 24, 1997
_____________________
J. Donald Hill
/s/ Antoine Dominic Director March 24, 1997
_____________________
Antoine Dominic
/s/ Steven Georgiev Director March 24, 1997
_____________________
Steven Georgiev
/s/ Howard S. Breslow Director March 24, 1997
_____________________
Howard S. Breslow
/s/ Jan Melles Director March 24, 1997
_____________________
Jan Melles
Exhibit 10(f)
EMPLOYMENT AGREEMENT
____________________
AGREEMENT, dated as of the 22nd day of January 1996, by and between
EXCEL TECHNOLOGY, INC., a Delaware corporation with its principal
corporate offices located at 45 Adams Avenue, Hauppauge, New York 11788
(the "Company"), and J. DONALD HILL residing at 2 Bridgeworth Lane,
Sherman, CT 06784 (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, effective as of the date hereof, the Employee has been
elected to serve as the President and Chief Executive Officer of the
Company; and
WHEREAS, the Company and Employee desire to set forth in this
Agreement the terms and conditions of Employee's employment;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT
The Company hereby employs and engages Employee to serve as the
President and Chief Executive Officer of the Company, and Employee hereby
accepts employment with the Company, on the terms and conditions herein
set forth.
2. COMMENCEMENT; TERM OF AGREEMENT
2.01 The term of employment hereunder shall commence on
January 22, 1996 (the "Commencement Date"), and shall continue until
January 21, 1999 (the "Employment Period") unless terminated sooner
pursuant to the express provisions hereof.
2.02 The parties agree to enter into good faith negotiations
regarding 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, Employee shall be employed
in an executive capacity as the President and Chief Executive Officer of
the Company, to perform such functions as are normally carried out by the
President and Chief Executive 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.
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.
3.02 Employee shall report and be responsible to the Board of
Directors of the Company.
4. COMPENSATION
4.01 During the Employment Period, Employee's base salary
shall be at the rate of TWO HUNDRED THOUSAND DOLLARS ($200,000) per annum
("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.
4.02 In addition to Employee's Base Salary, the Employee shall
be eligible to receive bonus compensation in accordance with resolutions
adopted by the Board of Directors on this day.
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 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, which shall be taken at
such times as are consistent with the needs of the Company and the
convenience of the Employee.
4.06 The Employee shall be entitled, during the Employment
Period, to a non-accountable automobile allowance of five hundred dollars
($500.00) per month.
5. STOCK OPTIONS
Upon the Commencement Date, the Company shall grant to the Employee
an Incentive Stock Option (the "Option") to purchase 300,000 shares of
Common Stock, par value $.001 per share, of the Company, at the fair
market value of such shares on the Commencement Date determined in
accordance with the terms of the Company's 1990 Stock Option Plan. The
Option shall be exercisable over a five year period while the Employee is
in the employ of the Company, to the extent of thirty-three and one-third
(33 1/3%) percent thereof commencing on the first anniversary of the
Commencement Date, sixty-six and two-thirds (66 2/3%) percent thereof
commencing on the second anniversary of the Commencement Date and one
hundred (100%) thereof commencing on the third anniversary of the
Commencement Date.
6. TERMINATION
6.01 The Employee's employment hereunder shall terminate
automatically and without notice upon the death of the Employee.
6.02 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 performed his duties hereunder on a full-time
basis for a continuous period of 45 days or for a period of 60 days in
any six (6) consecutive month period.
6.03 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 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 Employee of any obligation,
representation, warranty, covenant or agreement made by Employee herein;
provided, however, that the Company shall have given Employee written
notice of any such Cause for termination in accordance with Sections 6.03
and 11 hereof and 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 7 or 8 hereof.
6.04 If 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 and the
bonus compensation which had been earned pursuant to Section 4.02 hereof
at the date of termination. If the Employee's employment is terminated
for Cause directly related to his actions concerning the Company,
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. If the
Company terminates Employee's employment without Cause, the Employee
shall be entitled to the Base Salary pursuant to Section 4.01 hereof for
a period of one year after the date of termination. If the Employee
voluntarily leaves the employ of the Company at any time during the
Employment Period for any reason, the Employee shall give the Company 45
days advance written notice thereof and shall be entitled to the Base
Salary pursuant to Section 4.01 hereof for such 45 day period if Employee
remains in the employ of the Company for such period of time.
7. NON-COMPETITION; NON-SOLICITATION
7.01 In view of the unique and valuable services it is
expected Employee will render to the Company, 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 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 Employee hereunder, Employee agrees that for so long as
he is employed by the Company and for a period of one year thereafter
(the "Covenant Period"), 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 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.
7.02 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 subsidiaries now owned or hereafter acquired).
7.03 Since a breach of the provisions of this Section 7 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. Employee agrees that
the provisions of this Section 7 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 7 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 7 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.
8. 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 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 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. 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 Employee is in the public domain, or (ii)
after disclosure to the Employee, enters the public domain without fault
of the Employee.
9. SURVIVAL
The covenants and agreements contained in or made pursuant to this
Agreement shall survive Employee's termination of employment,
irrespective of any investigation made by or on behalf of any party.
10. 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.
11. NOTICES
Any notices or other communication 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 11). 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.
12. 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.
13. BINDING EFFECT
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 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
Employee, his heirs, executors, and administrators, and shall be binding
upon and inure to the benefit of the Company and its successors and
assigns.
14. 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.
15. 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/ J. Donald Hill
__________________________
J. DONALD HILL
EXCEL TECHNOLOGY, INC.
By: /s/ Antoine Dominic
__________________________
ANTOINE DOMINIC
Exhibit 10 (g)
EMPLOYMENT AGREEMENT
____________________
AGREEMENT, dated as of the 22nd day of January 1996, by and between
EXCEL TECHNOLOGY, INC., a Delaware corporation with its principal
corporate offices located at 45 Adams Avenue, Hauppauge, New York 11788
(the "Company"), and ANTOINE DOMINIC currently residing at 20 Barnwell
Lane, Stony Brook, New York (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 presently the Chief Financial Officer of
the Company; and
WHEREAS, the Company and Employee have previously entered into
letter agreements dated March 15, 1995 and September 14, 1995, setting
forth the terms of Employee's compensation (the "Letter Agreements"); and
WHEREAS, the Company and Employee desire to set forth in this
Agreement the terms and conditions of Employee's continued employment,
which Agreement shall supersede the Letter Agreements;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT
The Company hereby employs and engages Employee to serve as the
Chief Financial Officer of the Company, and Employee hereby accepts
employment with the Company, on the terms and conditions herein set
forth.
2. COMMENCEMENT; TERM OF AGREEMENT
2.01 The term of employment hereunder shall commence on
January 22, 1996 (the "Commencement Date"), and shall continue until
January 21, 1999 (the "Employment Period") unless terminated sooner
pursuant to the express provisions hereof.
2.02 The parties agree to enter into good faith negotiations
regarding 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, Employee shall be employed
in an executive capacity as the Chief Financial Officer of the Company,
to perform such functions as are normally carried out by the Chief
Financial Officer of a business of the type in which the Company is
engaged, and such other functions as the Board of Directors or the
President of the Company shall from time to time reasonably determine.
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.
3.02 Employee shall report and be responsible to the President
and Chief Executive Officer of the Company.
4. COMPENSATION
4.01 During the Employment Period, Employee's base salary
shall be at the rate of ONE HUNDRED SIXTY-FIVE THOUSAND DOLLARS
($165,000) per annum ("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.
4.02 In addition to Employee's Base Salary, the Employee shall
be eligible to receive bonus compensation in accordance with resolutions
adopted by the Board of Directors on this day.
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 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, which shall be taken at
such times as are consistent with the needs of the Company and the
convenience of the Employee.
4.06 The Employee shall be entitled, during the Employment Period,
to a non-accountable automobile allowance of five hundred dollars
($500.00) per month.
5. STOCK OPTIONS
Upon the Commencement Date, the Company shall grant to the Employee
an Incentive Stock Option (the "Option") to purchase 225,000 shares of
Common Stock, par value $.001 per share, of the Company, at the fair
market value of such shares on the Commencement Date determined in
accordance with the terms of the Company's 1990 Stock Option Plan. The
Option shall be exercisable over a five year period while the Employee is
in the employ of the Company, to the extent of thirty-three and one-third
(33 1/3%) percent thereof commencing on the first anniversary of the
Commencement Date, sixty-six and two-thirds (66 2/3%) percent thereof
commencing on the second anniversary of the Commencement Date and one
hundred (100%) thereof commencing on the third anniversary of the
Commencement Date.
6. TERMINATION
6.01 The Employee's employment hereunder shall terminate
automatically and without notice upon the death of the Employee.
6.02 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 performed his duties hereunder on a full-time
basis for a continuous period of 45 days or for a period of 60 days in
any six (6) consecutive month period.
6.03 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 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 President, or
the willful taking of any action by the Employee which results in damage
to the Company, or the material default or breach by Employee of any
obligation, representation, warranty, covenant or agreement made by
Employee herein; provided, however, that the Company shall have given
Employee written notice of any such Cause for termination in accordance
with Sections 6.03 and 11 hereof and 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 7 or 8 hereof.
6.04 If 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 and the
bonus compensation which had been earned pursuant to Section 4.02 hereof
at the date of termination. If the Employee's employment is terminated
for Cause directly related to his actions concerning the Company,
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. If the
Company terminates Employee's employment without Cause, the Employee
shall be entitled to the Base Salary pursuant to Section 4.01 hereof for
a period of one year after the date of termination. If the Employee
voluntarily leaves the employ of the Company at any time during the
Employment Period for any reason, the Employee shall give the Company 45
days advance written notice thereof and shall be entitled to the Base
Salary pursuant to Section 4.01 hereof for such 45 day period if Employee
remains in the employ of the Company for such period of time.
7. NON-COMPETITION; NON-SOLICITATION
7.01 In view of the unique and valuable services it is
expected Employee will render to the Company, 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 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 Employee hereunder, Employee agrees that for so long as
he is employed by the Company and for a period of one year thereafter
(the "Covenant Period"), 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 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.
7.02 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 subsidiaries now owned or hereafter acquired).
7.03 Since a breach of the provisions of this Section 7 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. Employee agrees that
the provisions of this Section 7 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 7 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 7 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.
8. 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 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 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. 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 Employee is in the public domain, or (ii)
after disclosure to the Employee, enters the public domain without fault
of the Employee.
9. SURVIVAL
The covenants and agreements contained in or made pursuant to this
Agreement shall survive Employee's termination of employment,
irrespective of any investigation made by or on behalf of any party.
10. 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.
11. NOTICES
Any notices or other communication 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 11). 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.
12. 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.
13. BINDING EFFECT
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 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
Employee, his heirs, executors, and administrators, and shall be binding
upon and inure to the benefit of the Company and its successors and
assigns.
14. 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.
15. 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, President
Exhibit 11
Computation of Net Earnings (Loss) per share
PRIMARY FULLY DILUTED
Year Ended Year Ended
December 31, December 31,
____________________________________ ____________________________________
1996 1995 1994 1996 1995 1994
__________ ____________ __________ __________ ___________ __________
Net (loss) earnings $4,892,826 $(1,595,835) $1,890,279 $4,892,826 $(1,595,835) $1,890,279
Less: Preferred Stock dividend (54,273) (162,137) (187,981) 0 (162,137) 0
___________ ____________ ___________ __________ ____________ __________
Net earnings (loss) available to
common shareholders $4,838,553 $(1,757,972) $1,702,298 $4,892,826 $(1,757,972) $1,890,279
___________ ____________ ___________ __________ ____________ __________
___________ ____________ ___________ __________ ____________ __________
Weighted average common shares
outstanding 8,862,217 8,281,194 7,632,230 8,862,217 8,281,194 7,632,230
Weighted average common share
equivalents:
Options and warrants 756,244 0 269,519 860,935 0 426,734
Preferred stock 0 0 0 138,950 0 661,851
___________ ____________ ___________ __________ ____________ __________
Weighted average common and
common share equivalents 9,618,461 8,281,194 7,901,749 9,862,102 8,281,194 8,720,815
___________ ____________ ___________ __________ ____________ __________
___________ ____________ ___________ __________ ____________ __________
Net (loss) earnings per share $0.50 $(0.21) $0.22 $0.50 $(0.21) $0.22
___________ ____________ ___________ __________ ____________ __________
___________ ____________ ___________ __________ ____________ __________
Due to the loss in 1995, common stock equivalents and the conversion of preferred shares are antidilutive
and are not included in the primary and fully diluted calculation for the year ended December 31, 1995.
fully diluted net loss per share in 1995 includes the reduction for preferred stock dividends.
In 1996, for primary earnings per share, the Company included preferred stock dividends in its net earnings
available to common shareholders during the portion of the year the preferred stock was outstanding.
Exhibit 23
Consent of Independent Auditors
_______________________________
The Board of Directors
Excel Technology, Inc.
and Subsidiaries
We consent to incorporation by reference in the registration statements
on Form S-8 (No. 33-71122) and Forms S-3 (No.33-70118 and 333-4523) of
Excel Technology, Inc. and subsidiaries of our report dated January 28,
1997, relating to the consolidated balance sheets of Excel Technology,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash
flows and related schedule for the three years ended December 31, 1996,
which report appears in the December 31, 1996 annual report on Form 10-K
of Excel Technology, Inc. and subsidiaries.
KPMG PEAT MARWICK LLP
Jericho, New York
March 21, 1997